Nextel gains on better results, auto sector better; New Skies, AMD price deals

By Paul Deckelman and Paul A. Harris

New York, Oct. 22 - Nextel Communications Inc. bonds were being quoted as much as a point better Friday, after the Reston, Va.-based wireless telecommunications operator reported strong profits in the third quarter and boosted its guidance for the full year. Also on the upside, riding a broad, smooth highway, were the bonds of the auto components sector - including the beleaguered Tower Automotive Inc., as well as such better off names as Collins & Aikman Products Co.

In the primary, the final session of the Oct. 18 week saw four tranches price for a total of $1.01 billion of business.

Leading the way was Advanced Micro Devices Inc. doing a single $600 million piece that came at the wide end of price talk. Meanwhile Netherlands-based New Skies Satellites NV did $285 million in two parts, fixed and floating, both of which priced at the tight end of talk.

With Friday's business in the book, the tally for the Oct. 18 week came to $2.347 billion, a significant increase over the previous week's $1.745 billion.

Pax World High Yield Fund portfolio manager Diane Keefe told Prospect News on Friday that the junk market continues to look buoyant.

"This week it's been a little squishier than it was during than it has been in the month running up to this week," said Keefe. "But the 10-year Treasury just went through 4.00% again. That says that there are not a lot of alternatives for people who have money that they want to invest in fixed income."

AMD at wide end of talk

Friday's biggest bond sale came from Sunnyvale, Calif.-based microchip maker Advanced Micro Devices Inc. led all issuers on Friday with a single $600 million tranche.

The company's eight-year senior notes (B3/B-/B-) priced at par to yield 7¾%, at the wide end of the 7½%-7¾% talk.

Citigroup ran the books for the debt refinancing deal.

Portfolio manager Diane Keefe told Prospect News that she had played in the deal, and added that at the low end of the price talk AMD would have been too tight.

"It's trading a little under par, around 99.5 bid, par offered," Keefe said late Friday afternoon.

"I owned the bonds a long time ago and I think there is a reason for the company to exist. They are the only competitor to Intel.

"Their leverage is low: funded debt to EBITDA is 1.6 times, and free cash flow in the most recent 12 months is $70 million.

"I don't have a lot of technology exposure. But this is a company that I am familiar with, so I bought it.

"Technology companies tend to be low-leverage," Keefe explained. "That's because of the technology risks. You never know when somebody is going to come up with a better mouse trap. And there is large R&D associated with them.

"Freescale Technologies, which is my other technology play, has more cash than debt because it's a spin-off from Motorola.

"That's the way technology companies should be."

Two New Skies tranches tight to talk

Elsewhere, market sources reported hearing of brisk demand for the new bonds from New Skies Satellites NV, which sold $285 million in two tranches of bonds on Friday.

The fixed satellite communications company, which is based in The Hague, Netherlands, sold $160 million of seven-year senior floating-rate notes (B3/B-) at par to yield six-month Libor plus 512.5 basis points, at the tight end of the Libor plus 525 basis points area talk.

The company also sold $125 million of eight-year senior subordinated notes (Caa1/B-) at par to yield 9 1/8%, again at the tight end of the 9¼% area talk.

Deutsche Bank Securities ran the books for the acquisition financing.

Finally, Abraxas Petroleum Corp. sold $125 million of non-rated five-year senior secured floating-rate notes at par to yield six-month Libor plus 750 basis points. Bookrunner was Guggenheim Capital Markets.

Integrated Alarm rings in

Friday's session brought news of a single roadshow start.

An Oct. 26-Nov. 3 roadshow is set to run for Integrated Alarm Services Group, Inc.'s $125 million offering of seven-year senior notes (B3/B-).

Morgan Joseph & Co. has the books for the combination acquisition financing and debt refinancing deal from the Albany, N.Y.-based provider of monitoring, financing and business support services to independent security alarm dealers in the United States.

Small deals for Oct. 25 week

A look at the Prospect News High Yield Daily forward calendar shows reveals $1.765 billion of business that is expected to price during the final week of October.

Price talk of 6% area emerged Friday on NorthWestern Corp.'s $200 million of 10-year non-call-five senior secured notes (Ba1), expected to price on Monday via Credit Suisse First Boston.

Meanwhile price talk is 8¾%-8 7/8% on Hawk Corp.'s $100 million of 10-year non-call-five guaranteed senior notes (B2/B), expected to price on Tuesday via Jefferies & Co.

When Prospect News suggested to Pax World's Keefe that small deals such as the NorthWestern Corp. and Hawk Corp. created difficulties for investors because of the low liquidity of the issues, she replied that small issues are not necessarily a problem if investors buy bonds for the right reason.

"I think the average junk fund has 175 or so positions," Keefe said. "So most junk bond funds don't trade a lot of their positions. They buy them to own them for a while, until they work out.

"You either buy it at 9% and it goes to 7%, and it's a victory, or you buy it at 9% and it goes to 13%, and it's a defeat.

"That usually works out in a two-year holding period. You don't usually own it for 10 years.

"In a bull market things have been going more from 9% to 7%, in the last 18 months. I guess the real question is where are they going to go in the next 18 months."

Keefe specified that her fund was having a look at the above-mentioned NorthWestern deal, a Chapter 11 exit financing.

"That's almost investment grade," she said. "It's a transmission utility. "They just got involved in a lot of non-utilities businesses in the dotcom era, which got them in trouble.

"However," she added, "I'm not chasing 6% yields right now. But it is a good company."

AMD slips, rebounds in trading

When the new Advanced Micro Devices' 7¾% senior notes due 2012 were freed for secondary dealings they were offered at the same par price at which they had been issued, a trader said, and then "almost immediately" slipped further, to 99.25 bid, 99.75 offered.

"It looked like the price talk got backed up, and they priced it at 7¾%, which took a few people by surprise. I don't know if they had a big order drop out at the last minute, or what happened."

After breaking lower, and the initial downside move, however, "the buyers came in" at that point and lifted the bonds to a close at 99.75 bid, 100.25 offered, he said.

Meanwhile, it was all blue skies for New Skies, as the company's 9 1/8% senior subordinated notes due 2012 got as high as 102 bid from their par issue price, before backing off that peak level just a little to finish at 101.75 bid, 102.75 offered.

The New Skies floating-rate senior notes due 2011, which also priced at par, improved modestly, to 100.5 bid, 101 offered.

Nextel rises on earnings

Back among the established issues, not much was happening, the trader said. "There was very little going on [Friday], outside of new issues," he declared, although he characterized the market as "very firm, across the board."

One of the firm issues which got even firmer still was Nextel, following release of the company's earnings data, even though most of the wireless telecom operator's issues are already trading way up in nosebleed territory.

The trader saw Nextel's 7 3/8% notes due 2015 up a point at 110 bid, 110.5 offered, although he opined that "it seemed to be better sellers at high levels."

At another desk, a market source said that Nextel had "moved up a little," with the 7 3/8s at 110, a point better and its 9½% notes due 2011 half a point up at 113. He also saw marginal movement in some other Nextel issues, with the company's 13% notes due 2009 a quarter-point better at 100.25 bid, and its 9 3/8% notes due 2009 up 1/8 at 105.125.

The equity market was absolutely blasé about Nextel's better numbers, with its Nasdaq-traded shares finishing up seven cents on the day (0.28%), to $25.34. Still, volume of 12 million was a third more than the average 9 million tally.

Nextel reported that it earned $586 million (52 cents a share), up from $346 million (32 cents a share), a year ago. That total included a $175 million one-time tax benefit, which was only partly offset by a $21 million loss related to retirement of debt.

Without those special items, per-share earnings totaled 39 cents, a penny ahead of what the analysts had been expecting.

Revenue rose to $3.4 billion from $2.89 billion a year ago.

Nextel reported that it added 550,000 subscribers to basic walkie-talkie-like Nextel service, giving it a total of 14.5 million subscribers. While average revenue per handset dipped slightly in the quarter to $69 a month from $71 a month in the year-ago quarter, the important financial metric remained well ahead of the national average for the industry.

Nextel was also scoring points with its prepaid Boost Mobile Service, which added 195,000 subscribers in the quarter, thanks to an aggressive advertising and marketing campaign, to bring its total subscribers to 800,000.

Looking ahead, Nextel projected that for the year as a whole, it will have added 2 million Nextel subscribers and 650,000 Boost Mobile subscribers - an improvement on the company's earlier projections of 1.9 million and 500,000, subscribers, respectively.

Nextel also raised its financial guidance, estimating that it will end $2.60 for all of fiscal 2004, well up from the $2 per share it projected earlier.

Auto sector gains

Elsewhere, automotive sector bonds were seen as better, although nobody saw any news out that would justify any kind of a firming trend. If anything, these are troubled times for the parts makers, who are reeling as a result of production cutbacks by members of Detroit's Big Three and other major carmakers - the auto parts companies' bread-and-butter customers.

Still, in Friday's dealings, Novi, Mich.-based components maker Tower - whose R.J. Tower Corp. 12% notes due 2013 have recently firmed off their previous lows on market buzz that the company is working on a collateralization financing package that would provide much-needed capital - were up again, quoted up about three points to 70 bid, a trader said.

A trader saw sector peer Collins & Aikman's 9¾% notes due 2010 up 3/8 point, to 106.625, while the Troy, Mich.-based company's 12 7/8% notes due 2012 were a point up at 85.

At another desk, Tower's bonds were seen two points better, at 69 bid, while Collins & Aikman's 10¾% notes due 2011 were up two points at 96.5 bid and the 12 7/8s got as good as 86.5 bid, which was seen as a 2½ point rise.

Dura Operating Corp.'s 9% notes due 2009 firmed to 90 bid, up 2½ points, while Visteon Corp.'s 8¼% notes due 2010 were 1½ points ahead at 101. Tenneco Automotive Inc.'s 10¼% notes due 2013 were up a point at 115.25

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