Xerox gains on GE financing; Nortel, Lucent up on China telecom deal

By Paul Deckelman and Paul Harris

New York, Oct. 21 - Xerox Corp. bonds gained after the copier king announced it had reached agreement with General Electric Co. to borrow up to $5 billion over eight years, with the financing to be secured by equipment leases. The deal allays some market concerns over whether Xerox would be able to meet its substantial upcoming debt obligations.

Also on the upside Monday were the bonds of telecommunications equipment makers Nortel Networks Corp. and Lucent Technologies Inc., which were among four equipment makers awarded a total of $1.2 billion in contracts by China Unicom, that country's second-largest mobile communications network.

In the primary sphere, the week began quietly with no news heard on the $590 million of business positioned on the forward calendar to price by Friday's close.

A few droplets of new issuance news trickled through the spigot on Monday as National Waterworks Inc. announced an offering to help fund the acquisition of the assets of Vivendi subsidiary U.S. Filter Distribution Group Inc. As to when the valve opens, sources said, that all depends on how thirsty investors turn out to be.

"Amazingly it's pretty quiet in both the primary and the secondary market," one syndicate official said Monday, making reference to the fact that benchmark equity indexes were seen driving toward their highest levels in more than five weeks, and that the week of Oct. 14 had closed in with news that cash had flowed into high-yield mutual funds, stemming a succession of three outflows.

"There's not a lot of liquidity in the secondary market as most people are getting in and getting out, doing some small buying or covering shorts or rebalancing portfolios heading into '03," the sell-side source said, adding that this lack of liquidity in the secondary does not bode well for any new issuance.

One new deal rattled down the pipes from the investment banks on Monday as National Waterworks was heard to be bringing $200 million of 10-year senior subordinated notes (B3/B) via joint bookrunners Goldman Sachs & Co. and JP Morgan sometime during the fourth quarter of 2002.

The deal, which is coming with a $325 million credit facility that is set to get rolling during the week of Oct. 21, will fund the acquisition of Waco, Tex.-based Vivendi subsidiary US Filter Distribution Group Inc. by JP Morgan Partners and Thomas H. Lee Partners.

No further news was heard Monday on the two deals that figure to be priced during the week of Oct. 21.

Late last week price talk of 12% area was heard on Nevada Power Co.'s offering of $250 million of general and refunding mortgage notes series E due 2009 (Ba2/BB) via Lehman Brothers. The Las Vegas-based public utility's deal is set to price Tuesday.

Nor was anything heard regarding Wynn Las Vegas, LLC/Capital Corp. $340 million of eight-year second mortgage notes (B3/CCC+), from the bookrunning team of Deutsche Bank Securities, Banc of America Securities, Bear Stearns and Dresdner Kleinwort Wasserstein.

Back in the secondary market, Xerox bonds and shares rose on news of the financing agreement with GE Vendor Financial Services.

A trader quoted the Stamford, Conn.-based copier and office equipment giant's 5½% notes due 2003 as having moved up to 89 bid from prior levels around 87 bid/89 offered, although he did not see any offerings on the bonds Monday - a sign that the current bondholders expect the debt to rise further and are reluctant to sell. "So that paper was up a couple of points" on the financing news, he said.

Another trader, however, saw Xerox up even further. "Xerox was up - big," he exclaimed, quoting the 5½% notes as high as 93.625, up from the upper 80s on Friday. He also saw Xerox's 5 7/8% notes due 2004 at 85 bid/87 offered, up from 78 bid/80 offered previously, "so the short bonds were all up around seven points."

He saw the longer-dated paper up somewhat less, with the 9¾% notes due 2009 rising to 81.5 bid/83.5 offered, a two to three point gain. "Understandably, all of the action was in the short end," he said, on the expectation that the financing would enable the shorter-dated debt to be paid off as scheduled, while the financing is no ironclad guarantee that the medium-to-longer-term debt would be money good, unless Xerox manages to use the time which the new financing provides to get itself on a solid financial footing.

At another desk, the 5½% notes were quoted at 90 bid, up from 84.5 previously, the 9¾% notes were seen having risen to 82 bid from 77 and the 6.60% subordinated notes due 2011 firmed to 42 bid from 38. The company's 6¼% bonds due 2026 were at 89 bid, which was seen as well up from 83.5 previously.

Xerox has approximately $14 billion of debt outstanding, and concern about repaying those obligations and about whether its traditional business model would remain viable over the long term has pushed down its shares and bonds in the past year or so from their former higher levels.

The company has undertaken several restructuring initiatives since October 2000 when it announced a three-pronged turnaround plan. Xerox has been shedding assets in an effort to get out of underperforming areas, cut costs and refocus its business. One of the areas it has sought to leave is equipment financing, transferring those operations to third-party companies such as GE Vendor Financial Services, which becomes the primary equipment financing provider for Xerox's U.S. customers.

Xerox shares jumped $1.04 (17.51%) in New York Stock Exchange trading on Monday to close at $6.98. Volume was 9.3 million shares, more than double the usual turnover.

Elsewhere, Nortel Networks and Lucent Technologies got a boost on the news that they - along with Motorola Inc. and Swedish telecom equipment maker Ericsson - have been tapped to provide $1.2 billion of equipment to China Unicom in the second phase of that company's efforts to build up its CDMA mobile telecom network in northern and central China.

The Chinese contract gives the telecom equipment companies a welcome boost when those producers - particularly Lucent and Nortel - have been hard hit by the two-year contraction in the North American telecom industry. That downturn has seen many of the companies which used to buy sophisticated networking equipment from the likes of Lucent and Nortel driven into bankruptcy, while others have stayed out of Chapter 11 by, in part, trimming their capital expenditures and cutting back on equipment buys.

Lucent initially announced that its share of the China Unicom pie would be worth "hundreds of millions of dollars," not being more specific, but later in the day, news reports quoted executives of the Murray Hill, N.J.-based equipment maker as saying it would be worth more than $400 million. A news report said that China Unicom pegged Lucent's participation at $427 million. Nortel said that it would sell $280 million of equipment to the Chinese company.

Telecom equipment company bonds "were up about three points on the China gig," a trader said, quoting the Brampton, Ont.-based Nortel's 6% notes due 2003 as having risen to 76 bid/77 offered from 73 bid/75 offered last week. He saw Lucent's 7¼% notes due 2006 at 45 bid/46 offered.

At another desk, Lucent's 5.5 % notes due 2008 were estimated to be a point-and-a-half higher, at 35.5 bid.

News of the China deal boosted the badly battered shares of both companies, even though news reports quoted skeptical equity analysts as cautioning that the collapse of the market for telecom equipment in the U.S. and Canada, which is Nortel's underlying problem - and Lucent's as well - would continue to play a far larger role in the company's prospects than overseas sales such as this one would.

Nortel's shares zoomed 15 cents (23.71%) in NYSE dealings to 78 cents, on volume of 48.6 million shares, nearly double the norm. Lucent's stock was up a nickel (7.35%) to close at 73 cents, on NYSE volume of 46.4 million, only slightly higher than normal.

The shares of both companies have been beaten down to penny-stock levels by the continued implosion of the telecom equipment market, and both - facing possible de-listing by the Big Board because their shares continue to languish under $1 - have recently announced plans to boost their share price by means of a reverse stock split.

Outside the telecom and tech area, a trader noted what he termed a "bizarre" rise in Levi Strauss & Co. notes over the last few sessions, in the absence of any fresh recent fresh news about the San Francisco-based blue jeans maker. He quoted Levi's 11 5/8% notes due 2008 as having risen from levels around 82 bid/84 offered last Wednesday to 85 bid without (no offers seen) by Thursday, and 86.5 bid/88.5 offered by Friday. He said the bonds opened Monday's action up a point, at 87.5 bid/88.5 offered, and quoted them going home at 89 bid. "Nobody has any clue why," he said, speculating that the advance could just be a delayed reaction to the news some days ago that the government had intervened in the West Coast port lockout, which had been seen as damaging retailers who import merchandise and other companies (including apparel makers like Levi Strauss) which have extensive overseas operations and ship goods to the U.S.

But on the other hand, he allowed that there had been no recent rise in the bonds of Gap Inc. - one of the retailers most hurt by the port lockout - since their initial pop up earlier this month on the news that Washington was stepping in to at least temporarily open the ports again. That news had taken Gap's bonds up to around the 84 bid/87 offered level from 81.5 bid/83.5 offered, but the trader said he had seen no subsequent rise in the bonds of the big apparel retailer which, like Levi's is also based in San Francisco.

Staying in the retailing area, the trader noted that embattled Kmart Corp. was out with new numbers "which really ****." The Troy, Mich.-based discount retailing giant - in Chapter 11 since January - announced that it had lost $176 million in September, with same-store sales down 6.9% for the month, the 12th straight period in which sales fell at Kmart stores open more than a year, a statistic which he called "awesome."

He saw Kmart's 8¾% notes due 2004 continuing to tread water in the 17-198 bid level.

But Kmart believes that brighter times may lie ahead. Along with the release of the September data, it said that it will complete its five-year business plan by the end of the year, will file its Plan of Reorganization with the U.S. Bankruptcy Court by Feb. 24 and emerge from Chapter 11 sometime in the first half of 2003.

Some analysts believe the company's timetable may be too aggressive, and opine that Kmart - which closed 283 of its more than 1,400 stores as a cost-cutting measure - may have to embark on another round of store cuts to stem the tide of red ink.

Bonds of Kmart's biggest supplier, Fleming Cos., were higher on Monday, its 10 5/8% notes due 2007 quoted up two points at 50 bid. The rise was in line with a strengthening in the Dallas-based wholesale grocery supplier's bank debt (as reported in Monday's edition of The Prospect News Bank Loan Daily) in apparent response to Fleming's success in obtaining an amendment to its credit facility which would allow for asset sales. The lenders had to give their consent to the company's previously announced plans to sell its money-losing retail store operation, part of Fleming's effort to refocus its energies on its core wholesale supply business.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.