Global Crossing projections a wrong number for market; Fleming prices

By Paul Deckelman and Paul A. Harris

New York, Oct. 4 - Global Crossing Ltd. warned Thursday that it expected revenues and cash flow for the just-concluded third quarter will come in well below previous Wall Street projections, which sent the Bermuda-based international telecommunications carrier's bonds into a tailspin.

In primary-side activity, meanwhile, Fleming Cos.' $100 million add-on to its existing 10.625% notes was heard to have priced late in the session.

Global Crossing's 9.125% senior notes and its 9.5% notes both lost about half of their value, swooning as low as 21 bid from prior levels around 42.5 and 40.5, respectively.

"All of their issues were trading," one trader said, "but the 9.5s were the dominant issue in the Street. They ended (Wednesday) around 40; the first trade (Thursday) morning was at 29, their high was 32.5, and they went home at around 23. A significant amount traded."

A distressed-debt trader noted that Global Crossing, which not long ago was considered one of the few star performers hanging tough in an otherwise fading telecom sphere, had sold an issue of 8.70% notes early in the year at just a shade below par, at a respectable, almost investment grade-like spread of 360 basis points over Treasuries. He saw those same notes falling on Thursday into the 20-23 bid range from around 40, trading at an effective yield of 50.75%.

Global Crossing's debt had already come down to around the 40 mark from the mid 50s late last month in the wake of the recent bankruptcy filing by Exodus Communications Inc., the Santa Clara, Calif.-based Web hosting company 20% owned by Global Crossing.

It went into absolute freefall Thursday, however (along with its stock, down $1.02 on the day, or 48.80% to $1.07) after the company warned that cash revenue in the third quarter ended Sept. 30 would likely total approximately $1.2 billion and recurring adjusted EBITDA would be "significantly less" than $100 million. Analysts had been looking for revenues of about $1.6 billion and EBITDA of nearly $400 million (EBITDA - earnings before interest, taxes, depreciation and amortization - is considered the key bond market measure of a company's cash flow generation and ability to service debt).

That bad news completely overshadowed several other announcements, including the news that Global Crossing and its 59%-owned affiliate Asia Global Crossing Ltd. are holding preliminary merger talks, in hopes of realizing cost savings, seamless service to customers and other benefits.

Not only was Global Crossing sliding away, the distressed-debt trader observed, but "they're taking everything else in the long-haul sector with them." He quoted Level 3 Communications Inc. paper down at least three to four points on the session, and Williams Communications Group Inc. debt down around four points on the day.

"Don't bid for anything you don't want to really buy," he cautioned market participants. "The way things stand now, if you make a bid, they'll hit it."

Level 3's benchmark 9.125% senior notes due 2008 were quoted at 36 bid, down at least seven points on the session, but its most actively traded issue seemed to be its 11% notes due 2008, which fell about five points to around 43 bid (after having gone as low as 37 during the session), with the FIPS market tracking system showing around $115 million of the bonds changing hands, more than twice the amount of the normally more popular 9.125s.

But there was even more activity (about $132 million traded) in Nextel Communications Inc.'s 9.375% senior notes due 2009, which jumped from around 61-62 bid Wednesday to 66 on Thursday. Its 9.5% notes were likewise up about half a dozen points to 65.5, after the Reston, Va.-based No.5 U.S. wireless carrier announced that it would upgrade its existing iDEN mobile communications network, looking to double its voice capacity by 2003.

"We are confident that these technology advances give us the flexibility to carefully choose our future technology path and ensure ample liquidity to fund our current business plan and remain competitive in our service offerings," Nextel's president and chief executive officer, Tim Donahue, said in a statement.

It was the latest piece of good news for Nextel; besides Thursday's joint announcement with wireless equipment supplier Motorola Inc. of the network upgrade, Nextel also said this week that it was on track to meet its 2001 target for domestic operating cash flow of $1.9 billion, and further said it would announce 480,000 new subscribers for the third quarter, and could add 1.9 million to 2 million domestic subscribers this year.

Just as its bonds firmed smartly, Nextel's shares did likewise Thursday, gaining $1.80, or 24.46%, to $9.16.

Perhaps on the theory that a rising tide lifts all boats, even the bonds of Nextel's global affiliate, Nextel International Inc., were able to at least partly rebound off the lows they had hit Wednesday after they were downgraded by Standard & Poor's on indications that the parent plans no additional investment in the international company beyond what has already been budgeted, leaving the affiliate in possible danger of a severe liquidity crunch.

Those developments Wednesday knocked International's 12.375% notes down 12 points to 10 bid, while its zero-coupon/12.125% paper fell eight points to 7 bid. On Thursday, the zeroes regained a point to 8 bid, while the cash-pays were up two points to 12.

Also rebounding off Wednesday's lows were Conseco Inc.'s 8.75% notes, which pushed back up to around 75 bid from 69; those bonds had fallen about eight points or so on Wednesday in reaction to the Carmel, Ind.-based insurer's announced intention of taking a $475 million charge against earnings, citing the effects the events of Sept. 11 had on what was already a deteriorating situation.

But despite that bounce, a trader still noted that Conseco issues like its 10.75% notes due 2008, now trading in a bid range around 68-71, "were near par just three weeks ago."

Back within the telecom world, another upsider during the session was Metromedia Fiber Network Inc., whose 10% notes due 2009 continued to firm on the news earlier in the week that the troubled New York-based fiber optic network builder had finally closed on $611 million of long-delayed new financing after a few weeks of touch-and-go speculation whether the whole drama might end up in the bankruptcy courts.

The bonds, up seven points on Tuesday and six more Wednesday, tacked on another point-and-a-half Thursday to close bid at 25.5.

In the primary market, a source told ProspectNews that Fleming Cos.' $100 million add-on to its existing 10.625% senior subordinated notes due July 31, 2007 was heard to have priced. However, terms of the deal for the Dallas-based wholesale grocery supplier were not available at press time. The syndicate included Deutsche Banc Alex Brown, and J.P. Morgan as joint bookrunners.

Fleming's offering was the second deal to hit the primary market in as many days, after nearly a month of uncertainty and inactivity that everyone attributes, more or less, to the Sept. 11 terrorist attacks on the U.S. On Wednesday, Terra Capital, Inc. priced $200 million of seven-year senior secured notes priced Wednesday via Salomon Smith Barney - the first high-yield offering since Sept. 6.

A third deal now looks set for Friday. Talk emerged Thursday for Luscar Coal Ltd.'s $250 million of 10-year senior notes, putting them at a yield of 9.75% to 10%, according to sources. The deal is set to price Friday via Goldman Sachs & Co.

Do the flickerings seen in the primary over the past two days signal a market that might kindle more convincingly in the weeks to come?

"It's still pretty jittery out there," Buffalo High Yield Fund lead manager Kent Gasaway responded, when Prospect News put that question to him Thursday afternoon.

"I think certain deals can get done in this market," Gasaway said, "Not a lot, but I think some can.

"Part of the problem is, I don't think a lot of the funds have much cash flow. But I think if it's a reasonably good deal, with some kind of catalyst - you can see the credit's going to improve, the numbers are going to improve - selectively some things will gradually get done."

Gasaway said that Buffalo took part in the Terra Capital offering.

"We played that," the manager said. "We think it's an attractive deal. It came really cheap. It's a company that has been distressed partly because natural gas prices were so darn high over the last year. Another, obviously, is that the (agriculture) market's been so difficult. But on the natural gas side, prices have plunged. They're definitely going to get some relief, on the cost side. And eventually the fertilizer market will come back."

Gasaway said that half of the Buffalo High Yield fund tends to concentrate on sectors that have "great long-term trends" and are non-cyclical. He gave health care and cable as examples.

The other half, Gasaway said, is concentrated on credits he characterizes as "contrarian," involving deals in much more cyclical areas.

"Any areas that are having a real difficult time, those are the ones you want to be looking at," he said. "Your timing's got to be good, of course.

"We're interested in technology - not telecom - but technology; in particular, the semiconductor area. We're confident that will come back. And things like Terra.

The cyclical sectors, Gasaway stated, are where the value is. "That's where all the emotional selling is taking place."

He also said that the recovery of the US economy, even given the current level of stimulus from the government, would probably not materialize before mid-2002.

"I think when all of that stimulus finally hits, it will set the high yield market up for a huge outperformance versus Treasuries," Gasaway said, "because almost assuredly when we get a recovery, Treasury rates will go up. And I think almost equally assuredly, high yield corporate rates will come down; spreads will tighten dramatically."

End

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