Centennial, Nextel Partners lead trio of deals; Nextel to redeem preferred

By Paul Deckelman and Paul A. Harris

New York, June 16 - Monday shaped up to be almost a repeat of Friday's session, as the high yield market saw a trio of new deals price - all of them upsized - adding some $1.7 billion of new supply to a new-issue sector that's been floating on a sea of ample liquidity.

Secondary activity meanwhile continued muted, although Nextel Communications Inc. debt was heard slightly better, as the wireless operator announced plans to take out some $463 million of high-coupon preferred stock.

Among the new deals contributing to the primary market's red-hot performance, were wireless telecoms Centennial Communications Corp., which doubled the size of its deal to $500 million, and Nextel Partners, Inc., which upsized its offering to $450 million from $425 million.

But as the bits were being swept up after Monday's action came to a close, the question making the rounds recalled one that twister Chubby Checkers long ago submitted to dancers who were attempting to shimmy beneath the descending horizontal limbo pole: "How low can you go?"

The Centennial deal, with its Caa1 from Moody's and CCC from Standard & Poor's, was the lowest-rated high-yield bond to price since Trump Casino's $65 million of second priority mortgage notes on March 13.

And one informed source, attempting to find a lower yield for "a true six-C deal" than the 8 1/8% that was printed on Nextel Partners' new bonds (expected ratings Caa1/CCC+), reported late in the session that it had become necessary to turn back the hands of time at least as far as the 1997-98 time frame. The hunt, as Prospect News rang off Monday night, was still going on.

"It was great for Nextel to come at the tight size of price talk (8¼%-8½%), and for them to be able to upsize it," said the source. "But to have Caa1/CCC+ come in the low eights is just absurd."

Another source, earlier in the session, reported the book was three-times oversubscribed, which coincided with color from the official quoted above who reported that on Monday morning there were $1.2 billion of orders.

Nextel Partners' new $450 million of eight-year senior notes priced at par, with Morgan Stanley and Credit Suisse First Boston running the books.

And as the informed source told Prospect News, the Kirkland, Wash. digital wireless communications services company has to be pleased. Proceeds from the new 8 1/8% notes of 2011 will be used to finance its tender offer for its 14% senior discount notes due 2009.

Although Centennial Communications came away with an interest rate that is an even 200 basis points higher than Nextel Partners, it too was apparently please with the 10 1/8% yield printed on its new 10-year senior notes (CCC) because the Wall, N.J.-based wireless communications company doubled the size of its offering to $500 million from $250 million.

The Credit Suisse First Boston-led deal came at the inside end of the 10¼% area price talk.

In addition to the two telecom deals, Greenville, S.C.-based newsprint company Bowater Inc. sold an upsized restructured issue of $400 million of 6½% 10-year senior notes due (Ba1/BB+) at 99.610 to yield 6.554%. UBS Warburg and JP Morgan were joint bookrunners, on the quick-to-market transaction, which was increased from $350 million.

And Prospect News heard terms on one split-rated offering, Monday. Rogers Cable Inc., a subsidiary of Toronto-based Rogers Communications Inc., also upsized its deal, pricing $350 million of 10-year senior secured second priority notes (Ba2/BBB-) at par to yield 6¼%. It was raised from $300 million. Citigroup was bookrunner on the deal that was reported to have price off the investment-grade desk.

Two new deals took up spaces on the populous forward calendar on Monday. Boston-based information management services firm Iron Mountain Inc. expects to price $150 million of senior subordinated notes due 2016 (B2/B) in a quick-to-market public transaction on Tuesday via Bear Stearns. And Remy Cointreau SA pulled the cork on a €150 million seven-year senior notes offering (Ba2/BB) via Banc of America Securities and BNP Paribas. The Europe-only roadshow was reported to be underway Monday.

Meanwhile price talk of 6 1/8%-6 3/8% emerged on Offshore Logistics, Inc.'s proposed $200 million of 10-year senior notes (Ba2/BB+), expected to price on Tuesday morning via Credit Suisse First Boston.

And price talk is 9% area on Le-Nature's, Inc. $150 million of 10-year senior subordinated notes (B3/B-), expected to price on Wednesday morning via Wachovia Securities is the bookrunner.

Well after Monday's session came to a close Prospect News, which had been hearing from sources throughout the session that high yield is now red hot, asked a sell-side official to color in just HOW hot the market is.

"Market conditions are strong," said the official. "I wouldn't say we've gotten back to the point where investors are frantic. They certainly are doing credit work, attempting to avoid putting in large orders for credits that may trade down in the secondary market.

"However it doesn't matter what index you use, they're all posting double-digit returns. The equity market is just starting to see that. But a lot of investors are much more comfortable investing in the high-yield market where you're getting 16% returns, versus the S&P which is around 12%, and there is no security.

"A lot of mutual funds are still attracting a lot of money from investors who are looking to stay in the fixed-income arena.

"And the supply looks like it's going to be there because equity sponsors are obviously going to take advantage of this hot market.

"However, between the amount of new paper that is coming in the next two weeks, combined with the summer slowdown, I think that come July 4 the primary market will slow down a little bit."

Traders did not see much secondary action in the new bonds, with only Centennial Communications' 10 1/8% senior notes due 2013 observed having gone anywhere. The bonds came at par, but were seen having traded up to 101 bid, 102 offered 20 minutes after they were freed.

"The deal upsized. It came tight. And they're still trading two points above par in the secondary, which is where we're planning to open the day tomorrow," one source said.

Traders reported no activity in the day's other new issues, and not too much in the way of activity in bonds that priced Friday.

Among the latter, LodgeNet Entertainment Inc.'s 9½% senior subordinated notes due 2013, which on Friday had moved up to 103 bid, 103.5 offered from their par issue price, were quoted offered at 104.25, as were Ipsco Inc.'s 8¾% senior notes due 2013. Cooperative Computing Inc.'s 10½% senior notes due 2011 firmed slightly to 102.75 bid from 102.375 late Friday, and Sabesp's 12% senior notes due 2008 were quoted at 101.5 bid.

There was also little or no activity in the existing bonds of companies which were bringing new deals to market or which will be bringing such deals shortly. Iron Mountain's existing 8 5/8% notes due 2013 and 7¾% notes due 2015 were qouted at 108.75 bid and 106.75 offered, respectively.

Traders saw little additional movement in Xerox Corp. notes, which had firmed last week on news that the Stamford, Conn.-based copier and document systems giant would bring $1 billion of new debt and undertake other financing moves as part of a $3.1 billion recapitalization.

With most of the company's relatively low-coupon bonds already trading at or above 101 bid, "there's no place for them to move," one trader said. Another said that he "hadn't really seen it ramp up" since then, with only some series of medium-term notes, "which have been illiquid and really cheap" improving subsequent to the initial gains.

Nextel Partners' existing 12% notes due 2009 showed "no real movement," according to a market source, who quoted them a little higher, at 114 bid, but with little real dealings, while the company's other outstanding bonds were unchanged.

Meanwhile Nextel Communications' 9 3/8% senior notes due 2009, were quoted as having firmed to 109 bid, 110 offered, up a point from prior levels, although a trader said that they had "backed off from higher levels earlier in the session."

Nextel meantime announced that it would redeem $463 million of 13% preferred shares (see Tenders and Redemptions elsewhere in this issue for full details). It was the latest in a series of moves the Reston, Va.-based wireless carriers has made to trim debt from its balance sheet, which also include its buyback of $568 million of long-term debt and preferred stock during the first quarter ended March 31, and the retirement of debt and preferred stock over the previous year to a total of $3.8 billion.

Nextel's Nasdaq-traded shares meantime rose $1.377 (9.52%) in Monday's dealings to end at $15.847; volume of 35.278 million shares was about one-and-a-half times the norm.

A trader said that Calpine Corp. paper "was better today, especially on the short end" although he saw no fresh news out on the San Jose, Calif.-based independent power producer. He quoted Calpine's 8¼% notes due 2005 as having firmed to 88.5 bid, 89.5 offered from 87 bid, 88 offered on Friday.

At another desk, a participant said of Calpine "sure, they moved a little - they've been moving every day," particularly since the company announced last week that it had sold $802 million of secured debt through a special-purpose entity, easing some investor concerns about liquidity issues. He quoted the 81/4s as having moved up to 88.5. However, other issues, like its 10½% notes due 2006, were unchanged at 88.

That market observer also saw AES Corp. debt as having firmed about half a point, with the Arlington, Va.-based power operator's 10¼% notes due 2006 at 99.5 bid and its 9 3/8% notes due 2010 at par.

A trader elsewhere said of AES "man, those things have moved," especially since the company managed to tender for a sizable portion of its senior and senior subordinated notes several weeks ago, but he allowed that AES bonds, such as its 9½% notes due 2009, at par bid, had probably firmed to that level last week, and did "nothing today."

At another desk, a trader said he had seen "sellers come out of the woodwork, if anything" on AES; he also quoted its 9 ½% notes due 2009 as having closed essentially unchanged at 100 bid, 100.5 offered.

The trader saw little movement in Owens-Illinois bonds, despite the Toledo, Ohio-based packaging company's news that certain of its subsidiaries had entered into new credit agreements totaling $1.9 billion in order to pay off debt due next year. "Ahhh," he said, "they're just taking out an old [bank debt] facility with a new facility - it has nothing to do with the bonds."

Owens-Illinois' 7 3/8% notes due 2008 were quoted around 98.75 bid, 99.75 offered.

One upsider on the session was Levi Strauss & Co. debt, which had softened several points in Friday's dealings; the San Francisco-based apparel maker's 11 5/8% notes were seen up as much as three points in the session in an apparent snapback from Friday, closing at 88 bid.

Overall, a trader said, "the market tone felt good, but there was nothing dramatic going on."

The trader also said that he had seen little real slippage after Moody's Investors Service cut the ratings of tobacco giant R.J. Reynolds Holdings Inc. to Ba2 from Baa3 previously, citing "RJR's uncompetitive operating cost structure; Moody's expectation of significant volume drops in the US tobacco market; increased competition from small manufacturers; and the difficult litigation environment that RJR Tobacco faces over the medium term."

The trader said the company's bonds were down perhaps ¼ to ½ point, indicating that investors probably expected the downgrade and may have already priced it in.

RJR's 7¼% notes due 2012 went home at par bid, 101 offered.

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