Nextel unchanged as effort to extend rally fades; Berry Plastics sells 10-years

By Paul Deckelman and Paul A. Harris

New York, July 17 - The strong upturn in Nextel Communications Inc. debt seen on Tuesday proved to not have very much in the way of legs Wednesday, as early upside gains evaporated and the paper finished essentially unchanged. On the downside, sizable losers included split-rated financial services firm Capital One and independent power producer AES Corp.

Meanwhile the high-yield primary market seemed to break into something of a stride Wednesday from the snail's pace at which it advanced during the first two days of the week of July 15; during the session Berry Plastics Corp. priced $250 million within price talk and news of a new deal from URS Corp. was heard. And well after the market closed, NCI Building Systems, Inc. announced a $50 million add-on.

The market also learned that Gristede's Foods, Inc., the only leftover deal from the pre-Fourth of July calendar, will not make it through the checkout lane.

Evansville, Ind. injection mold plastics company Berry Plastics priced $250 million of 10-year senior subordinated notes (B3/B-) at par to yield 10¾%, according to a syndicate source. The source noted that Berry's new bonds priced at the wide end of the 10½%-10¾% price talk. JP Morgan and Goldman Sachs & Co. were bookrunners.

"It came together very well once price talk came out," a syndicate source commented, adding that there was healthy investor demand for the plastics company's new paper.

"I think people just wanted to make sure it was going to be priced accurately."

When the new Berry Plastics notes were freed for secondary dealings in the afternoon, they moved up to 101.5 bid/102 offered from their par issue price, a trader said.

With Berry pricing within talk exactly one week after Oregon Steel priced its slightly upsized $305 million at the tight end of the 10¼%-10½% price talk, Prospect News inquired of this syndicate official if the market had somehow come through a set of circumstances that had produced such reportedly-choppy, downsized, wide-of-talk transactions as Dave & Buster's, Plains Exploration & Production Co. LP, and Solutia, Inc. prior to the Independence Day holiday. (Dave & Buster's deal was subsequently pulled between pricing and settlement.)

Likely not, the syndicate source responded.

"I don't think anything has changed," the official said. "This is a case of people liking the company, liking the business and feeling that it's adequately priced.

"Those are the deals they want to buy."

Also on Wednesday the market learned of a new offering headed into the primary from URS Corp. although no timing was available. The company will bring a Rule 144A offering of $250 million of seven-year senior subordinated notes (B1) via Credit Suisse First Boston, according to market sources. The investment bank declined to confirm the information.

Gristede's Foods' postponed deal was initially expected to price June 28. The company cited market conditions as its reason for postponing and added that it would seek alternative financing for its purchase of the Kings Supermarkets, according to a source. Deutsche Bank Securities Inc. and Jefferies & Co. were the bookrunners.

Gristede's is the second high-yield deal to be postponed in the course of the past four sessions. Last Friday Palm Beach, Fla.-based printed office products and inventory management tools provider Workflow Management, Inc. postponed its offering of $170 million of seven-year senior secured notes (B2/B+).

Carl Wittnebert, director of research at TrimTabs Investment Research, told Prospect News Wednesday that the data his firm has tracked on the high yield over the past six weeks makes for a picture that is hardly more pleasant to gaze upon than that of the equity markets during the same time period.

"Month-to-date we're estimating an outflow from all high yield bonds of $360 million," Wittnebert said.

"However, from the beginning of June it's a little more striking," he added, noting that TrimTabs tracked an outflow of $2 billion from June 1 to July 11 and that the market's performance during that period of time was -7.8%.

"The beginning of June was when the carnage really started - when the stock market broke support," Wittnebert said. "There were several periods in the middle of June when there were outflows of over $100 million for three or four consecutive days."

Back among the already established issues, Nextel debt - which had jumped sharply on Tuesday after the Reston, Va.-based Number-5 U.S. wireless carrier surprised Wall Street by posting its first-ever quarterly profit when everyone was looking for a loss and then, as expected, raised its full year cash-flow guidance - initially moved upward in Wednesday's dealings, trying to build on its momentum.

Traders say its benchmark 9 3/8% senior notes due 2009, which had gained about eight points on Tuesday to end around 68 bid/69 offered "were up big at the opening," a trader said, quoting it as high as 70 bid/72 offered, on active trading. But later in the session, the bonds dropped back to close around 68.5 bid/69.5 offered.

Another trader likewise saw them rise as high as 72 before falling back later on to around the 69 bid/71 offered level. At another desk, Nextel's zero-coupon notes due 2008, which had jumped 10 points Tuesday in response to the strong results and guidance, were seen having given some of those gains back to close at 64 bid, down about two points on the session.

On the equity side of the fence as well, the upward momentum proved to be short lived - Nextel's Nasdaq-traded shares, which had jumped $1.53 (30.60%) on Tuesday, lost 31 cents (4.75%) Wednesday to close at $6.22. Volume of 62 million shares was about two-thirds of Tuesday's 91-million-share handle, but still more than three times the usual turnover.

A trader said that unlike Tuesday, when Nextel's results had pretty much dominated junk trading, at least in the telecom and cable sectors, Wednesday was "a decent day" in terms of activity levels, but saw "no big news." He saw little change, for instance, in Charter Communications Holdings Inc. bonds or those of Level 3 Communications Inc., which had both firmed several points Tuesday, given a boost by Nextel's glad tidings.

At another desk, however, Charter's 9 5/8% notes due 2009 were being quoted as much as three points higher, around the 69.5 bid level, while Level 3's benchmark 9 1/8% senior notes due 2008 were heard a point firmer, at 58.5.

Proving that the badly battered high yield telecommunications sector can best be described as unpredictable and eccentric, market participants saw the bonds of Qwest Communications International push higher on the day, despite a big ratings downgrade by Standard & Poor's, which lowered the beleaguered Denver-based regional Bell operating company's ratings three notches, dropping its corporate credit to B+ from BB+ previously, citing what it called a "serious risk of a crisis or default in the coming months," due to possible delays in its planned sale of its QwestDex telephone directory unit and the negative effects of a recently announced federal criminal probe of the company's finances.

Qwest indicated earlier in the week that it was considering bids for the directory operation from two possible buyers, each consisting of several private equity firms. Earlier in the year, it had put a likely pricetag of between $8 billion and $10 billion on the directory business, although recently appointed CEO Richard Notebaert has raised the possibility that the cash-hungry company - looking at big debt maturities in the not-too-distant future - might consider selling the directory business in parts rather than as a whole in an effort to speed up the process.

S&P analyst Catherine Cosentino wrote in the downgrade announcement that the ratings agency "previously expected the company to be able to pay off the upcoming debt maturities with proceeds from the sale of its directories business," but it warned that "it is now more likely that the company will have to sell this business on a piecemeal basis" S&P cautioned such a development might impact upon Qwest's ability to make timely payments on its roughly $6.5 billion in short-term maturities which will start coming due next May, and continuing through 2004.

Despite the negative ratings news, though, Qwest's debt rose, with a trader pegging its 6 3/8% notes coming due this October as having progressively moved up from levels around 88 bid/90 offered at the end of last week to 90 on Monday, 91 on Tuesday and 94 Wednesday. "That issue has really moseyed on up," he observed. Although he hadn't seen any levels on the bonds after the late-afternoon downgrade message, he opined that "there really wasn't anything new" in the S&P screed that market players didn't already know about Qwest, and predicted it would have limited impact.

At another desk, a market observer quoted Qwest's 8 7/8% notes due 2012 as having firmed three points to 86 bid, and said it appeared that the company's debt was up between three and four points "across the board."

And another trader saw Qwest has having "pretty much held in" despite the downgrade; he saw its6 7/8% notes due 2028 originally issued by US West Capital Funding as having pushed as high as 43 bid/45 in the morning, and having eased off that high to 41 bid/43 offered post-downgrade; meantime, he saw the Qwest Capital Funding 7% notes due 2009 notes and 7.90% notes due 2010 ending at 45 bid/47 offered, off from its day's highs before the downgrade of 46.5 bid/47.5 offered, but still well up from Tuesday's close at 42 bid/44 offered. He characterized Qwest as having finished about a point lower than its day's peak levels across the board - but still up two or three points on the day.

Outside of the telecom sphere, split-rated Capital One Funding's Baa3/BB- bonds were seen down about seven points on the session, its 6¼% notes due 2004 dropping from par bid on Tuesday to 93 Wednesday and its 8¼% notes due 2005 fell to 94 bid from prior levels around 101, on news that regulators had asked the Richmond, Va.-based financial services company - a large issuer of credit cards to borrowers with less-than-ideal credit ratings - to boost its loan loss reserves.

Back among the pure junkers, AES Corp. bonds were on the slide on the latest trouble in its Latin American holdings, as a newspaper in Brazil reported that AES -owned Eletropaulo Metropolitana SA had hired Lazard LLC to help the utility - Brazil's largest power distributor-to extend maturities on its debt. Concerns about AES holdings in Brazil and politically troubled Venezuela have steadily eroded the value of the Arlington, Va.-based global power producer's debt in the past few months. On Wednesday, its 10¼% notes due 2006 were quoted down 10 points to 35 bid, while its 8 3/8% notes due 2007 were seen down four points, also to 35.

And Conseco Inc. debt was seen heading lower as well, although a trader didn't see any fresh negative news on the Carmel, Ind.-based financial services company, although its securities have recently been reeling in the wake of the July 12 decision by A.M. Best Co., an insurance industry ratings service, to cut the financial-strength ratings of Conseco's insurance units.

A trader said he had "seen some sellers" over the last couple of days since the A.M. Best move. "There doesn't seem to be a lot of support" for the paper. He quoted Conseco's 10¾% notes due 2009 as having declined to offered levels as low as 29 from recent highs in the middle-to-upper 30s. At another desk, Conseco's ¾% trust preferreds due 2004 were seen down three points on the session, to 12 bid.

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