Global Crossing falls on liquidity, covenant concerns; Lucent down on negative guidance

By Paul Deckelman and Paul A. Harris

New York, Dec. 13 - Battered telecommunications operator Global Crossing Ltd.'s already deeply distressed bonds fell sharply Thursday, on a published report that the international fiber optic network operator's banks might consider it in violation of its lending agreements. Another telecom-linked issue, Lucent Technologies, fell several points after it released guidance for the upcoming quarter which the markets viewed negatively.

In the primary market, meantime, attention was as much focused on what didn't happen as what did. There was still no news on an anticipated mega-deal for Echostar Communications Corp. and there were still no terms late in the session on the expected offering from Pegasus Satellite Communications, Inc.

However two deals priced and Unisys Corp. unveiled a drive-by.

Back in the secondary market, the problems of the telecommunications sector grabbed the spotlight away from the energy trading and power plant sphere, which had recently monopolized the attentions of market players shocked by the swift slide into oblivion of Enron Corp. and the possible effects which this might have on other companies operating in that business.

Global Crossing Holdings Ltd. (the bond-issuing arm of Global Crossing) fell steeply as The Wall Street Journal's influential "Heard on The Street" column warned that investors were nervous about the Bermuda-based telecom operator's liquidity status. It suggested bankruptcy was a distinct possibility for the once high-flying concern, whose bonds had only a few months ago traded around par and whose stock was above $25.

In Thursday's dealings, Global Crossing's shares lost fully a third of their remaining value, down 38 cents to 74 cents on the New York Stock Exchange.

The company's bonds, meanwhile, "got decimated," a trader declared. He saw Global Crossing's bonds trading as low as 6 cents on the dollar before going home bid in the 8-9 area. Activity in the troubled credit was strong, he said, with "a lot of bonds changing hands."

Another trader agreed that "they did take their lumps," quoting the senior debt in the 8 to 8.5 bid area, well down from prior levels in the mid-to-high teens. "Everyone thinks they're going to file," he said.

There was "quite a bit of action," he said., "The guys who were buying them in the high teens, who knows what they're doing now, whether they're doubling up on them or getting out." He said his own shop wasn't buying any of the bonds right now, having gotten out of its positions earlier. "We're just watching right now."

The slide in Global Crossing - which for so long had seemed to be the cream of the crop of otherwise deteriorating high yield credits - is symptomatic of the sharp comedown the whole once-golden sector has suffered, due to its own problems with excessive debt and perhaps unrealistic business plans, as well as the overall slowdown in the economy, particularly in the wake of the Sept. 11 terrorist attacks on the U.S. and the economic tailspin this has produced. That's even affected even high grade telecom companies, which have likewise cut back on their earnings expectations and capital spending budgets.

That's bad news for the companies which sell equipment to the operating companies - and perhaps nowhere more keenly felt than at Lucent Technologies Inc., which already was on shaky financial ground, even before the current economic slowdown.

Lucent released revenue and earnings projections for current first fiscal quarter, which ends Dec. 31, as well as guidance for the following quarter. Although the Murray Hill, N.J.-based equipment maker tried to put as positive a face on its announcement as possible, the fact remains that first-quarter revenues will be well down from fiscal 2001 fourth-quarter numbers. It also projected a larger operating loss for the quarter than analysts had predicted, blaming the overall economic slowdown.

Lucent's paper was seen down about two to three points across the board Thursday, with its 6.45% debentures due 2029 falling to 69 from 71; its 5½% notes due 2008 were likewise down a deuce to 77 bid.

News of the impending junk bond offering by Echostar resulted in brisk activity in its existing bonds, with over $40.5 million of the company's 9 3/8% notes due 2009 turned over, according to the FIPS high yield market pricing service. The bonds gyrated between a low of 100.5 and a high of 104.375, before coming to rest down a point-and-a-half, at 103 bid.

But the most active issue, as tracked by FIPS, was Calpine Corp.'s 8½% notes due 2011, which ranged between a low of 80 bid and a high of 88. Some $229 million of the bonds changed hands.

Calpine's 8 5/8% notes due 2010 were quoted at another desk down two points on the session at 79 bid.

The San Jose, Calif.-based power generating and energy trading company's bonds and stock have been swinging back and forth wildly all this week, although the negative tide had appeared stemmed on Wednesday on the news Calpine had bought back a big chunk of convertibles which are to become putable in April, and its BB+ ratings were affirmed by Standard & Poor's.

But showing that the name remains volatile, Calpine's paper "traded up and then traded back down" Thursday, a distressed-debt trader opined, quoting most of their senior bonds as having pushed as high as the lower 80s before trading back down into the 70s.

Perhaps setting the stage for further volatility and price movement, Moody's Investors Service said after the market closed on Thursday that it had put the Calpine debt on watch for a possible downgrade, which would bring its Baa3 rating down to junk levels and thus return the currently split-rated Calpine to being a fully junk issue. That in turn could force portfolios which specialize in borderline investment-grade "crossover" credits but which would shy away from straight junk to dump their Calpine holdings.

On the equity side, Calpine shares, which had finished up 14 cents in Thursday's New York Stock Exchange Trading, to $16.05, had reportedly dropped $2.55 in after-hours dealings following the Moody's announcement, to $13.50.

Calpine has been whipsawing around on concerns the company might go the way of the troubled and now-bankrupt energy trader Enron Corp. Those fears grew legs with a weekend piece in The New York Times likening the two companies, although Calpine executives hotly denied any analogy in two separate conference calls this week.

Meanwhile, the distressed-debt trader said, Enron's own bonds "headed back down," with its zero-coupon LYONs (liquid yield option notes) dropping from around 15-16 to the 11-12 bid area. Those bonds had made their debut in July priced at 66 bid. Meanwhile, Enron's senior cash-pay notes, recently bid around 20-21, retreated back to the 17-19 area.

A market observer said that the Enron situation - and the consequent fall from grace which it had caused for such well-regarded energy-related names such as Calpine and another power plant company, AES Corp. - was causing some nervousness in the (currently) high-grade rated gas pipeline sector, since Enron also was active in this business as well as energy trading and some investors saw the company's ruin as a cautionary tale, especially with the weakening of oil and gas prices over the last few months.

"There was frantic action Thursday in El Paso Corp.," he noted. "It was fallout from the Enron thing, but they bounced back again quickly. They widened out about 25 basis points, but then came back up to end essentially unchanged."

He continued that "the same thing happened with Williams Cos., all of the pipeline-type companies, really, they went the same way, going down and then coming back up as the buyers stepped in. There is a little concern with the pipeline companies because of the Enron thing."

He quoted them trading about 300 to 315 basis points over Treasuries, "still for the grade of the issues, that's a little bit on the cheap side," although he said that the Enron concerns have been largely factored into their spread (i.e. price) movements over the past week or so.

In the primary, rather than focusing on what happened, conversations with market players Thursday centered on what did NOT happen: satellite TV companies Pegasus and Echostar.

Talk ran rampant throughout Thursday morning that Echostar would announce $1 billion of new issuance, perhaps more, via bookrunners Deutsche Banc Alex. Brown and Credit Suisse First Boston. Rumors of the deal began circulating almost a week ago.

By mid-afternoon Thursday, sources were saying that EchoStar would not be coming after all that day. By late afternoon two sell-siders told Prospect News that the deal was expected to emerge Friday.

Late in Thursday's session terms on a significantly altered Pegasus deal had not appeared, according to a syndicate source. The source said that it had been downsized from $250 million to $175 million. And in place of the originally announced 11¼% area price talk the deal was being talked Thursday afternoon with an 11¼% coupon but to price at a discount for a yield of 12%-12¼%.

Some on the sell-side speculated that Pegasus's difficulties in taking wing were tied to the emergence of EchoStar's mammoth offering waiting in the wings. Others said that EchoStar would certainly be paying attention to Pegasus, attempting to gauge the market's receptivity to another satellite TV credit.

One source from the Pegasus syndicate told Prospect News that Pegasus would certainly suffer from its B3/CCC+ ratings, announced by rating agencies over the last two sessions.

"The Moody's rating didn't help," the source said. "Fortunately, Moody's at least gave them a B3. The thing that is hurting them is S&P's CCC+. Whenever you have 'the hooks' on a deal people get a little bit nervous."

What did happen on the primary, Thursday:

--Unisys Corp. announced $150 million three-year notes via Salomon Smith Barney to price Friday;

--Terms emerged on Senior Housing Properties $200 million of 10-year notes which priced to yield 8 ¾%;

--Mandalay Resort Group priced an upsized offering of $300 million eight-year notes to yield 9½%;

--Price talk of 9-9¼% was heard on The Great Atlantic & Pacific Tea Co., Inc. $225 million 10-year notes via Lehman Brothers; and

--Price talk of 11% area came out on IPC Acquisition Corp.'s $150 million of notes due 2009.

In addition to A&P, IPC Acquisition, Unisys and Pegasus, Friday's business includes United Surgical Partners, Inc. with $150 million, Ainsworth Lumber Co. with $95 million and Gray Communications Systems with $180 million, for a total of $1.15 billion.

End

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