Lucent up as company hopes for return of profitability; American Tower prices upsized unit deal

By Paul Deckelman and Paul A. Harris

New York, Jan. 22 - Lucent Corp. bonds and shares rose Wednesday, even though the telecommunications equipment maker reported yet another sizable quarterly loss, as investors focused instead on the company's optimistic projections about being able to get back in the black this year. On the downside, AMR Corp, bonds lost altitude after the corporate parent of American Airlines posted a big quarterly loss, one of many major U.S. air carriers continuing to wallow in red ink, with no relief in sight for the foreseeable future.

In primary market activity, American Tower Corp. sold an upsized $420 million offering of units consisting of new debt and equity warrants, while Georgia-Pacific Corp. doubled the size of its planned bond offering to $1 billion. A new offering joined the pipeline from Star Gas Partners, LP.

Also timing emerged on deals from European issuers Eco-Bat Technology Ltd. and Legrand, SA.

Boston-based tower company American Tower upsized its units slightly to $420 million from $400 million and priced the zero-coupon securities at 51.966 to yield 12¼%. The units, brought to market via bookrunner Credit Suisse First Boston, consists of units comprised of a senior subordinated discount note (B3/CCC+) and warrants for 5.5% of the company.

Meanwhile Star Gas treasurer Richard F. Ambury told Prospect News Wednesday that the company would take to the road with $200 million of 10-year senior notes (B), figuring to price the deal on Jan. 31 via bookrunner JP Morgan and joint lead Wachovia Securities, Inc.

The Stamford, Ct.-based energy company will use the money to repay debt, Ambury said.

Atlanta tissue-maker Georgia-Pacific doubled the sized of its senior notes offering (Ba2/BB+) to $1 billion from $500 million, according to a syndicate sources, one of whom told Prospect News on Wednesday that the deal, via Goldman Sachs and Banc of America Securities, is going very well.

The senior notes, which are set to price Thursday afternoon, will come in two tranches: seven-year bullets talked at 8 7/8%-9 1/8%, and 10-year-non-call-five notes with price talk of 9¼%-9½%. Tranche sizes remain to be determined.

Meanwhile price talk of 10%-10¼% emerged Wednesday on Eco-Bat Technology's €185 million of 10-year senior guaranteed notes (B1), which figure to price late in the week via Credit Suisse First Boston and Salomon Smith Barney.

And roadshow dates were heard on Legrand, SA's offering of $400 million and €200 million 10-year notes. The U.S. roadshow starts Thursday and runs through Jan. 30 following which the deal goes to Europe, where the roadshow goes from Jan. 31 through Feb. 5. Credit Suisse First Boston and Lehman Brothers are joint bookrunners.

Louise D. Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund told Prospect News on Wednesday that she suspects that a good deal of the money that has been flowing into high yield has been coming out of equities.

"In high yield you have a coupon that is going to buffer you," Rieke explained. "Even if prices stay flat and you're able to recoup your coupon you should have an 8% return. So it's not as volatile as equities have proven to be. But on the upside you can get an equity-like return in a good year."

The Waddell & Reed portfolio manager told Prospect News that she was inspecting a number of the credits on the forward calendar.

In particular she mentioned Premcor Refining Group's $400 million of 10-year senior notes (Fitch BB-) via Credit Suisse First Boston.

"We're taking a strong look at that one," she said. "It's a company in a lousy industry but it has good management.

"Tom O'Malley built up Tosco and sold it and I think that's what they want to do here because before he came in the thing was going nowhere and Blackstone needed somebody to get them out of it.

"So Tom O'Malley's is the savior so far. He's got a great reputation with all the equity people, they all love him. So even the high-yield people are starting to love him.

"He's got the wind at his back."

She also mentioned that she would have a look at Central Garden & Pet Co.'s planned $150 million 10-year senior subordinated notes (B+) via Banc of America Securities and CIBC World Markets, as the Lafayette, Calif. pet and lawn products company's roadshow was scheduled to stop in Kansas City, Mo.

And she acknowledged that she would also eye TRW Automotive's $1.4 billion four-part deal (B+) via JP Morgan, Credit Suisse First Boston, Lehman Brothers, Deutsche Bank Securities and Banc of America Securities.

"They're scheduled to come in here during the first week of February," she commented.

"I have very little exposure to the auto sector but it's a big one and you have to take a look at it," Rieke added.

"Whether you buy it is another story."

When the new American Tower zero-coupon senior subordinated notes due 2008 were cleared for secondary activity, a trader saw them break at 57 bid, 58 offered - a five point jump from their 51.966 issue price earlier in the session, although he allowed that he had not seen any actual trading at that lofty level.

American Tower's existing 9 3/8% notes due 2009 meantime ended half a point better at 82.5 bid.

But Lucent was clearly the star of the secondary session; its 7¼% notes due 2006 jumped six points to 72.5 bid/73.5 offered. "The Street seemed to love it [the earnings data] - despite the Murray Hill, N.J.-based telecom equipment maker's eleventh consecutive quarterly loss.

Lucent said that in its fiscal first quarter ended Dec. 31, it lost $389 million (11 cents per share), although this was an improvement from the $465 million (14 cents per share) that it had lost in the year-earlier period. Excluding one-time items, the per-share loss came to 15 cents - narrower than the 21 cents per share that analysts were looking for.

Lucent indicated that better times might be around the corner; while revenues in the latest quarter slid 42% to $2.08 billion from $3.58 billion a year earlier, and came in under the analysts' forecasts of $2.12 billion, Lucent said it expects fiscal second-quarter sales to rise by 20% to about the $2.5 billion level, and then to stabilize, thanks particularly to strong wireless industry demand.

While Lucent reaffirmed its earlier guidance that total sales for 2003 would be about $9.8 billion - a 20% decline from 2002 - it also reiterated its intentions of returning to profitability in fiscal 2003, which ends in September, by continuing to cut expenses so as to lower its break-even point to $2.5 billion in quarterly revenue by that point.

Equity investors were just as enthused about the company's prospects for climbing out of its hole; they took Lucent's New York Stock Exchange-listed shares up 13 cents (7.74%) to $1.81, on volume of 90.1 million shares, double the norm.

And as Lucent rose, so did its north-of-the-border rival, Brampton, Ont.-based Nortel Networks Corp.

"Lucent always takes Nortel with it," the trader said, quoting the Canadian telecom equipment manufacturer's 6 1/8% notes due 2006 at 78.25 bid, up from76.5 bid.78.5 offered on Tuesday. Nortel's shares were up eight cents (3.52%) to $2.35 on NYSE volume of 28.9 million, slightly below average.

While Lucent investors seemed able to look past the red ink that the company is still posting and toward a possibly brighter future, there was no such silver lining for AMR bondholders, after the Dallas-based parent of Number One U.S. air carrier American reported a pre-tax loss of $828 million in the fourth quarter. After figuring for taxes and other special items, the fourth-quarter net loss still came to a yawning $529 million ($3.39 per share), although that was not quite as bad as the $798 million ($5.17 per share) that it lost in the year-ago fourth-quarter, which reflected the sharp downturn in air travel in the wake of the Sept. 11 terrorist attacks against America - and American, which lost two planes.

But the overall 2001 loss of $1.8 billion ($11.43 per share) paled in comparison with the $3.5 billion ($22.57 per share) of losses for all of 2002 - the biggest yearly loss in aviation history.

And the end is not yet in sight - American said that given the continued depressed state of the airline industry in the wake of war and terrorism fears, it expects the pre-tax loss for the current first quarter to be about the same as the fourth quarter's - and the after-tax loss to be even larger.

AMR bonds "got shellacked," a trader said, quoting its 9% notes due 2016 as having fallen seven points to 41.5 bid.42.5 offered. He said other airline bonds were weaker, but "there wasn't much other activity [in the sector] to speak of," outside of Northwest Airlines' 8.52% notes due 2004 dipping two points to an offered level at 86.5.

Another trader quoted AMR's 9% notes due 2012 five points down, at a wide 43 bid/47 offered, and saw Northwest's 8 3/8% notes due 2004 offered at 86.5, down from 89 bid/90 offered on Tuesday, "so there's weakness there in the sector."

Noting news stories that AMR would seek to renegotiate its loan covenants and Standard & Poor's warning that it may cut the company's BB- long-term credit rating because of the heavy losses and dwindling sources of backup liquidity, the trader declared that "this is really ugly. The market really treats AMR like it's next on the diving board into Chapter 11. That's the one the market seems to be saying looks more and more likely, and they're starting to work with their banks already."

Equity investors also seemed to have little confidence in AMR's prospects, despite CEO Donald Carty's assertions that he did not see his company following in the footsteps of rivals US Air Group and United Airlines, both of whom sought bankruptcy protection last year.

AMR's shares nosedived $1.13 (23.06%) to end at $3.77 on NYSE volume of 8.6 million, nearly four times the usual turnover.

Back on the ground, Tyco International reported fiscal first-quarter profits fell nearly 50% from year-ago levels. But its bonds were little changed, traders said, with the 6 1/8% notes due 2008 at 95 bid/95.5 offered "down half a point on the offered side, at worst," a trader said.

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