Nextel prices $500 million quickie deal, four others price also; funds see $768 million inflow

By Paul Deckelman and Paul A. Harris

New York, Oct. 16 - Nextel Communications Corp., taking advantage of positive market sentiment in the wake of its release of good third-quarter numbers, struck while the iron was hot on Thursday, bringing a quickly shopped $500 million offering of 10-year notes to market and pricing it to yield under 7%. At the same time, terms were heard on four scheduled new issues - Boise Cascade Corp.'s $500 million two-part offering of seven- and 10-year notes, upsized offerings from National Nephrology Associates Inc. and DRS Technologies Inc., and a tranche of seven-year notes from NationsRent Cos. Inc.

With the primary market clearly taking over Thursday, the secondary market stepped aside, although some individual issues were seen moving around in reaction to news. On the upside, airline paper was firm in response to positive earnings news from Continental Airlines Inc. and Northwest Airlines Corp. On the downside, Solutia Inc. bonds were off by several points after the St. Louis-based chemical maker said it was in talks with bondholders about a possible restructuring of its debt.

And high yield mutual funds - seen as a key barometer of overall junk market liquidity trends - were heard to have posted their fourth consecutive inflow, and first significant number in weeks, as $768 million more came into the funds than left them in the week ended Wednesday, according to market participants familiar with the weekly fund flow numbers published by AMG Data Services.

The inflow follows inflows over the previous three weeks of $68 million last week and, before that, $79.7 million and $152.9 million. The four-week inflow total, counting the latest week's results, is $1.068 billion. According to a Prospect News analysis of the AMG figures, inflows have now been seen in 26 weeks of the 41 weeks since the start of the year, and the year-to-date net inflow total has swollen to about $17.318 billion - the peak level for the year, edging the $17.312 billion cumulative total seen in the week ended July 16.

The fund flow figures count only those funds which report on a weekly basis, and do not include distributions.

The continued ample liquidity has been seen as the catalyst for the active primary market seen for most of this year, as well as the strong secondary rally in that time.

In primary activity, terms emerged Thursday on a total of $2.26 billion of deals, made up of seven dollar-denominated in five U.S. offerings and an emerging markets yankee transaction.

And sources around the market reported that for the most part execution on these deals demonstrated "strong demand" for new junk bonds on the part of investors.

Four of Thursday's seven tranches were upsized, including the offering from DRS Technologies, Inc., which was increased to $350 million from $200 million.

Two of the seven priced inside of price talk while three others came at the tight end of talk.

And as if to slap an exclamation point on the day's activities, shortly before the market closed there was the news that AMG Data Services had reported a $768 million inflow to high yield mutual funds for the week ending Oct. 15.

"It has been a positive week," commented one sell-side official as word of the inflow circulated the market.

"Seeing stuff trade though the week you had a sense that there is a lot of cash needing to be put to work.

"In the face of a rising Treasury market, with all of that volatility, people want to be involved in high yield - even in the paper that comes in the high sixes and low sevens."

Thursday's upsized DRS Technologies deal falls into the former category.

The Parsippany, N.J. defense electronics supplier priced $350 million of 10-year senior subordinated notes (B2/B) at par to yield 6 7/8%, inside of the 7%-7¼% price talk. Bear Stearns & Co. was the bookrunner.

One source close to the deal described it as a "ridiculous blowout."

"People like the credit and the sector," said the source, adding that pricing levels that moved inside of the original price talk did not seem to generate any notable squawk among investors.

"That indicates to me that people have cash that they need to put to work," said the source.

Another market source reported that the book on DRS Technologies was 10 times oversubscribed.

Elsewhere in the primary market Boise Cascade Corp. priced inside of talk one of its pair of Ba2/BB senior secured note tranches totaling $500 million.

The company sold $300 million of seven-year bullets at par to yield 6½%, lower than the 6 5/8%-6 7/8% price talk. Boise Cascade also price $200 million of 10-year notes at par to yield 7%, at the tight end of the talk which had the non-call-five paper coming 37.5-50 basis points behind the seven-year bullets.

Goldman Sachs & Co. ran the books for Boise Cascade.

In drive-by action Nextel Communications, Inc. showed up early Thursday with a $500 million 10-year senior notes offering (B2/B+) via JP Morgan and Goldman Sachs.

Initially price talk on the deal, which was marketed via an investor conference call, was heard at the 6 5/8% area. Talk later widened to the 6 7/8% area, which is where the par-pricing Nextel notes came.

Also upsized and pricing at the tight end of talk was NationsRent Cos., Inc. which sold $250 million of seven-year senior secured notes (B2/BB-) at par to yield 9½%.

Price talk on the Fort Lauderdale, Fla.-based rental equipment company's deal, led by Jefferies & Co. and Wachovia Securities, was 9½%-9¾%. The deal was increased from $225 million.

And National Nephrology Associates, Inc. also upsized it offering to $160 million from $150 million. The Nashville-based provider of dialysis services sold its eight-year senior subordinated notes (B3/B-) at par to yield 9%, bringing it home at the tight end of the 9%-9¼% price talk.

Banc of America Securities ran the books.

In emerging markets corporate action, Thursday, Columbian brewer Bavaria SA priced an upsized offering of $500 million of 8 7/8% eight-year senior unsecured notes (Ba3/BB/BB) at 99.355 to yield 9%. Price talk on the Citigroup-led offering was 9% area and the size was increased from $400 million.

Elsewhere among Latin American corporate credits the roadshow reportedly began Thursday for Petrobras Energia SA's $100 million minimum of five- and 10-year bonds (Caa1/B-).

Merrill Lynch is the bookrunner on the Argentinean energy company's offering, which will be marketed in the U.S. during the week of Oct. 20, with pricing expected to take place that same week.

The new Nextel bonds priced way too late in the session for any secondary trading. However, some of the deals which priced earlier were seen moving around, with a trader quoting the new NationsRent notes as having firmed to 102.25 bid, 102.75 offered from their par issue price. The new Boise Cascade 6 ½% senior notes due 2010 and 7% seniors due 2013 were quoted at 99.75 bid, 100.25 offered, versus their par issue price.

A trader said the new National Nephrology Associates 9% senior subordinated notes due 2011 were "pretty well received," with the bonds having firmed to 103.25 bid, 103.75 offered from their issue level at par.

Back among the established issues, the trader saw Nextel's 7 3/8% senior secured notes due 2015 - themselves a new deal not so very long ago, having priced on Sept. 17 - as having initially firmed after the wireless operator reported third-quarter earnings of $348 million (32 cents a share), even though the numbers were below its year-ago profit total of $383 million (55 cents a share), since Nextel reported an encouraging 27% rise in revenue to $2.89 billion from $2.28 billion a year ago, and raised its previous per-share earnings guidance for the year to at least $1.15, up from its prior guidance of at least $1 a share. Wall Street anticipates $1.11 a share for the year.

Perhaps even more significant than the earnings data, Nextel - best known for its walkie-talkie-like service, something none of its larger competitors has ready to go yet, said that it added about 646,000 subscribers during the third quarter, bringing total subscribers to 12.3 million at Sept. 30.

The trader said "the numbers were good, pretty strong numbers," which lifted the 7 3/8s as high as 104.5 bid from Wednesday's close at 102.875 bid, 103.375 offered.

But after word circulated around the market that Nextel was doing a big-new drive-by deal, the 7 3/8% notes fell back to close at 103 bid, 103.5 offered, essentially unchanged.

At another desk, the company's benchmark 9 3/8% notes due 2009 were seen up a quarter point on the day at 109.

Elsewhere, earnings news helped give the bonds of major air carriers some altitude. Continental Airlines reported that it earned a third-quarter net profit of $133 million ($1.83 per share) - a sharp turnaround from its net loss of $37 million (58 cents per share) a year earlier. Even excluding a $100 million gain from Continental's sale of stock in ExpressJet Holdings, Continental still showed a profit of 49 cents per share.

And Northwest Airlines likewise swung back to the black in the latest period, earning $42 million (49 cents per share) versus $46 million of red ink (55 cents per share) a year earlier.

"The airlines were up strongly today." a trader said, "about two or three points" across the board. He quoted Continental's 8% notes due 2005 at 98.25 bid, 99.25 offered and saw Northwest's 7 7/8% notes due 2008 as having moved up to 79 bid, 81 offered from prior levels at 75.5 bid, 77.5 offered.

Even the bonds of airlines that did not report earnings Thursday were better, the trader said, pegging Delta Air Lines' 7.90% notes at 79.5 bid, 80.5 offered, up from 76 bid, 77 offered, and AMR Corp.'s 9% notes due 2012 at 83 bid, 84.5 offered. "Six months ago, you could have bought those bonds at 13," he said of the American Airlines corporate parent's debt.

Also on the upside, another trader said, was Adelphia Communications Corp., all of whose bonds, he said "were up three or four points from the beginning of the week." He opined that investors "think the bonds are going to par - and then some " - and said that at least one large trading house had issued an internal memo recommending purchase of the bankrupt Greenwood Village, Colo.-based cable operator's bonds precisely on the assumption that the senior debt could be valued at par once the company restructures.

He quoted Adelphia's 10¼% notes due 2006 at 85 bid, 87 offered and its 10¼% notes due 2011 at 86 bid, 88 offered. Adelphia's 10 7/8% notes due 2010 were at 85 bid, 86 offered.

Another trader, however, was skeptical about the par-value speculation surrounding Adelphia. "This is a company that still has a lot of issues to resolve," he declared. "What makes anyone think these bonds are going to be at par value?"

At another desk, the 10 7/8s were seen up a point at 84 bid, and the company's 9 7/8% notes due 2007 likewise up a point at 83.

A market source there meantime saw UbiquiTel Corp.'s zero-coupon notes due 2010 three points better, at 70 bid, although he saw no news out on the Sprint PCS affiliate.

And the source saw Shaw Group's 10¾% notes due 2010 two points better at 99, despite the acknowledgement by the Baton Rouge, La.-based provider of comprehensive services to power and energy companies that its fourth- quarter earnings fell more than 70% as power companies scaled back construction plans. But Shaw also announced plans to sell $200 million of new shares and use the proceeds to repurchase its convertibles that are putable in May next year.

On the downside, textile maker Dan River Inc.'s bonds - which had gotten clobbered on Wednesday after the company said that it was in violation of its covenants, falling more than 30 points on the session to end at 45 - were down another five points Thursday, ending around 40 bid, after having dipped as low as 36 during the session, a trader said. "They got hit right in the gut," he marveled.

Solutia Inc.'s bonds were quoted two points lower, after the company said that it was in talks with bondholders on restructuring its debt and said it had hired advisers to discuss alternatives, which could include bankruptcy or the sale of the company.

Solutia's 7 3/8% bonds due 2027 dropped to 64 bid from prior levels at 66, while its 11¼% notes due 2009 dipped to 95 bid from 97. Its 6.72% bonds due 2037 - which are putable at par in October 2004 - ended at 92 bid, 94 offered, down from 95.5 bid, 96.5 offered. But its euro-denominated 2005 notes were unchanged at 96.5 bid, 98.5 offered.

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