Lucent up on news of $1.3 billion convertible deal; Impress Group prices euro offering

By Paul Deckelman and Paul A. Harris

New York, May 28 - Lucent Technologies Inc. bonds pushed higher Wednesday, after the telecommunications equipment maker announced plans for a $1.3 billion convertibles mega-deal, seen as strengthening its liquidity position.

The new-deal arena, meanwhile, for a second consecutive session maintained a more relaxed pace than the sizzling rate of activity seen last week - further evidence, players suggest, that the market is taking a breather and trying to digest the enormous amount of new paper sold last week before it goes back for more.

But although the preponderance of news during Wednesday's primary market session pointed to a more sluggish high yield, according to sources, the junk bond market remains highly liquid, they said.

In spite of last week's reported outflow from high-yield mutual funds - the first since February - in spite of postponed and restructured deals, and in spite of some recent transactions coming at the wide end of price talk, one sell-side official advised Prospect News late in Wednesday's session that it would be a mistake to believe that the market has cooled off.

"There is a misconception that the market isn't hot," said the official. "For the most part the market is still holding up. It's just a question of timing and making sure you see the right accounts and get them the due diligence that they need in order to be efficient.

"Frankly they still have cash on hand. But they don't want to be stupid about it, like a lot of accounts were when the bought the Dole deal or the Lyondell deal that traded off three points on the first day of trading. They can't afford that.

"People are just being more diligent than they used to be."

One deal priced during Wednesday's session, a eurobond offering from Dutch packaging firm Impress Group BV, which sold €150 million of four-year senior guaranteed notes (B2/B-) at par to yield 10½%, at the wide end of the 10¼%-10½% price talk.

Deutsche Bank Securities Inc. was the bookrunner on the Rule 144A/Regulation S offering.

And news of two new offerings circulated the market late in Wednesday's session.

R.J. Tower Corp., a subsidiary of Grand Rapids, Mich.-based auto parts supplier Tower Automotive, Inc., will begin a roadshow for its offering of $250 million of 10-year senior notes on Thursday, with the expectation that marketing will conclude on June 5.

JP Morgan and Banc of America Securities are joint bookrunners on the Rule 144A/Regulation S offering.

The market also learned, via a late Wednesday press release in conjunction with a Standard & Poor's ratings release, that Sequa Corp. will offer a $100 million add-on to its 8 7/8% senior notes due April 1, 2008 (BB-).

The Rule 144A deal is expected to close in June, according to the release from the New York-based manufacturer of aerospace and propulsion equipment, metal coating, specialty chemicals and other products.

The original $200 million priced in late March, 2001, with Bear Stearns & Co. running the books and JP Morgan acting as joint lead manager.

However the talk in the marketplace, Wednesday, seemed to focus on deals that have not happened, rather than those that have recently priced or newly announced.

With regard to the former category, several sources mentioned the postponed Huntsman LLC offering of $250 million of seven-year senior notes (B3/B-), pulled Tuesday because of "market conditions."

Sell-side sources also mentioned deals that they expected to price before the three-day Memorial Day break, pointing out three deals in particular.

One of them was Crum & Forster Funding Corp.'s $200 million of 10-year notes (B1/BB) via JP Morgan, which, according to several sources, had been initially pegged as business to be completed before Memorial Day. On Wednesday the market heard price talk of 10¾%-11% on the Morristown, N.J. insurance company's deal, which is expected to price on Thursday or Friday.

Another offering that was expected to be completed before Memorial Day, according to sources, was refiner Alon USA's $150 million of eight-year senior notes (B3/B) via Merrill Lynch & Co. and Credit Suisse First Boston. Price talk of 11% area was heard on the refinancing deal on May 21. One informed source told Prospect News that talk had not officially widened on the deal. However wider talk, along with some restructuring on Alon would not be sufficient to cause cardiac arrest, the source added.

The other pre-Memorial Day holdover, sources said, is Quality Distribution, LLC and QD Capital Corp.'s $175 million of six-year senior secured notes (Caa1/B-) via Credit Suisse First Boston. Prospect News learned that the Tampa, Fla.-based tank truck fleet operator will do investor conference calls on Thursday and Friday, with pricing expected on Monday or Tuesday.

Perhaps not surprisingly, sell-side sources attributed the market's recent spate of negative news - deals pricing wide of price talk, deals delayed and deals pulled - to investors as well as issuers.

"Investors feel they have more of an upper hand than was the case a couple of weeks ago," one official commented not long after Wednesday's close. "They now feel that they are in a position to get pricings that are more in line with the credits."

Another sell-side official, noting that the spate of negative news was, by and large, "deal-specific," remarked Wednesday evening that to a certain extent issuers need to bring a more realistic set of expectations as to where their junk bonds can be priced.

Traders said they had not seen the new Impress euro notes in the secondary market by the time the day's trading wound down.

Elsewhere, Dimon Inc.'s new 7¾% senior notes due 2013, which had priced at par on Tuesday, were seen having firmed slightly to 101 bid/102 offered on Wednesday.

Back among the already established issues, Lucent's bonds were clearly the standout performer of the session, after the Murray Hills, N.J.-based telecom equipment maker announced plans for a public offering of $1.3 billion of convertible bonds; it said that proceeds from the sale would go toward the repayment or possible repurchase of certain short- and medium-term obligations over time, as well as for general corporate purposes.

And Lucent had further good news on the financing front, announcing that it has entered into new senior secured credit facilities totaling $595 million - which may grow as more banks enter the agreement. The facilities as now constituted will allow the company to issue up to $245 million in new letters of credit, renew up to $350 million of existing letters of credit, and secure certain other obligations.

A market source quoted Lucent's benchmark 7¼% notes due 2006 as having pushed up to 95 bid from prior levels at 92, while its 6.45% bonds due 2029 rose to 72 bid from 69.5.

A trader said that the impact of the announcement was felt more on the shorter-dated bonds, since "whenever you're going to add liquidity to the capital structure, it should add liquidity to the front end, which it did in this case."

But at his shop, where the Lucent bonds had been pegged a little higher at the end of Tuesday's dealings, the trader said they were only "up a touch," estimating the 71/4s at 94-94.5 bid, but he saw "no great move, no three, or four or five-point move, anything like that."

Another trader, however, who had seen the 7¼% notes hanging around a 90-92 context earlier, declared that "if they're up around 94, 95, then that's up quite a lot." He said that the added liquidity for the sometimes troubled company "puts them in good shape."

Lucent, a former unit of AT&T before it was spun off, had been a Wall Street darling before the implosion of the whole telecom sector which began in 2000 and the resulting cuts in capital expenditures by the remaining phone industry players forced the manufacturer to radically downsize in order to lower its cost structure and break-even point; Lucent now has only about one-third of the 106,000 employees it had during the heady days of the late 90's telecom boom.

Among other communications names, Nextel Communications Inc.'s benchmark 9 3/8% notes due 2009 were unchanged at 106.25.

XM Satellite Radio was likewise heard unchanged, its zero-coupon notes due 2009 hanging in at 72 bid, even as the satellite radio operator announced that announced that Wal-Mart Stores, Inc. has begun selling XM's SKYFi Radio in 2,100 of its 2,800 stores nationwide. The news was actually anti-climactic; earlier in the month, Delphi Corp., which manufactures the sets, had said they would be sold through Wal-Mart.

Charter Communications Holdings's notes firmed slightly, its 8 5/8% notes due 2009 rising to 70.25 bid from 69.5, while its 9.92% notes were half a point better, at 60. Fellow cabler Adelphia Communications Corp. - currently wallowing in Chapter 11 - firmed somewhat on the news that it had reached agreement with its lenders on a deal that will allow it to access funds so it can continue operations while it restructures. Adelphia's 10 5/8% notes due 2010 moved up to 52 bid from 51.

Elsewhere, things were generally quiet. "Today was a non-event," the trader said, "just dreadful."

A second trader concurred that "it was a slow day. There was reasonable flow, but nothing great. I'd call it a steady day. There wasn't really much that made anyone sit up and take notice."

Yet another went even further.

"Today was worse than yesterday," he quipped. "The lack of a new-issue calendar and last week being a holiday week - it always takes guys a couple of days to get back into the swing of things" helped to depress activity, he said.

"I think the market generally speaking has been softer and money's been coming out. Stuff's just lower, guys don't feel like hitting the down bid [but] but in some cases they're being forced to."

He saw no "really significant credit events" that have shaken anything up. It's just tired, illiquid - and very quiet."

© 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.