Level 3 gains on BT rumors; Nextel keeps firming; new Vail Resorts deal on slate

By Paul Deckelman and Paul A. Harris

New York, Nov. 14 - Level 3 Communications Inc. bonds were up Wednesday, amid market rumors the telecommunications carrier was in talks for some sort of collaboration with British Telecom. Another U.S. communications company, Nextel, continued to firm.

In the primary market, another add-on popped into play, this time from Vail Resorts, Inc. while price guidance emerged on the big Allied Waste offering expected to price Thursday.

Vail Resorts' offering is a further $100 million of its 8¾% notes due May 15, 2009.

The deal, with Deutsche Banc Alex. Brown and Banc of America Securities running the books, is on the road at present and is expected to price Friday.

Although price talk appeared to be unavailable late in Wednesday's session, sources speculated that execution of the Vail add-on would likely reflect pricings of last week's add-ons: IMC Global ($100 million), ISP Chemco ($100 million) and Resolution Performance ($75 million).

"Those add-ons priced right on top of the existing price," one investment banker said. "So my safe guess would be that it will price around there."

A syndicate source who sat in on the company's conference call said that the Vail Resorts managers had reported that the company has been looking at the high yield market for some time, deciding whether to access it. It also has examined various options, such as whether to utilize floating-rate or fixed-rate debt and senior notes or senior subordinated notes.

"It seems right now that what's attractive to them is doing a senior sub note add on, because it provides more flexibility," the source said.

Late Wednesday, Vail's outstanding 8¾% notes were trading at 97 bid, one trader said.

Also in the primary, price talk of 8 3/8% area emerged on Allied Waste North America, Inc.'s $500 million of seven-year notes (Ba3/BB-). The deal, via joint bookrunners J.P Morgan and Salomon Smith Barney, is scheduled to price Thursday afternoon.

In the secondary market, a trader noted that Level 3's benchmark 9 1/8% senior notes due 2008 had moved up at least two to three points on the session to end around 54 bid, citing news that the Colorado-based telecommer had been in talks with British Telecom.

Communications Week International, an industry trade magazine, carried a story on its website that the giant U.K.-based telecom service provider "is quietly hunting for a new partner to replace AT&T in the United States," holding preliminary discussions with network-based operators who might support its services to corporate users in the U.S., which would enable BT to continue to provide managed network services on this side of the pond.

The article named Level 3 as "one operator understood to have held preliminary talks with BT."

The CWI story indicated that some kind of an arrangement between the two companies would play right into Level 3's recently adjusted focus on big corporate accounts as its preferred customers, rather than financially challenged start-up Internet service providers, which previously accounted for a key portion of its customer base.

The CWI article made no mention of any possible buyout of the U.S. company by the London-based Leviathan, but that didn't stop posters on investment-oriented Internet message boards from jumping to the conclusion that some kind of buyout might be in the works, particularly given that its stock was up $1.83, or a full 33.33% on the session, to end at $7.32 on the Nasdaq. Even with the hefty percentage gain, it trades at just a fraction of its 52-week peak of $50.25, seen in late January. Wednesday's volume of 16 million shares was about three times the usual daily handle.

Level 3's zero-coupon/11% discount notes were also "a couple of points higher," at around 56 bid/58 offered, a trader said.

Market participants saw strength in the overall telecom sector Wednesday, as another well-known name, Nextel Communications Inc., continued to climb. The Reston, Va.-based wireless telecom operator's benchmark 9 3/8% senior notes due 2009, which on Tuesday had floated up to 79.375 from prior levels around 76, tacked on another several points Wednesday to close around 82 bid.

"They saw a little excitement, with the whole sector," one trader remarked. Its zero-coupon/10.65% notes likewise firmed to around the 75 level. "They've been slowly grinding up."

He said that while the overall sector (badly beaten down over a period of months) appeared well-bid-for, it was a case of "picking and choosing, depending. For instance, your Globalstars are still pretty crummy. Certain names are going to be where they are, but other names did move up a little bit."

As far as Globalstar was concerned, the troubled satellite telecommunications company's bonds continued to languish in the 7-9 bid range, even as the company, 41% owned by Loral Space and Communications Ltd. indicated that it would file a voluntary, pre-packaged Chapter 11 case to effect a restructuring plan it is working on. Such a filing would surprise exactly nobody in the market, given the problems Globalstar has had, really dating back even before its service launch last year, and those of rival satellite telecom services eventually forced to restructure through the bankruptcy courts, such as Iridium and ICO Global.

Like many recent telecom industry bankruptcy court reorganizations, this one will involve debtholders getting equity in the revamped company, while current shareholders are for the most part left out in the cold.

One telecommer going through such a process is Exodus Communications, which issued a statement this week indicating that it was likely that its current shares would have no value, even if it is successful in finding a buyer or investors. Exodus' debt was up about three points on the day, to 24 bid.

Global Crossing bonds were being quoted bid in the 15-17 area early on, somewhat higher than previous levels, but by the end of the day, "no one was showing paper," a trader said, as players awaited a decision on whether the Hamilton, Bermuda-based global long-haul carrier would make the scheduled Nov. 15 interest payment on its bonds or whether it would opt to conserve cash and not make the payment. There was no word either way as trading wound down on Wednesday.

Meanwhile, the company had announced late Tuesday that it lost a whopping $3.3 billion ($3.84 per share) in the third quarter ended Sept. 30, versus a year-earlier loss of $544 million (69 cents a share). But included in the latest loss is a $2.08 billion charge from the writedown of the value of investments in companies including Exodus Communications. Without those charges, Global Crossing said, it lost 62 cents a share, not only improving from a year ago, but also beating analysts' expectations of a loss of 86 cents per share.

Global Crossing also said that it would cut another 1,200 jobs; together with 2,000 job cuts announced in August, the planned reductions account for more than a quarter of the company's pre-reduction work force, and will leave it with about 8,000 employees.

Outside of the telecom sector, Kmart Corp. debt "was a little bit better, up a couple of points," said a trader who quoted its 9 3/8% notes at 88.5 bid/89.5 offered and its 9 7/8% paper at 85.5 bid/86.5 offered. Another trader saw the Troy, Mich.-based discounter's 8¾% notes "holding in pretty well" at around 94 bid/96.

In the airline sector, United Airlines 9% notes due 2003 were being quoted at 67.5 bid, well below recent levels around 75.

End

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