Lucent notes off on news of government probe; Pegasus lower on credit withdrawal

By Paul Deckelman

New York, Aug. 25 - News that the government is investigating certain activities of Lucent Technologies Inc. sent the telephone equipment maker's bonds a point or two lower in sleepy late-summer dealings Monday while Pegasus Communications Corp.'s notes were likewise off after the satellite TV broadcaster said it was scrapping plans for a new term loan financing.

New-issue activity remained at a standstill, with a quick check of several investment banks revealing key personnel having taken this traditionally slowest of weeks on the junk bond calendar for their vacations.

A trader quoted Lucent's 6.45% notes due 2029 as having traded as high as 67 bid on Friday - a bounce from prior low levels - before ending offered at around that level late in the session Friday. In Monday's dealings, he saw the notes offered at 65, down about a point-and-a-half from Friday.

At another desk the 6.45s were seen two points lower at 64 bid.

Lucent's 7¼% notes due 2006 were quoted by a trader as having backpedaled half a point to 94 bid, "but not on size - there was not a lot of size today anywhere trading."

Another trader said that the Murray Hill, N.J.-based telecommunications equipment maker's benchmark issue was down about a point in the mid-94 range.

The decline represents a turnaround from late last week, when the Lucents were said to have been coming back from recent weakness.

The Justice Department and the Securities and Exchange Commission were looking into allegations that Lucent had bribed a Saudi Arabian official to make business decisions in Lucent's favor by plying him with money, gifts and free use of private jets - goodies worth an estimated $15 million. Such actions, if true, would be a violation of the Foreign Corrupt Practices Act of 1977.

If found guilty, Lucent could be subject to millions of dollars in fines while individual employees involved in the scheme could go to jail. Lucent has denied any wrongdoing.

Ironically, Lucent on Monday announced that it had been awarded a lucrative new contract - also from the Middle East - to provide telecom infrastructure. Lucent said that it had won a $25 million subcontract from giant international contractor Bechtel Group Inc. to help restore damaged phone lines in Iraq. Almost half of the 540,000 land lines in the Baghdad area alone are out of service and in need of replacement or repair.

Elsewhere, Pegasus Communications shares and bonds were lower after the Bala Cynwyd, Pa.-based distributor of satellite TV programming said it was backing out of a deal to replace a $100 million term loan scheduled to expire in July 2005 with one that would expire in July 2006.

Its Nasdaq-traded shares lost $2.33 (11.09%) to end at $18.68 on volume of 732,000, triple the norm and then some.

On the bond side, a market observer said that Pegasus' 9 3/8% notes due 2005 were "down a couple" of points, at 81 bid. Its 12 3/8% notes were heard offered at 84, while its zero-coupon bonds were offered at 74. A trader said "sure, it's going down today, although he had no firm levels.

Also in the communications arena, Level 3 Communications Inc. announced that a unit of regional phone giant SBC Communications Corp. had agreed to extend by two years a contract under which Broomfield, Colo.-based telecommer Level 3 provides dial-up internet service to SBC customers.

The agreement also includes an increased revenue commitment of approximately $11 million from SBC over the contract's duration.

Level 3's 9 1/8% senior notes due 2008 were quoted by a trader as "up maybe half a point at the most" on the news at 79.5 bid, 80.5 offered.

"It's tough to judge" whether such news stories are having much of an impact these days," he said, "because there are so few people around. There's no instant gratification of seeing news and then seeing an immediate market response."

At another desk, a participant quoted the 9 1/8s at 80.5 - but he said its movement had been "nothing major."

A trader saw Level 3's 11% notes and its 11¼% notes as having firmed a point to 85.75, while the 9 1/8s were "stuck in the mud," at 79.5 bid, 80.5 offered, "with no action there."

He did see "a little action" in the 8¾% senior notes due 2011 of dairy producer Land O'Lakes, which had been previously "beaten down" to around the 78-79 level, but which on Monday was being quoted around 80-81.

Gap bonds continued to hold their own after the release of favorable quarterly numbers last week. The trader quoted the San Francisco-based apparel retailer's 6.90% notes due 2007 at 105 bid, up a point on the day and well up from its 102 levels a week ago.

But fellow Frisco apparel company Levi Strauss & Co.'s 7% notes due 2006 were seen a point lower at 86.

Also on the downside, Grupo TMM 's 10% notes due 2006 were "down a couple of points" at 78 bid, 80 offered, after the Mexican transportation operator backed out of its agreement to sell its stake in Mexican railroad company TFM to U.S. railroader Kansas City Southern. TFM's 2007 notes were unchanged at 101.5 bid,102.5 offered.

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