Telecom names gain, other bonds also bid for in wake strong inflows

By Paul Deckelman and Paul A. Harris

New York, March 28- Telecommunications names led the way on Friday, as the high-yield market generally was well bid for; market participants noted that investors continue buying in an effort to put the generous reserves of cash which have built up to work. Fleming Companies Inc. debt remains one of the few exceptions to the generally rosy picture, sinking ever deeper amid liquidity concerns sparked by vendor community skittishness. And there was little real response to Allied Waste Industries Inc.'s refinancing plan.

Allied Waste's announcement late Thursday of a multifaceted financing and divestiture plan, aimed at replacing its bank credit facility, significantly extending its debt maturities, substantially enhancing liquidity and improving its capital structure while accelerating deleveraging, provoked little real response among investors.

"I don't see a single thing on it," one trader said, while another said that he saw the Scottsdale, Ariz.-based waste disposal operator's junior debt up about half a point while its senior debt - already trading at a premium to par, "well bid, but with no real movement. It's been moving up all week."

He quoted the company's 10% senior notes due 2009 as hovering in the 104-104.5 bid area. An observer at another desk pegged the notes at 104.25.

The real activity took place in telecom, where one name which stood out was Lucent Technologies Inc., following the Murray Hill, N.J.-based telecom equipment maker's late Thursday announcement that it had settled all outstanding shareholder lawsuits against it. The settlement could cost Lucent more than $600 million but analysts were quoted in the media as saying that it was a good move for Lucent by allowing the company to dispose of these distractions and continue trying to improve its turnaround.

Lucent admitted no wrongdoing under the agreement, which ranks as one of the largest shareholder class-action settlements ever. It involves the payment of cash and stock that could dilute existing shareholders' stake in the company by as much as 8%. Still, Lucent's New York Stock Exchange-traded shares gained two cents (1.35%) to end at $1.50, although volume of 19.2 million shares was well below the average 44 million-share daily turnover.

On the bond side, a trader saw the company's benchmark 7¼% notes due 2006 "up again," having firmed to 88.5 bid/89.25 offered from prior levels around 87 bid.

"There's so much money flowing into the market and I guess people think they've straightened out their short-term liquidity issues, they've gotten some new contracts, they have the big settlement with the shareholders. I guess there's just a preponderance of positive news out there on that one."

At another desk, Lucent's notes were quoted as high as 89.5 on Friday, while a third saw the bonds at 89 bid/90 offered, up a point.

The trader further noted that Lucent had "almost caught up to Nortel" (Networks Corp.), a Brampton, Ont.-based rival telecom equipment maker whose bonds tend to zig-zag up and down with Lucent's, with Nortel's always slightly higher. He quoted Nortel's 6 1/8% notes due 2006 at 90.5 bid/91.5 offered. "They're [Lucent] getting closer."

He noted that Lucent has been one of the major beneficiaries of a terrific surge which had lifted the bonds of a number of telecom issuers, and telecom-related names like Lucent, to heights sharply above where they were trading as recently as the early fall. Lucent's bonds, for instance, had more than doubled from the levels in the high 30s at which they struggled not so many months ago.

Another gainer, "maybe one of the best performers that we've seen," along with Lucent and Nortel, he said, has been junk telecom bellwether Nextel Communications Inc., whose 9 3/8% senior notes due 2009 orbited at 104 bid/105 offered on Friday - about double their levels in the 50s around six months or so ago.

Late Thursday Nextel filed a shelf registration to sell up to $5 billion in debt securities, stock, depositary shares and other securities to pay down debt and expand its network. While the bonds were up about three-quarters of a point, the shares dropped 32 cents (2.72%) to $13.60 on the Nasdaq.

Level 3 Communications Inc.'s 9 1/8% notes due 2009 were at 76.5 bid/77.5 offered, up about five-eighths of a point. The trader said that the Broomfield, Colo.-based network operator was yet another telecom which had made a sterling recovery from last year's lows in the 40s.

One possibility, he advanced was that the once high-flying telecom constellation - which had seen such a terrible meltdown from its glory days back in 1999-2000 - had gone about as far down as it could go, with so many formerly solid high-yield telecom names - WorldCom, McLeodUSA, Winstar, Global Crossing, PSINet, etc. - having disappeared into the mists of bankruptcy, some forever, that the companies that are still standing are viewed as the hardy survivors.

"These companies have enough support that if they've survived this long" the feeling seems to be that they'll now be able to make it. "There's not a whole lot more of bad news left in the sector - and we've got a lot of cash" ready to be put to work.

"And once you have Nextel looking like they're able to issue equity or do new deals, at these levels, then all the [remaining telecom] guys look like they can do it, Nortel and Lucent included."

Elsewhere among the communications names, he noted that Cablevision seemed to show "no weakness in the bonds" even on the news that the Long Island-based cable TV network operator's recently reached settlement of its long dispute with the YES Network, which owns the rights to New York Yankees and New Jersey Nets games, had fallen through. Cablevision's 7 7/8%notes due 2018 were at 97.25 bid/98.25 offered, the level to which they "had slowly ticked up to," while its 7 5/8% notes due 2011 were at 99.5 bid/100.5 offered.

Another trader saw Cablevision's 9 7/8% notes due 2013 off perhaps half a point, at 104 bid/105 offered.

Trump Atlantic City Associates' 11¼% first mortgage bonds due 2006 were quoted around 78 bid, maybe up a point, after Moody's Investors Service on Thursday raised its ratings on the debt to B3 from Caa1, noting that the Atlantic City-based gaming operator's exposure to problems connected with the debt of sister company Trump Castle Funding and parent Trump Hotels & Casino Resorts Inc., since debt of those two entities is to be paid off with the proceeds of Trump Hotels & Casino Resorts' recent $490 million bond sale.

There was little bond market reaction seen to the news that fiber optics maker Corning Inc. will settle all outstanding asbestos-related litigation and take a $200 million earnings charge; a trader noted that the news came too late Friday afternoon to have much impact. The company's 7% senior debentures due 2007 were quoted at 94 bid and its 8 7/8% senior debentures due 2016 at 85 bid, both unchanged.

A trader said that airline issues were likewise unaffected by news of the hijacking of a Turkish airliner, since that news also broke too late Friday to have much impact on the sector, which has recently been reeling on war-related concerns, high fuel prices and rumors that troubled Number-One U.S. carrier American Airlines might follow rival United Airlines into bankruptcy before long. "Everything was the same."

The major negative of the day, again was Fleming Companies, whose 10 5/8% subordinated notes due 2007 fell to five cents on the dollar from prior bid levels around eight cents, while its senior debt, like its 9 ¼% notes due 2010 eroded to 24 bid/27 offered.

A market observer saw its 10 1/8% notes due 2008 languishing below 26 bid, and declared the credit "really ugly." A trader saw the senior bonds as low as 23 bid.

The Lewisville, Tex.-based grocery products wholesaler's bonds "have all gotten crushed," another trader said. "It looks like people think the subs are worth zero. The vendors are calling the shots," and have the power to push the nation's largest supplier of groceries to supermarkets and other stores into a default situation if they decide the risk of not getting paid is too great and they begin to demand to be paid up front or some terms close to that.

"Fleming," he said, "has no bargaining power over anyone any more."

In the wake of Thursday's news that high-yield mutual funds had gulped yet another substantial inflow - $1.02 billion for the week ended March 26 - all was quiet in the primary market on Friday. The final session of the week of March 24 saw no transactions price, nor were any new deals announced.

However as the capital markets continued to keep a close eye on U.S. armed forces reported to be closing in on the Iraqi capital of Baghdad, officials on the high-yield primary market sell-side managed to find several salient topics of conversation.

Interest among sell-side officials in last Thursday's $5 billion mixed shelf that Nextel Communications Inc. filed with the Securities and Exchange Commission was unconcealed Friday among sources who spoke with Prospect News.

The Reston, Va.-based wireless telephone services company filed to sell $5 billion in debt securities, preferred and common stock, depositary shares and other securities, with the proceeds going for network expansion, investments, working capital, debt repayment and general corporate purposes.

"I heard from our bank debt desk that their term loan paper has traded up significantly after that announcement, almost a point, if not more," one high-yield primary market source told Prospect News on Friday.

"People are pretty excited about it."

Another sell-side source noted that with cash presently flowing into high yield at historically high levels the buy-side might be anticipated to greet any sizable issuance of new notes from Nextel eagerly.

"The thing is, they're a telecom," added the source. "You have to wonder, in light of the beating that people have taken in that sector, how a big bond deal from a telecom will play in front of investors."

However in a report released late Friday, Deutsche Bank Securities co-heads of high yield research David Bitterman and Andrew W. Van Houten, along with Hunkar Ozyasar, noted that in a high yield market that is currently turning in its best performance since 1997, telecom "is advancing in pretty much the same fashion as it went down last year, i.e. out of control...the telecom sector has returned 16.2% thus far in 2003, meaning that roughly half of the losses of 2002 (down 33.7%) have been recovered." (see story elsewhere in this issue)

In addition to the noise on Nextel, the market also generated some chatter on Friday concerning the late-Thursday news that Allied Waste Industries of Scottsdale Ariz. will bring $300 million of 10-year senior notes, in addition to a $3 billion credit facility to be led by JP Morgan, Salomon Smith Barney, Credit Suisse First Boston, Deutsche Bank Securities and UBS Warburg.

Prospect News has learned that bank deal is expected to launch during the week of April 7, while an offering of approximately $300 million of three-year mandatory convertible preferred stock is expected to be marketed via a full roadshow.

However Friday's phone calls and emails among sell side sources turned up no solid information on the notes.

"I don't really think they have come out with anything yet," said one source. "Based on the timing of the bank deal I think it's more likely to be a mid-April event than an early-April event."

Although those seeking news in Friday's primary market were turned away without a full meal, there were a few morsels.

Price talk of 13½% area emerged on Dan River Inc.'s upcoming $150 million of six-year senior notes (B3/B-), which are expected to price Tuesday morning via bookrunner Deutsche Bank Securities.

A market source told Prospect News that the Danville, Va.-based fabric maker's new notes are expected to price "at a slight discount."

And there was a whiff - but only a whiff - of new information on the big deal that is set to go down during the week of March 31. Co-managers emerged on Vivendi Universal's offering of €1 billion of notes in dollar and euro tranches due 2010 (B1/B+) via bookrunners Goldman Sachs, JP Morgan, Banc of America Securities, Royal Bank of Scotland and Salomon Smith Barney. The co-managers, according to a market source, are BNP Paribas, Credit Lyonnais, S.G. Cowen, Credit Agricole and Natexis Banques Populaire.

The roadshow for the Rule 144A/Regulation S notes began on March 26. Pricing is expected on April 3 or 4.

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