Market awaits Williams filing in vain; tower issues up on Sprint news

By Paul Deckelman and Paul Harris

New York, March 1 - High yield marketeers spent much of an otherwise less-than-eventful day Friday speculating whether the embattled Williams Communications Group Inc. would drop the other shoe and announce that it had filed for bankruptcy protection from its bondholders and other creditors, but by the end of the session, no such filing had been seen. The Williams death watch chased most telecom investors to the sidelines, but some upside activity was seen in wireless and tower credits, which were said to have been buoyed by good numbers from Crown Castle International and by positive financing news from investment-grade wireless giant Sprint Corp.

Primary activity was confined to the appearance of one new deal. Rotech Healthcare, an Orlando, Fla.-based respiratory therapy provider, will use proceeds from its new $300 million of senior subordinated notes via joint bookrunners UBS Warburg and Goldman Sachs & Co. as part of its Chapter 11 exit financing. The roadshow starts Tuesday, with pricing expected on March 14.

A trader said early attention in the secondary market turned to Williams, which on Monday had said that a Chapter 11 filing could be among the restructuring options it might explore, as well as options which might result in a significant dilution of its shareholders' equity. That was seen in the stock and bond markets as a reversal of the Tulsa, Okla.-based long-haul telecom carrier's Feb. 4 statement that a filing or a share dilution were not among the courses of action it was contemplating.

"The eyes were on Williams when its stock didn't open, and the talk was that they might file today," he noted. However, later in the session, it became apparent that the stock opening was delayed as the New York Stock Exchange investigated whether to delist Williams shares for failing to maintain a $1 price or higher for at least 30 consecutive sessions.

"Once everyone saw that it wasn't the end of the world," the trader continued. The Williams debt was actually bid up slightly, the benchmark 10 7/8% notes up perhaps half a point to 13.5 bid, "but there was nothing considerable in that movement."

Elsewhere in the telecom sphere, he said, "people were mostly staying away, watching to see whether Williams would file. One of the few sector issues trading, Williams rival Level 3 Communications Inc.'s widely followed 9 1/8% senior notes due 2008, got as good as 40.5 bid during the session but generally stayed in its previous range around 40.

One part of the telecom world which seemed to be seeing some activity Friday, market participants said, was in the wireless and communications antenna tower area. The sector was said to have been helped by investment-grade wireless and long-distance giant Sprint Corp.'s announcement that it had lined up a $1 billion bank loan from Citibank NA and Deutsche Bank AG, on top of its already existing $5 billion revolving credit facility. Westwood, Kan.-based Sprint will put up its directory publishing business as collateral. It plans to raise another $500 million through a financing program that involves accounts receivable from its Sprint PCS operation.

It further said that it will lower its 2002 capital spending as part of a drive to cut its cash requirements for the year to about $1 billion from the previously expected $1.7 billion. About $300 million of those savings be attributable to Sprint PCS, with the company predicting reduced capital needs due to a "high likelihood of either a significant delay or termination of the availability of the NextWave spectrum" (Sprint PCS had expected to compete for a portion of the valuable radio-frequency spectrum licenses being relinquished by troubled start-up operator NextWave as part of its Chapter 11 restructuring). As a result of reduced capital expenditures, Sprint said it now expects the FON Group (the long distance half of the company) to be free cash flow positive for the full year 2002. Both the PCS Group and FON Group are expected to be free cash flow positive for the full year 2003.

Sprint, like rival investment-grade long-distance operators Qwest Communications International Inc. and WorldCom Group, had recently been slammed around by investor fears over liquidity issues, which seem to have been eased by the latest announcement. The lining up of alternative financing means Sprint won't have to tap into its bank lines if it has difficulty selling commercial paper, as Qwest did, and made it more likely that its Baa1/BBB+ ratings will not be whittled down to near-junk levels by the major ratings services. The company's bonds - which had widened out to bid levels as much as 450 basis points over comparable Treasuries in late February, attracting at least a second look from some junk market denizens - had been tightening up during the week, picking up as much as 35 to 40 basis points in Thursday's dealings and another 10 basis points Friday. Its 7 5/8% notes due 2011 firmed to 335 basis points over Treasuries Friday and its 6% notes due 2007 closed at 365 basis points over the U.S. five-year paper.

There was no direct connection, but the shares and bonds of high yield tower and wireless operators were seen in some quarters as having benefited from a Sprint spillover, most notably American Tower Corp. Its 9 3/8% notes due 2009 pushed up above 70 bid Friday from prior levels around 66, and were seen at one desk as high as 71.5. The Boston-based tower company's shares, meantime, ended NYSE trading Friday up 67 cents (13.84%) at $5.51. Fans of the shares and the bonds meanwhile looked forward to what is expected to be a positive presentation Monday by Chief Executive Officer Steve Dodge at Raymond James' institutional investors conference in Orlando, Fla.

Also helping the sector was Crown Castle International Corp.'s fourth-quarter results. The Houston-based tower company posted an 18% revenues gain to $238.2 million from $202 million a year earlier, in the midst of a difficult operating environment for the industry, as analysts pointed out. Site rental and broadcast transmission revenue was especially strong, rising 24% to $155.9 million, up from $125.6 million a year earlier.

Meanwhile, EBITDA - earnings before interest, taxes, depreciation and amortization, considered a key bond market measure of cash-flow generation capacity and potential ability to service debt - increased 29% in the quarter to $89.2 million, up from $69 million a year earlier. Site rental and broadcast transmission EBITDA for the fourth quarter increased 38% $84.1 million, up from $61 million in last year's fourth quarter.

Those gains overshadowed the predictable net loss in the eyes of investors, and boosted Crown Castle's shares $1.69 (27.21%) to $7.90 on the NYSE; volume of 3.1 million shares was double the usual. On the debt side, Crown Castle's 10¾% notes due 2011 bounded up to 83 bid from 77.625 on Thursday, and at one point were as high as 85 bid. A market observer meanwhile said that SpectraSite Holdings bonds were up a point across the board; its shares rose 11 cents (8.59%) on the Nasdaq to finish at $1.39. Volume of 2.1 million shares was nearly triple the average turnover.

Tagging along for the elevator ride upward was Nextel Communications Inc., whose bonds have lately been showing strength anyway. Its benchmark 9 3/8% notes due 2009 were seen finishing around 65 bid, up two points, although a trader at another desk saw them getting "banged around" at the higher bid levels before settling back in around the 63-64 bid level. Nextel's zero-coupon notes due 2008 firmed a point to 57 bid.

In the cable sector, Charter Communications was up anywhere from half a point to a full point, its 8¼% notes and 8 5/8s due 2009 up half a point to 91.5, while its zero-coupon/ 9.92% discount notes due 2011 gained a point to 71 bid. Equity analysts at both Merrill Lynch and Goldman Sachs put out positive advisories on the St. Louis-based cable giant, controlled by Microsoft billionaire co-founder Paul Allen.

Goldman also likes Charter rival Adelphia Communications, whose debt was up a point Friday, its 8 3/8% notes going to 96 bid and its 7½% notes to 96.5.

There was no movement seen in the ultra-depressed bonds of Adelphia's former unit, the-now spun-off Adelphia Business Solutions, whose bonds languished around two cents on the dollar; the Coudersport, Pa.-based telecommer announced that it would miss the March 1 coupon on its 12¼% notes due 2004.

Apart from the communications-related issues, Gap Stores' 8.80% notes due 2008 were seen up slightly - perhaps around an eighth of a point - after having risen a full point Thursday to 96.25 bid, after the San Francisco-based apparel retailer, recently downgraded to junk bond status by the major ratings services, sold $1.2 billion of convertible notes.

A trader saw continued strength in the bonds of Premcor - the old Clark USA - which traded up Friday "on the strength of people believing they will get their IPO done," although he acknowledged that the talk of the pending initial public offering by the St. Louis-based energy refiner has been in the market for months. Premcor's 10 7/8% notes had moved up to around or above 90 bid, he said, while its 9½% and 10½% issues hung in around a 98-to-par range.

Among recently priced issues now trading in secondary, he said, Comstock Resources Inc.'s 11¼% senior subordinated add-on notes due 2007, which priced Thursday at 98.875 "were well received," while Entercom Communications Corp.'s new 7 5/8% senior subordinated notes due 2014, which had priced Wednesday at par, "seemed to get good bids," moving up to the 100.5-101.5 level.

The firmness of the new bonds "reinforces the overall thesis that portfolio managers are bidding up the higher quality issues, while the lower quality stuff languishes," he opined. "High cash-flow margin businesses," such as broadcasters Entercom and Corus Entertainment Inc. (which sold a solidly upsized $375 million of 8¼% senior subordinated notes due 2012 Thursday at 99.186) "seem to be the favorites these days."

Apart from such situational names, however, the trader added that the overall market seemed muted, as "between all the conferences and people taking vacations, this has slowed a lot of the trading activity of late."

He saw a basically flat response to the news that high yield mutual fund inflows had posted a second consecutive week of inflows - albeit a modest $46.6 million - in the week ended Wednesday. The previous week, $129.9 million more came into the funds than left them. The two weeks of inflows followed several weeks of net outflows, including a loss to the funds of $487.9 million in the week ended Feb. 13.

The weekly statistics, compiled by AMG Data Services, are seen by many market participants as a reliable indicator of overall liquidity trends in the nearly $600 billion junk bond market.

With inflows having now been recorded in six weeks out of nine so far this year, $1.369 billion more has entered the funds than has left them.

In the primary market, the two broadcasting credits that had priced during the week of Feb. 25 continued to generate considerable discussion.

To recap, Corus Entertainment, Inc. priced $375 million of 10-year senior subordinated notes Thursday to yield 8 7/8% via Merrill Lynch & Co. The previous day Entercom Radio LLC sold $150 million of 12-year senior subordinated notes to yield 7 5/8% via joint bookrunners Credit Suisse First Boston and Deutsche Banc Alex. Brown.

"That's a testament to investors putting money in the right places," one sell-side source commented Friday in the wake of Corus and Entercom.

"You look at Entercom," the source continued. "A mid seven-handle. That's pretty impressive in our market.

"And it's a Ba3/B+. Three Bs! I can't remember the last time a three-B company priced with a seven-handle."

Three independent sources, two from the sell-side and one from the buy-side told Prospect News that the book on Corus had far exceeded $1 billion. Two sources reported hearing that the Corus book had gone north of $2 billion. However no confirmation of those numbers could be obtained.

"The Corus book was greater than $2 billion," one sell-side official reported, "Although you can be sure there was plenty of fluff in there, with accounts increasing order-size as news spread of the deal's success."

Bob Franklin, portfolio manager of the Neuberger Berman High Yield Fund, told Prospect News he played Corus. He cited the action taken on Feb. 19 by the U.S. District Court of Appeals for the District of Columbia, which tossed out one rule that placed restrictions on television station ownership, and asked the Federal Communications Commission to rewrite or get rid of another. Those rulings reportedly set the stage for extensive consolidation in broadcasting sector.

"The recent asset sales in the broadcast sector and the regulatory changes have increased the demand for bonds from those sectors," Franklin said.

The primary market rolls into the week of March 4 with $2.115 billion of business on the forward calendar, $940 million of which is expected to price by week's end.

That $940 million is spread across five deals: New World Restaurant Group, B&G Foods, Inc., Dana Corp., Shop at Home, and the biggest of the five, Mail-Well Corp.'s $300 million of 10-year notes.

As March 2002 gets underway in earnest, the market has seen $10.897 billion of dollar-denominated new issuance price year-to-date through March 1.

Another sell-side source told Prospect News Friday that March figures to top February's new issuance of $5.162 billion.

Noting the $46.6 million reported weekly inflow to high-yield mutual funds, this source said: "It's a funny market right now. There's no rhyme or reason. Usually you can predict what's going on. Right now you can't. No one knows where to put their money.

"But I think there's probably going to be a pop in March. I think it will probably be a big month. It might be $8-$10 billion."

And to back up this statement, this source's institution will shortly bring a deal in the $500 million to $1 billion range, the official confided.

© 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.