U.S. interest piqued by Deutsche Telekom's €2.3 billion mandatory

By Ronda Fears

Nashville, Feb. 19 - Deutsche Telekom was pitching a jumbo €2.3 billion mandatory in Europe on Wednesday and while the deal was chiefly marketed abroad it was getting significant interest from U.S. buyers.

Price talk on the deal put the yield at 6.375% to 6.875% with a 15% to 25% initial conversion premium, according to a market source in London. But a U.S. market source put the guidance at 6.375% to 6.625% yield with a 20% to 25% premium.

The market source in London quoted the issue in the gray market 1.125 points over par on the bid side and 1.375 points over par on the offer side. DT shares closed in Frankfurt down €0.96 to €11.84. In the U.S., DT shares closed down $1.15 to $12.60.

Sellside analysts put the deal about 1.5% cheap.

Morgan Stanley and Goldman Sachs are joint lead managers of the Regulation S deal, which sources said was accelerated a day to price at the close Wednesday of the Frankfurt exchange. There is a 10% greenshoe available.

"This is an important peg in DT's deleveraging plan and we like the yield in the mandatory structure," said a convertible fund manager based in Connecticut.

"We like a lot of the European telecoms right now."

A convertible hedge fund trader based in The Bahamas also liked the deal.

"DT has been very busy in the capital markets and this appears to be enough to get it through this year," the trader said.

CreditSights analyst Anja King said DT faces €7.45 billion of debt maturities in 2003.

"From a liquidity perspective, the [convertible] will further bolster DT's already solid liquidity position," King said.

"It is certainly a step in the right direction and will improve the quality of DT's capital structure."

With this deal, she said DT will have raised over €11 billion, more than enough to meet the €10 billion of debt maturing between October 2002 and year-end 2003. Yet, she noted that "there is still work to be done" if DT is to meet its aggressive €50 billion net debt target by the end of 2003.

King said DT may have to execute further asset sales to meet this goal, noting less than stellar results from the group.

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