AES continues slide; Nextel off as global unit to take charge

By Paul Deckelman and Paul Harris

New York, Feb. 19 - AES Corp. sought to allay financial market fears about the company's situation Tuesday, but only seemed to pour more gasoline onto the fire. Wireless bellwether Nextel Communications Inc. was lower after its wholly owned international unit said it might take a charge of $1 to $2 billion.

In the primary market, new details emerged about upcoming issues from RFS Partnership LP and Concordia Bus AB although generally the calm that held sway late in the week of Feb. 11 persisted as players returned from the three-day weekend. Prospect News heard no new dollar-denominated deals announced Tuesday.

On the eastern side of the Atlantic, however, new business emerged from Concordia Bus AB. The Stockholm-based company plans to bring a €50 million add-on to its 11% senior subordinated notes due Feb. 15, 2010 (B3/B-), via sole bookrunner Goldman Sachs & Co.

The roadshow, slated for Europe and the U.K. only, is set for Wednesday and Thursday, with pricing expected Friday.

Also Tuesday, official price talk of 9¾%-10% came out on RFS Partnership, LP's offering of $125 million senior notes due 2012. Credit Suisse First Boston and Banc of America Securities are joint bookrunners.

The Memphis, Tenn.-based REIT, which priced one million common shares at $12.65 per share last Friday, intends to use the proceeds to redeem commercial mortgage notes and to repay bank debt. Check out time is late Thursday afternoon.

In secondary trading AES bonds were heard lower for a third consecutive session and its shares were absolutely massacred, after the Arlington, Va.-based independent global power producer said before the market opened that it would sell assets to raise between $1 billion and $1.5 billion, and would cut capital spending, so it would not have to tap the volatile capital markets again the year. Company executives reiterated that strategy on a morning conference call, but investment-oriented Internet bulletin boards buzzed with talk that management had sounded shaky and uncertain of what it planned to do to turn things around, and may have done more harm than good on the call.

AES Shares - which on Friday had swooned $2.50 (26.32%) in heavy New York Stock Exchange dealings - actually briefly moved up early in the day to $7.39 from Friday's $7 close, but it was all downhill from there, as the shares cascaded down through the psychologically potent $5 level in the final hour of trading to finish at $4.75, down $2.25 (32.14%). Volume was 21 million shares, more than five times the usual turnover.

On the bond side, AES "seemed to be the name in the news today," a trader said, quoting the company's 9½% notes due 2009 as low as 53 bid. "They were way down after the conference call," he added, noting that the stock had plunged to a new 52-week low. "It was the story of the day."

Another trader saw the 9½% notes quoted at 57 bid/60 offered, down at least five points on the day, and pegged the company's 8% notes due 2008 likewise down five points, at 53.5 bid/55.875 offered.

Elsewhere, AES' 8 3/8% notes due 2007 were quoted as having fallen as low as 40 bid from prior levels around 54, before closing at around 45 bid; its 10¼% notes were heard down nine points at 65, while its 9 3/8 paper due 2010 off six points, at 58 bid. AES' 8 7/8% notes edged as far down as 57.5 from prior levels in the mid-60s.

AES said that the assets it would put up for sale would include some merchant and trading operations in New York, California and the U.K. It is also shopping Cilcorp, an integrated utility in Illinois and a minority interest in Ipalco, an integrated utility in Indiana, as well as a stake in Itabo, a power facility in the Dominican Republic, and stakes in other unspecified plants.

AES further said that it would scale back exposure to markets in Latin America, where political and economic uncertainty have played havoc with the currencies of several countries, most notably Venezuela's. The tumble which nation's bolivar took against the dollar was seen as the catalyst for AES's problems last week, since the company's Venezuela-based CA La Electridad de Caracas utility is a major cash-flow generator for AES.

Market observers said the company may face a hard sell if it tries to market any Latin American assets, given the troubles seen in that region of the world in such nations as Venezuela and Argentina.

Outside of AES' own very real problems, including too much debt and exposure to economic problems in unstable countries, AES is perceived in some quarter of the market as continuing to suffer from "Enronitis," given that both companies operate in that same energy trading/generating sphere. Enron, of course, is currently undergoing restructuring in the bankruptcy courts, its bonds knocked down to deeply distressed levels around 20 cents on the dollar and below.

Another energy player hurt by the same economic fundamentals as AES and trading in the shadow of Enron is AES rival Calpine Corp.; a trader saw the San Jose, Calif.-based independent power generating company's 8½% notes due 2011 down two points Tuesday, at 73 bid/74 offered, and its 8½% notes due 2008 trading as low as 71.5 bid/73.5 offered. Noting the recent weakness in the credit - ever since Calpine indicated in a Securities and Exchange Commission filing that it had not yet closed on a $1 billion seven-bank financing facility it was supposed to have completed last month - the trader opined that "people are waiting for them to confirm that they actually got that facility. They can say all they want that they're going to get it, but until people actually see it in writing, the bonds won't react" (to the upside) he said.

Away from the power generators, Nextel Communications debt eased, in line with a sharp fall in its shares, after the Reston, Va.-based Number-Five U.S. wireless operator warned that its wholly owned NII Holdings Inc. unit (the former Nextel International) will take a pretax non-cash restructuring charge of between $1 billion and $2 billion for 2001.

Nextel was "lower, lower, lower - that was the theme of the day," a trader said, quoting its benchmark 9 3/8% senior notes due 2009 down three points to 58 bid, while its 10.65% due 2007 was down a few points at 58 bid/59 offered. At another desk, the latter issue was heard as low as 54 bid during the session. Nextel's 9½% notes were down three points, to 58 bid. NII's own several series of debt remained quoted way down at levels around seven or eight cents on the dollar.

On the stock side, Nextel shares at one point touched an all-time intraday low of $3.41 before recovering just a little to end at $3.55 - still down $1.31 (26.95%). Volume of 74 million shares - tops on the Nasdaq - was five times the usual daily turnover.

A trader said that besides the bad news about NII, Nextel also got clobbered in the wake of a weekend article in Barron's which expressed pessimism about the whole wireless sector, which it said would face daunting challenges in 2002 including high marketing costs, large customer turnover and a lack of pricing power.

On the upside, the trader said United Airlines 10.67% notes due 2004 opened around five points higher on the session, at 70 bid/70 3/8 offered, after parent UAL Corp. announced a tentative contract agreement had been reached with the Machinists' union, heading off a threatened strike which could have pushed the Chicago-based air carrier - still reeling from the effects of Sept. 11, when two of its planes were destroyed will all aboard - into bankruptcy. But while another trader said the UAL bonds were "pretty much bid without (offer levels), I don't see it up points." On the stock side, UAL's shares soared $1.59 (14%) to $12.95 on the NYSE. Volume of 7.9 million shares was over four times the usual activity.

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