Nextel seen next with $1 billion note sale; Reddy Ice prices; $1.22 billion junk fund inflows in week

By Paul Deckelman and Paul A. Harris

New York, July 17 - After several recent new deals topping $1 billion - most recently, from Calpine Corp. - and several announcements of coming billion-dollar blockbusters (Charter Communications Holdings LLC and Dynegy Inc.), Nextel Communications Inc. is expected to be the next issuer to bring a mega-deal to market, as it unveiled plans Thursday for a mammoth note issue, with pricing seen possible as soon as Tuesday.

Also Thursday, Reddy Ice Inc. sold slightly more than $150 million of new eight-year notes - but far from having a chilling effect on the market, the bonds were warmly received and firmed solidly in initial secondary dealings.

And a liquidity-fueled junk market so hospitable to giant-sized deals gave every indication late Thursday that the welcome mat would remain out for would-be borrowers, large and small, as market participants familiar with the weekly mutual fund flow statistics compiled by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday a net inflow for the week of $1.22 billion was seen.

It was the second consecutive week in which more money flowed into the funds than left them, following last week's more modest $223.8 million inflow.

But the real story lies in the year-to-date totals; the latest week's huge infusion of cash into the funds (which are regarded by many market participants as a reliable barometer of overall junk market liquidity trends) swells the cumulative year-to-date net inflow total to $17.312 billion, according to a Prospect News analysis of the AMG figures. That figure excludes distributions and counts only those funds which report on a weekly basis.

All told, according to the Prospect News analysis, inflows have now been recorded in 20 out of the 28 weeks since the beginning of the year - and giant-sized inflows of more than $1 billion have been seen in fully 11 of those 20 weeks, with inflows of approaching or over $900 million in three additional weeks. The steady surge of new money into the funds - frequently in billion-dollar-plus dollops - has been only sporadically interrupted here and there by a week or two of generally modest outflows.

Analysts credit the rush of new money into the funds (and by extension, into the market from other sources besides the funds as well) with being the catalyst for both a sharp upturn in trading for existing bonds, and the continued red-hot primary, which has tempted issuers such as Nextel to plans to come to market with billion-dollar bond offerings

Among those who commented on the inflow, one source told Prospect News that news of yet another sizable portion of cash moving into junk bonds came as something of a surprise.

"Most people have been feeling a little softness," this sell-side official said, adding that an inflow had been anticipated - but nowhere near as substantial as the one reported Thursday.

"The Calpine notes, which priced last week, have been down," the source added. "Investor demand has not been as strong, which we see as perhaps a sign that the underwriters have maybe been pushing a little too hard and that deals could be coming a little too tight."

The one deal that priced during Thursday's primary market session did come tight - that is to say, tighter than price talk

Reddy Ice Group sold $150.93 million proceeds of 8 7/8% eight-year senior subordinated notes (B3/B-) at 99.297 to yield 9%, inside of the 9¼% area price talk. Credit Suisse First Boston, Bear Stearns & Co. and CIBC World Markets ran the Dallas ice-maker's deal.

Also on Thursday four prospective issuers topped the high yield horizon line.

Most conspicuous was Nextel Communications which will commence what is expected to be a two-day regime of marketing on Monday for a public offering of $1 billion of 12-year non-call-five senior serial redeemable notes. Pricing is expected to take place Tuesday, with Bear Stearns and Goldman Sachs running the books on the Reston, Va. wireless communications company's deal.

Hilcorp Energy Co. also starts its roadshow Monday and will continue marketing through July 31 an offering of $350 million seven-year senior notes. Deutsche Bank Securities and Lehman Brothers are running the books for the deal from the privately-held Texas corporation that acquires and exploits oil and gas properties.

Thursday's session also came complete with a revival story, as New York City-based supermarket operator Gristede's Foods, Inc. was heard to be headed toward the high yield check out lane with a notes and warrants offering: 150,000 units comprised of seven-year notes to be sold with warrants for common stock, with proceeds expected to amount to approximately $150 million.

Jefferies & Co. is the bookrunner.

Gristede's pulled an offering of $175 million 10-year senior notes (B2/B+) via Deutsche Bank Securities Inc. and Jefferies on July 17, 2002, citing market conditions. Price talk on that pulled deal was 11%-11¼%. At the time of the postponement an informed source told Prospect News that the company intended to seek alternative means to finance its acquisition of Kings Supermarkets.

Also topping the horizon during Thursday's session was Seabulk International, Inc. The Fort Lauderdale, Fla.-based marine support and transportation services provider announced that it intends to sell $150 million of 10-year senior notes, with proceeds going to repay a portion of the existing $180 million credit facility. No timing or syndicate names were disclosed in Seabulk's Thursday press release.

Meanwhile on Thursday price talk of 10 ¾%-11% was heard on IMC Global Inc.'s $310 million of 10-year senior unsecured notes (B1/B+/B+), which are expected to price on Friday, via Goldman Sachs and JP Morgan.

And price talk of 8 ¾%-9% emerged Thursday on Westlake Chemical Corp.'s $400 million of eight-year senior notes (Ba3/B+), which are expected to price on Monday afternoon. Credit Suisse First Boston, Banc of America Securities, Deutsche Bank Securities and JP Morgan are joint bookrunners Houston petrochemical company's notes offering.

When the new Reddy Ice bonds were freed for secondary dealings, they surged to a cool 103.25 bid before finally settling in at bid levels around 103.

"It was a very successful deal," one trader said, "with a lot of decent buying, add-on buying on the back side."

Also remaining solidly on the upside among the recently priced offerings was Jacuzzi Brands Inc.'s 9 5/8% senior secured notes due 2010, which continue to float along at 104.25 bid, 105.25 offered. Merisant Co.'s 9½% senior subordinated notes due 2013 remained at 103.5 bid, 104.5 offered while Wackenhut Corrections Corp.'s new 8¼% senior notes due 2013 remained locked in a range around 103.5 bid, 105 offered.

Back among the established issues, not much movement was seen in Nextel's existing bonds, with the news of the upcoming giant bond issue offsetting the Reston Va.-based wireless operator's announcement of a second-quarter profit, still a relative rarity in the high yield telecom sector.

Nextel's 9 3/8% notes due 2009, its benchmark issue, were quoted at 107.5 bid, 107.75 offered, unchanged on the day, while its 10.65% notes due 2007 were up a quarter point at 103.5.

A market observer quoted Nextel's 9.95% notes due 2008 unchanged at 105 and saw the 9 3/8s up half a point to 107.5, but said the movement was "not really significant."

Nextel reported a net income after preferred dividends of $281 million (27 cents a share) - but while that was down from $325 million (37 cents a share) a year ago, it topped the 24 cents a share that Wall Street was generally looking for. It should also be pointed out that the better year-ago profit figure was largely attributable to a one-time $264 million gain from the retirement of preferred stock.

Nextel also raised its full-year guidance, predicting that it would earn $1 per share or more, up from its prior projection of 75 cents per share or more, and it raised its estimate of likely total new subscribers by the year's end to 1.9 million from 1.7 million previously. In the second quarter, Nextel added 591,000 customers - Wall Street was only looking to about 435,000 additional subscribers - for a total subscriber base at the quarter's end of 11.7 million.

"Nextel had great numbers," a trader said, "but they also announced a billion-dollar new issue. So it was maybe up a half, [the bonds' gain] somewhat mitigated by the fact that a billion dollars is coming to market , although use of the proceeds is to take out some of their paper, so there's always a replacement factor involved there."

Nextel plans to use the billion dollars proceeds to repurchase its $676 million principal amount of outstanding 10.65s and its $392 million of 11 1/8% Series E redeemable preferred stock (see Tenders and Redemptions elsewhere in this issue for full details).

But the trader added that "people aren't happy, losing a big coupon like that [10.65%]."

Elsewhere, Mirant Corp.'s bonds continued to climb for a third straight session after its late-Monday announcement of a Chapter 11 filing.

Its secured Mirant Americas Generation operating company paper - which on Tuesday had zoomed to around the 72-73 level from prior levels at or below 60 and which on Wednesday had added another point or so - again firmed about two to three points Thursday, the MAG 7 5/8% notes due 2006 rising to 76.75 bid,77 offered, and its 8 ½% bonds due 2021 improving to 75.5.

A trader saw MAG's 7.20% notes due 2008going out at 75.5 bid.76.5 offered, up from 71 bid, 72.5 offered on Wednesday.

Meanwhile, the Mirant Corp. paper - which had fallen sharply to around 40 bid on Tuesday in reaction to the bankruptcy filing, but which had then bounced two or three points on Wednesday - was also improved on Thursday, its 7.90% notes due 2009 quoted at 44.5 bid and other issues seen in that same 43-44 context.

Airline paper seemed to have gained some altitude, as major air carrier companies like Delta Airlines, Continental Airlines and Northwest Airlines released their latest quarterly numbers, following the lead of AMR Corp. earlier in the week. While Delta and Northwest showed losses, they were smaller than year-ago deficits and Continental's numbers also represented an improvement, as AMR's had. Observers credited some of the improvement to a better economy, buoyed by the end of the war and the receding of the terrorist threat to the airlines - but also noted that all of the major carriers also enjoyed special one-time payments from Washington that padded their shrunken bottom lines.

In bond action, AMR's 9% notes due 2012 rose to 72 bid.74 offered from prior levels at 70 bid, 72 offered. Continental's 8% notes due 2005 were seen about half a point better, at 90 bid.

Northwest's 7 5/8% notes due 2008 were a point-and-a-half better, at 78 bid and its 8 3/8% notes due 2004 gained a point to 95.5 bid.97 offered. Delta's bonds were unchanged on the session.

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