Lucent, Nortel bonds pull back; Allbritton prices 10-year notes

By Paul Deckelman and Paul A. Harris

New York, Dec. 6 - Bonds of Luecnt Technologies Inc. and rival telecommunications equipment maker Nortel Networks Inc. were each down around four points on Friday, although market participants saw no fresh negative news on either company to explain away the pullbacks.

In the primary sector, broadcaster Allbritton Communications Co. tuned in to the market's frequency and brought in a quickly shopped $275 million offering of 10-year notes.

Also in the quietest day of the active post-Thanksgiving week, SPX Corp. announced that it would present a new deal to investors during the week of Dec. 9.

"We've seen the volume we expected to see so far," one sell-side official told Prospect News late in Friday's session.

"A lot of cash has come into the market, and that has set the stage for a number of companies that want to get deals done by the end of the year.

"But I'm not certain that it's going to happen for all of them," the official added. "There is a process to go through and whether that means these companies will get it done very soon or have to wait until next year remains to be seen.

"I believe that if conditions hold there will be a fair amount of activity in January."

Returning to the subject of funds flows, the sell-sider commented that with the $600.8 million AMG Data Service reported flowing into high-yield mutual funds for the week ending Dec. 4 this official's institution puts the tally for the eight consecutive weeks of inflows at approximately $4.5 billion.

Tallying the total inflows based upon the funds that report on a weekly basis to the Arcata Calif. financial information service, this source added, turns up a year-to-date total of $7.6 billion of inflows into high-yield mutual funds.

However, this official continued, when the net inflows from funds that report to AMG Data Services on a monthly basis are tallied, the year-to-date figure totals just over $11 billion, topping the $10.4 billion at the same point in 2001.

In primary market activity Friday, Washington, D.C.-based television company Allbritton Communications priced a drive-by offering of $275 million of 10-year senior subordinated notes (B3/B-). The deal came at par to yield 7¾% - spot on to the 7¾% area price talk - via Deutsche Bank Securities Inc. The company will use the proceeds to take out its $271.25 million of 9¾% senior subordinated notes due Nov. 30, 2007.

Also on Friday SPX, a Charlotte, N.C. firm that specializes in technical products and systems, industrial products and services, and flow technology, unveiled an offering of $250 million of 10-year senior notes (existing convertible notes rated Ba3/BB-) expected to price Friday via a bookrunning team a market source said would be led by JP Morgan.

Finally there was a revival story on Friday. Legrand, SA's deal is back in the market as business that figures to be transacted during the first quarter of 2003.

Following a favorable ruling on Oct. 22, which annulled the European Commission's veto of the planned merger between Schneider Electric and Legrand, Schneider Electric plans to proceed with the sale of Legrand to Kohlberg Kravis Roberts & Co. LP (KKR) and Wendel Investissement, according to documents released by the company.

To finance the LBO, Legrand will sell €600 million equivalent of notes due 2012 in euro and dollar tranches via joint bookrunners Credit Suisse First Boston and Lehman Brothers, and co-manager RBS.

When Allbritton's new notes were freed for secondary dealings, they initially traded as high as 100.25 bid from their earlier par issue price, but fell back to end at 99.625 bid/99.875 offered.

Meanwhile, Ball Corp.'s new 6 7/8% senior notes due 2012, which had priced Thursday at par and then had firmed slightly to 100.25 bid/100.375 offered in tentative initial secondary dealings, firmed slightly again Friday to 100.5 bid.

Back among established issues, Nortel and Lucent "pretty much collapsed right off the bat," a trader said, although he had seen no fresh negative news to explain why they "got murdered."

Lucent's 7¼% notes due 2006 dropped "immediately " to 59 bid from 63 bid/64 offered previously when trading opened on Friday, and pretty much stayed there. He meanwhile saw Nortel's 6 1/8% notes due 2006, which had ended Thursday around 64 bid/65 offered, as having fallen to 61 bid before recovering slightly to finish at 62.5 bid/64.5 offered, "again on no news."

Another trader exclaimed "Wow!" when he saw the magnitude of the Lucent drop, noting that the Murray Hill, N.J.-based telecom equipment giant's bonds had fallen a total of 10 points over three sessions, and attributed the pullback to normal financial market corrective moves. "We got way overbought," he said.

Yet a third trader agreed that Lucent was "definitely weaker"; in addition to the benchmark 7¼% notes, "all of them were pretty weak and the others were down by about the same amount." He also saw Nortel's 6 1/8% notes due 2006 62 bid/64 offered - down about six points on the week.

Elsewhere in the technology sector, Amkor Technology Corp.'s 9¼% notes due 2006 were seen having fallen 3½ points to end at 91.5 bid, while Xerox Corp.'s 9¾% notes due 2009 were a point down at 96.5 bid.

With New York and most other East Coast business centers digging themselves out after Thursday's big snowstorm, trading was on the sparse side. "I spoke to 10 people," one market observer said, "and everybody said it was quiet, dead. Your snowbirds went home early and nobody wanted to do anything."

A trader said that despite having seen a nearly $601 million inflow to high yield mutual funds (considered a key barometer to overall junk market liquidity trends, "the market did not start off well. You would have thought that it would have been stronger."

The first hour or so of trading, he said "was pretty sloppy. Then things didn't really get better - but they didn't get any worse either".

Junk players were said to have taken their cures, at least initially, from the stock market, which fell as the Labor Department reported that the nation's unemployment rate had risen to 6% in November from October's 5.7% - economists had been looking for a 5.8% jobless rate - while the number of new non-farm payroll jobs fell by 40,000. Economists had projected a modest gain of about 30,000.

But with the latest numbers appearing to indicate that the recent run of better economic data might be slowing down, stocks turned around as Washington appeared to move to do something about the economy. Treasury Secretary Paul O'Neill resigned, as did economic advisor Lawrence Lindsay.

"Right after the numbers came out, [President] Bush folded his hand" by ousting O'Neill and Lindsay," a trader said. "He wants a new hand, a clean slate."

While the Administration personnel shake-up gave stocks a shot in the arm, the junk bond market reacted more cautiously, merely stabilizing at slightly lower levels.

"Calpine was weaker. Lucent was weaker. Level 3 was weaker. Just about everything gave back a little [off recent gains]," the trader said. Calpine Corp.'s 8 5/8% notes due 2010 were being quoted a point lower, at 41.5 bid. Its 8½% notes due 2008 were heard to be in the 44 area.

Elsewhere, the bonds of troubled United Airlines seemed to stabilize at lower levels after having lost altitude Thursday in the wake of the federal government's rejection of its $1.8 billion loan guarantee request, a decision that is expected to lead UAL to the bankruptcy courts.

United's recently installed CEO, Glenn Tilton - who on Thursday was saying that a Chapter 11 filing was by no means a foregone conclusion - seemed to edge closer to reality on Friday, saying that bankruptcy was now "a more likely outcome." It's expected that United could file as early as Sunday, once it gets all of its ducks in a row on a proposed $1.5 billion debtor-in-possession credit facility.

A trader said that the carrier's 10.67% notes due 2004 and its other bonds "kind of compressed in price" somewhere in a 9.5-12.5 context, with all of the issues trading at essentially the same price, regardless of coupon or maturity - a signal that the market anticipates a bankruptcy filing, sooner rather than later.

"There were a lot of bid-wanteds, but not much actual trading [in UAL]."

The trader said that "a lot of people panicked - there were a lot of bid-wanteds," especially on United's enhanced equipment trust certificates - bonds backed by liens on the company's planes. "Not a lot of people can really value that stuff, so it's tough to get your hands around it, so people are kind of just struggling."

Another trader saw the UAL paper, "every deal," in the 11.5% bid/12.5% offered area, which he said was up a point from Thursday. As for other airline debt, he quoted Northwest Airlines' 9 7/8% notes due 2007 around 63 bid/65 offered, while Delta Airlines' 7.90% notes due 2009 were 68 bid/70 offered, both unchanged on the day.

At another desk, Delta's 6.65% notes due 2007 were "about unchanged" at 79 bid. Continental Airlines 8% notes due 2005 were meanwhile down two points on the session to end at 52.5.

Back on the ground, Charter Communications Holdings LLC's 8 5/8% notes due 2009 were nearly two points better at 51.5 bid. But bankrupt telecommer WorldCom Inc.'s bonds were being quoted around the 24 level, off from recent 26ish levels. Bonds of WorldCom's MCI unit, such as its 6.95% notes due 2006 were hanging in at levels in the lower 50s.

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