Secondary levels softer; Nextel holds steady as equity bounces around

By Sara Rosenberg

New York, Oct. 8 - The secondary bank loan market was characterized as softer on Tuesday, according to market sources. Some said that levels are actually off, while others said that they have not seen a tangible change. But most agreed that the underlying tone was weaker.

Meanwhile, Nextel Communications Inc.'s bank debt stayed firm despite the company's equity roller coaster ride on Tuesday and AT&T Corp. broke for trading after a three-day delay.

"The market is trading off generally," a trader said. "Levels are off. The market is just softer."

"It seems quieter and that means softer," a fund manager said. "It seems like people are doing less trading. I'm not seeing a markdown in my prices but inactivity is usually indicative of a weaker market"

When asked what could be causing the softness, the fund manager responded: "There's not a lot of fund raising going on so there's not a lot of new money. There are not a lot of CLOs [coming in] that I can see. And, people are holding on to capital [in anticipation of the large deals, such as Del Monte Foods Co., Burger king Corp. and Ball Corp.]."

Leveraged players involved in Nextel Communications Inc.'s bank debt essentially chose to ignore the company's rocky equity performance on Tuesday, leaving bank quotes unchanged with a bid of 86½ and an offer of 871/2, according to a trader.

"It was a very wide market today. People aren't really focusing on it," the trader said about Nextel. "The stock traded way off and then bounced mostly back." Although the stock was down by almost $1, "no one came in looking to sell," the trader added.

The Reston, Va. telecommunications company's equity dropped following the release of a JPMorgan research note which claimed that Nextel is not recognizing sufficient levels of bad debt expense, is using wide discretion in customer turnover recognition and artificially enhanced 2002 results through timing benefits and one-time adjustments.

Nextel's stock closed at $7.3113, down $0.4287 or 5.54%. The stock opened at $7.46, experienced a high of $7.62 and a low of $6.85.

AT&T Corp.'s bank loan, which was previously anticipated to begin trading on Friday, broke in the secondary on Tuesday with a bid of 92 and an offer of 93, according to a trader. (The Oct.7 issue of the Prospect News Bank Loan Daily incorrectly reported that it did break on Friday)

"It was delayed," the trader said. "They were probably going through documentation with agents."

The credit facility is sized at $4 billion and has a 364-day term. Before year-end, the facility will be reduced to $3 billion, according to the trader.

The Baa2 rated loan is receiving attention from the leveraged market due to its below-par trading levels and enormous size.

AT&T is a New York, N.Y. provider of communications services.

Another new deal was added to the calendar on Tuesday as primary activity continues on its path towards reawakening. Scientific Games Corp., formerly known as Autotote, is scheduled to hold a bank meeting on Oct. 17 for a new $360 million credit facility, according to market sources. Bear Stearns is the lead bank on the deal.

The loan consists of an $85 million revolver and a $275 million term loan, a source told Prospect News. "Libor plus 300 basis points is the indicative pricing for the term loan," the source added.

"It's a best-efforts deal," the source said. "It's not underwritten [meaning] they will only fund as much as they can syndicate.

"The company services state lottery machines," the source continued. "One risk [of getting involved with this deal] would be state contracts. Whenever government agencies are involved there are always complications. The [mitigating factor] is that a lot of state budgets are running deficits right now and lottery is one way to plug the deficit so their contracts wouldn't get terminated this year.

"I think it would be favorably received, depending on pricing of course," the source concluded.

Proceeds will be used to refinance existing debt.

The loan is anticipated to receive a Ba3 rating from Moody's Investors Service and a BB- rating from Standard & Poor's. However official ratings have not yet been released, according to the source.

Scientific Games is a New York, N.Y. provider of services, systems and products to both the instant ticket lottery industry and the pari-mutuel wagering industry.

In follow-up news, QwestDex's bank meeting on Monday "went well, all things considered - it being a tough market," a syndicate source said. "At least half a dozen banks are in as of the meeting. Some are still working on the numbers this week. We're expecting more to be on board by the end of the week. We should have a better sense by Friday."

The directory services company's $1.49 billion loan consists of a $100 million revolver with an interest rate of Libor plus 300 basis points, a $690 million term loan A with an interest rate of Libor plus 300 basis points and a $700 million term loan B with an interest rate of Libor plus 350 basis points.

Tentative upfront fees for the pro rata portion are 125 basis points for a $20 million commitment and 100 basis points for a $15 million commitment, the syndicate source said.

JPMorgan, Bank of America, Deutsche Bank, Lehman Brothers and Wachovia Securities are the lead banks on the deal.

Proceeds will be used to help fund the leveraged buyout of QwestDex by The Carlyle Group and Welsh, Carson, Anderson & Stowe.

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