Qwest continues climb; funds see sixth straight inflow

By Paul Deckelman and Paul A. Harris

New York, Nov. 21 - Qwest Communications International Inc. bonds were firmer on Thursday, rising for the third straight session and recording their second advance since the financially challenged telecommunications company's announced a debt-for-debt swap to lengthen its maturities. Also on the upside was Lucent Technologies Inc., helped by takeover buzz in the market.

In the primary market, Bway Corp. priced a slightly upsized offering of eight-year notes.

And well after the session had ended, market sources reported that high-yield mutual funds had notched their sixth consecutive inflow, as $427.373 million more came into the funds in the week ended Wednesday than left them. The weekly fund flow statistics, compiled by AMG Data Services Inc. of Arcata, Calif., are considered a reliable proxy for overall junk market liquidity trends. In the past six weeks, over $3.1 billion more has come into the funds than has left them, according to a Prospect News analysis of the AMG figures.

"That's six inflows in a row," a source commented. "Let's just hope it keeps up."

Back in the secondary market, Qwest bonds "were definitely stronger," a trader said, quoting the Denver-based telecommunications operator's 6 7/8% notes due 2033 as having firmed to 73 bid from Wednesday's close at 71; that in turn had been well up from the levels in the high 60s which those bonds had held just a week ago.

Qwest debt had firmed several points late Tuesday on market speculation that it would offer to exchange new debt for its existing paper, offering more collateral and higher coupons as an inducement for lengthening the maturities and exchanging the existing bonds for less than par value. When in fact that is exactly what occurred on Wednesday, Qwest bonds were up as much as 10 points or more in some cases, and that firming trend continued on Thursday.

The trader saw Qwest's 7¼% notes due 2020 and its 7½% notes due 2023 as having been offered as high as 78, up from around 74-5 previously and 10 points better than where they had been a week ago. He also saw Qwest's benchmark 7¼% holding company notes due 2011 at 61.5 bid/62.5 offered, up a point from Wednesday, with its 2010 notes at the same levels. "There are definitely buyers out there" for the Qwest paper, he said - even though some existing bondholders are apparently less than thrilled with the Qwest offer, which calls for them to exchange more than $12 billion of existing Qwest Capital Funding bonds at a discount.

Those bondholders expressed concern over what they feel are the inadequate terms of the Qwest offer, and some are in the process of putting together an ad hoc bondholders committee to challenge the company to give the bondholders equity or otherwise improve the terms of the exchange offer. Jefferies & Co. offered those bondholders a forum in the form of a conference call on Thursday, at which the investment firm's analysts flatly declared that while the exchange offer may be good for shareholders (who took the stock up 31 cents, or 7.16%, to $4.64, the second consecutive day of gains) it is inadequate from the bondholder point of view (see story on page one of this issue).

At another desk, the Qwest 71/4s of '11 were seen at 61 bid while its 7 5/8% notes due 2003 held steady at 98 bid and its 8 7/8% notes due 2012 hovered around 97.

Also on the communications front, Charter Communications Holdings LLC's benchmark 8 5/8% notes due 2009 were heard to have pushed up to 50 bid from prior levels at 47.5. Charter announced late in the session that it will restate two years of financial results - 2000 and 2001 - to record an additional $1.4 billion in assets and an equal amount of liabilities and other items.

The St. Louis-based cabler said that the $1.4 billion in franchise costs and $1.2 billion of deferred income-tax liability being recorded won't change sales or operating cash flow figures for 2000 and 2001.

Meantime, communications antenna tower operators continued to move higher, with American Tower Corp. leading the way. Its 9 3/8% notes due 2009 climbed to 80 bid from prior levels around 77. American Tower competitors Crown Castle International and Spectrasite Holdings were also on the upside, the former's 10¾% notes a point better at 90, while the 12% notes of Spectrasite - which recently entered Chapter 11 reorganization - gained three points to close at 30.

Bankrupt WorldCom Inc.'s bonds were at 24.75 bid, unchanged on the day, while the bonds of its MCI long-distance unit were two points better at 54.

Lucent bonds and shares moved higher as takeover speculation swirled around the Murray Hill, N.J.-based telecom equipment maker. Investment-oriented bulletin boards were buzzing over Wall Street pundit James Cramer's having reported a rumor - unsourced - on his TheStreet.com website, that giant defense contractor General Dynamics Corp. might approach Lucent for a combination of some sort.

On the boards, some Lucent bulls hailed the story, noting that with many of General Dynamics' products consisting of high-tech information technology systems for military use Lucent would fit right in. Skeptics scoffed that Cramer had been trashing the company on his CNBC TV program as recently as Wednesday night and claimed he was frequently wrong about the hot tips he posts on his site. They also noted Lucent's sizable debt load and said any would-be buyer might find it easier to wait until bankruptcy or some other form of restructuring takes place (although neither scenario is seen as imminent) and then buy Lucent or its component parts on the cheap.

Lucent shares were among the most active movers Thursday, up 13 cents (10.48%) to $1.37 on the NYSE, on volume of 76.25 million shares, well above its usual 45 million-share turnover.

On the bond side, Lucent's 7¼% notes due 2006 firmed to 62.5 bid from prior levels at 60 and its 6.45% notes due 2029 rose to 48 bid from 44.5 previously.

And United Airlines' 10.67% notes due 2004 were being quoted up five points, at 34.5 bid/35.5 offered, after the Elk Grove Village, Ill.-based Number-Two U.S. airline carrier announced that its machinists' union - the last holdout among UAL's five organized employee groups - had agreed in principle to $1.5 billion in wage cuts over five years. UAL has now convinced all five of its unions to sign on to the $5.8 billion package of wage cuts and other concessions over five years that it hopes the Air Transportation Stabilization Board will consider when deciding whether to extend a $1.8 billion federal loan guarantee to the troubled airline. UAL has said that without such a guarantee, it would likely be forced into bankruptcy.

UAL shares were up 22 cents (7.10%) Thursday to $3.32.

In light activity the high-yield primary market continued to run along fair winds from equities, Thursday.

Thursday's primary market session produced terms on Bway's new eight-year notes, a par-pricing offering that upsized and priced at the tight end of price talk. That makes an even handful of deals that have managed the feat in recent weeks. Others include dollar-denominated offerings from AmerisourceBergen, Owens-Brockway Glass, Rexnord Corp. and Tyumen Oil.

Bway slightly upsized its offering to $200 million from $190 million and priced the eight-year senior subordinated notes (B3/B-) at par to yield 10%, at the tight end of the 10%-10¼% price talk. The deal, issued jointly with Bway Finance Corp., came via bookrunner Deutsche Bank Securities Inc.

"Look at the way these deals are pricing at the tight end of talk and upsizing," one investment bank official insisted late Thursday.

"The easy answer for this rally in high yield is to look to the stabilizing equity market," the source added. "And certainly the cash flowing into high yield funds creates the liquidity that the managers need in order to play the primary issuance.

"But there is another theory making the rounds here," this sell-side official continued. "For the last few months we've been looking at a number of acquisition-financing deals and deals that equity sponsors are bringing to fund buyouts.

"People around here are saying that when the smart money starts buying maybe we've hit the bottom."

Meanwhile the bookrunner on Bway's deal, Deutsche Bank Securities is setting the underwriting pace thus far into the fourth quarter of 2002, having been a bookrunner on $1.11 billion of new issuance, according to Prospect News data. It was a similar story in the third quarter with that investment bank topping the league tables with $960 million worth of bookrunning. Year-to-date Deutsche Bank Securities has done $6.34 billion of new issuance, second to Credit Suisse First Boston which has done $8.42 billion.

Finally with regard to Thursday's session, various observers told Prospect News that they had been anticipating hearing terms on this week's 705-pound gorilla, that is, R.H. Donnelley Corp.'s $750 million two-parter via Salomon Smith Barney, Bear Stearns & Co. and Deutsche Bank Securities, to help finance R.H. Donnelley's $2.23 billion acquisition of Sprint's directory publishing business.

One syndicate source advised Prospect News shortly after the midpoint in Thursday's session that Donnelley would likely be transacted on Friday as opposed to Thursday.

Shortly afterward the buzz in the market was that Donnelley would get done easily, if indeed it had not already done so. The problem, various sources said, is that there is not enough of this paper to go around to all of the bond-hungry buy-side accounts playing the deal.

"We track the bonds and the bank loan," said one sell-side source not on the Donnelley syndicate. "Clearly the bank part was oversubscribed. And we heard the bonds were way oversubscribed as well."

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