Lucent falls again, Nortel too; upsized Plains All American, Plastipak add-on price

By Paul Deckelman and Paul A. Harris

New York, Sept. 18 - Lucent Technologies Inc. bonds remained on the slide for yet another session Wednesday along with those of rival telecommunications equipment maker Nortel Networks Inc., as investors feared that the telecommunications industry meltdown that has all but dried up the market for the kind of sophisticated electronic gear the two companies produce will continue, forcing both struggling equipment companies to continue shrinking themselves. Yet another loser was B/E Aerospace Inc., which released lower guidance, as well as the airlines, whose shares and bonds continued to lose altitude as the industry's more than year-long slump showed no signs of abating.

In the primary market, Plains All American Pipeline LP's upsized 10-year deal priced, as did a quickly shopped add-on to Plastipak Holdings Inc.'s existing 10¾% senior notes due 2011.

In the run-up to Labor Day sell-side sources warned Prospect News that September would see deals appear from out of nowhere - deals that would be rapidly shopped to investors and transacted quickly.

By the middle of the week of Sept. 16 such a pattern seemed to have become discernible.

In Wednesday's session in the high-yield primary market two quick-fire deals priced and one drive-by offering zoomed into view.

Perhaps the biggest news to move through the tubes on Wednesday was the upsized, tighter-than-talk offering that priced from Plains All American via UBS Warburg.

The pipeline company increased its deal to $200 million from $150 million and sold the 10-year senior notes (Ba2/BB) at 99.80 to yield 7.78%, lower than talk of a yield in the 7 7/8% area.

Syndicate sources told Prospect News that Plains All American was a "great deal" and that it was oversubscribed.

When the new Plains All American notes were freed for secondary dealings, a trader said, "they had a decent break, despite the upsizing," and traded up to 100.75 bid/101.25 offered from their issue price earlier in the session of 99.8.

Terms were also heard Wednesday on a drive-by deal from Detroit-based plastic packaging manufacturer Plastipak via bookrunner Goldman Sachs & Co. It priced a $50 million Rule 144A add-on to its 10¾% senior notes due Sept. 1, 2011 (B3/B+) at 106.50 for a yield to worst of 9.448%, a syndicate source told Prospect News. The original $275 million offering priced on Aug. 15, 2001.

Meanwhile on Wednesday Allied Waste, a familiar name in the junk bond market, appeared poised to haul away a fresh quarter billion by Thursday's close.

Proceeds from Allied Waste North America Inc.'s $250 million of 10-year senior notes (Ba3/BB-) via Deutsche Bank Securities and Credit Suisse First Boston will be used to repay bank debt.

In assigning the Scottsdale, Ariz.-waste hauler's deal its "Market Perform" rating, Friedman, Billings, Ramsey & Co., Inc. noted that the company "generates solid EBITDA and free cash flow," in a report dated September 12.

Allied's second quarter 2002 EBITDA of $448 million covered interest expense 2.11 times, the report noted.

The report went on to note that Allied's "levered balance sheet continues to be a concern." Allied's balance sheet appears levered relative to the company's peers in the industry, the report from FBR analyst David March stated. As of the end of the second quarter of 2002 the company had total debt to total assets of 65%, and its bank group was levered at 1.6x last 12 months EBITDA while total debt was 5.14x last 12 months EBITDA.

By comparison, FBR noted, the other two largest non-hazardous waste collection and disposal companies, Republic Services and Waste Management, had bank debt of 0.53x and 0.64x, respectively, and total leverage of just 2.3x and 2.9x last 12 months EBITDA respectively at the end of the second quarter.

The report also stated that Allied's bank lines need to be renegotiated within 24 months. "We believe that the company will generate sufficient cash flows to meet debt maturities through fiscal 2003. However, in 2004, Allied's bank debt maturities become significant, and we believe that the company will need to amend the terms of the bank agreement in order to avoid selling assets to meet the maturities."

The FBR report also noted that achieving "organic growth" might present a challenge to non-hazardous waste haulers during the present economic downturn.

No official price talk was heard on the company's new 10-year senior notes late in Wednesday's session.

Finally on Wednesday details and timing emerged on Jefferson Smurfit's sizable new eurobond deal.

The roadshow wraps up Thursday on the €900 million equivalent issue of 10-year senior notes (B2/B), which will be sold by MDP Acquisitions plc, the indirect parent of Jefferson Smurfit Group plc, according to a market source, who added that the deal is expected to price Monday. The sizes of the dollar, euro and sterling tranches remain to be determined.

Deutsche Bank Securities and Merrill Lynch are joint bookrunners. Also on the syndicate are JP Morgan, Lehman Brothers and ABN Amro are co-managers.

Back among already established issues, it was "not a lot of fun [Wednesday]," said a trader, who called Lucent one of the bonds du jour. He saw the troubled Murray Hill, N.J. -based telecom equipment maker's 7¼% notes due 2006 as having fallen from Tuesday's opening levels at 60 bid/62 offered to a wide 53.5 bid/58 offered early Wednesday; the bonds dipped as low as 47 bid/50 during the session before going home around 52 bid/54 offered.

He noted that late in the session, after the volatile trading had essentially wrapped up for the day, the company was holding a conference call to reassure the investment community that the company has enough cash for its turnaround, "so who knows what will be [Thursday]?"

The once high-flying AT&T spin-off has been forced to drastically cut its workforce to around 50,000 employees - about half of what it used to be - as telecom companies left and right have either gone bankrupt or have sharply cut their equipment purchases in the midst of the industry-wide slump. Just on Friday, Lucent was forced to warn investors that with business much weaker than analysts had feared, it would likely post a 45 cent-per-share loss during its fiscal fourth quarter, nearly triple what Wall Street had been anticipating, and more job cuts were likely.

Lucent shares on Tuesday had brushed intra-day lows below $1 for the first time ever since its spin-off - although they had recovered to close Tuesday at $1 right on the nose. In Wednesday's dealings, they started out at that level, fell below $1 again - going all the way down to 81 cents - before finally closing down six cents (6%) on the session, at 94 cents, the widely held stock's first-ever close under the psychologically potent $1 mark. New York Stock Exchange dealings of 106 million shares were more than two-and-a-half times the usual turnover. Lucent rival Nortel's shares - which have already been trading under $1 for several NYSE sessions - closed Wednesday down seven cents (7.95%) at 81, although volume of 26 million shares was about normal.

The trader saw Nortel's bonds - affected by many of the same industry dynamics as Lucent - also "under water" on Wednesday, with its 6 1/8% notes due 2006 falling to 38 bid/42 offered late Wednesday; the Brampton, Ont.-based telecom equipment maker's bonds had opened Tuesday at 44 bid/46 offered, but had backtracked to 42 bid/45 offered by Tuesday's close and had further eroded to a wide 36 bid/40 offered at Wednesday's opening, before recouping a little of the lost ground later in Wednesday's session.

"They're not trading at the same dollar [price levels] but the movement is similar to the Lucent paper," he declared. "Those were really the two names that were the most active."

Lucent and Nortel "were sucking big wind," another trader asserted. He noted that during the session, Standard & Poor's had cut the company's long-term corporate credit rating two notches to B from BB- previously, cautioning that Nortel's ratings "continue to reflect very challenging market conditions, as the company's core customer base continues to defer purchases of new communications equipment." S&P called the outlook negative, warning that another downgrade was to be expected should Nortel's sales and earnings fall "significantly" short of plan.

But the trader opined that even before the downgrade, "they were trading like garbage." He quoted Nortel's 6% notes due 2003 as having fallen eight points on the session to 74 bid/82 offered, while its 6 1/8% notes due 2006 were half a dozen points lower, at 40 bid.

Lucent meanwhile was "all over the map." He saw its 7¼% notes due 2006 ending at 51 bid/52 offered, down seven points on the day. He said that the late-day conference call was too late to affect trading.

At another desk, a market-watcher agreed that Lucent "got crushed," pegging the 71/4s down 10 points on the day, at 50 bid.

Another big loser was B/E Aerospace, whose 8 7/8% notes dropped back to 72 bid from 79 on Tuesday after the Wellington, Fla.-based maker of aircraft interior cabin components reported second-quarter earnings - about in line with expectations - but lowered its guidance for the near future.

B/E said in a statement that "the latest round of fleet downsizings and US Airways' bankruptcy protection filing underscore the financial stress many of our customers are feeling," and will affect the market for spare parts, which in turn will adversely affect the company's results for the second half of the year.

B/E now expects earnings per share to be 70 to 75 cents in the current fiscal year, down from earlier projections of around 85 cents, on expected full-year sales of $640 million - some $10 million less than previously anticipated.

The company's shares were meantime down $2.19 (32.45%) at $4.55, on Nasdaq volume of 1.3 million shares, over four times the norm.

Ultimately, B/E's fortunes are linked to those of the airline industry - and there too, expectations are for a soggy financial showing the remainder of the year, due to the lingering after-effects of the 9/11 attacks - which saw four U.S.-flag jetliners seized by hijackers and destroyed with all aboard - the cutbacks in business flying an leisure travel alike in the case of the softer economy, and renewed threats of war with Iraq, which could stoke terrorism fears anew.

Shares of all of the major U.S. carriers were lower Wednesday, with American Airlines parent AMR Corp., Delta Airlines and Continental Airlines in double-digit decline and Northwest Airlines not far behind.

On the debt side, a trader saw AMR's 9% notes due 2012 offered at 56, well down from Tuesday's offering levels around 66.25. He noted that the eyes of many investors would be on United Airlines paper Thursday, when the faltering Number-Two U.S. air carrier's unions are expected to deliver their proposals for turning the airline around to management. In the meantime, he estimated, the company's badly battered bonds were still being quoted in the high teens.

UAL Corp., the airline's parent - which was wallowing in red ink even before last Sept. 11's terrorist attack on America - has been seeking $1.8 billion of federal loan guarantees, warning that without those guarantees, it may have to file for bankruptcy. It recently unveiled plans for a turnaround, which include as much as $1.5 billion in annual labor givebacks and other concessions, something the unions have balked at. UAL said this week that Washington would allow it to amend its application to include input from its five unions.

Another trader quoted Delta's 7.90% notes due 2009 down three points at 71 bid/73 offered. At another desk, Continental's 8% notes due 2005 were three points lower, at 58 bid, while Northwest's 7 7/8% notes due 2008 were as much as seven points down on the day, at 53.5 bid.

Back on solid ground, a trader said that Fleming Cos. bonds continuing to weaken, with the 10 1/8% notes trading as low as 71.5 bid/74 offered, after having been offered at 80 Tuesday, with no bids seen.

One of the few areas of upside was homebuilding, after KB Homes and Lennar Corp. raised their guidance, although a trader said that the whole sector "really hadn't given much ground" of late, in contrast to other industries whose bonds have been in clear retreat. The builders, he said had "remained pretty well bid for anyway." He quoted KB's 8 5/8% notes due 2008 at 101 bid/102 offered, up a point. D.R. Horton's 8% notes due 2009 were also up a point, at 101.

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