PHG, are you Big Al's Brother?
Here is the latest on the public portion of the new financing. Also, the amount has increased from $1.3 to $1.75 billion.
Investors See Nextel As Key Junk Bond Play
NEW YORK (Dow Jones)--A bumper $1.3 billion junk bond issue from Nextel Communications Inc. (NXTL) is being widely studied in the high-yield market because of the issuer's name and the size of the deal, investors say.
One investor said Nextel's huge amount of outstanding debt makes it probably one of the most important issuers in the high-yield market. With so much paper in the market, the company is almost inevitably part of a junk portfolio, said Harry Resis, portfolio manager at Scudder Kemper Investments, much as the best known blue-chip companies fit into investment grade holdings.
"It's a very important issue for the high-yield market. I think every high-yield manager in the U.S. is buying it, or at least taking a hard look at it," said Resis.
"This is probably the largest issuer in the high-yield market," he added.
"I agree completely," said Fred Cavanaugh, portfolio manager at John Hancock Funds. He added: "We expect to be involved."
Although lead underwriter Morgan Stanley Dean Witter won't comment until the issue is priced, investors say they expect Nextel's two-part $1.3 billion issue, due to price late Friday, to be well-received.
They say both tranches are likely to be oversubscribed, with the $500 million of preferred securities seen attracting the most interest.
The huge interest has been stimulated by the company's strong operating performance.
"The investor base understands what improvements the business has made," Resis said.
Recent credit ratings upgrades have added to the interest.
"The credit is well received by the market and the rating agencies," Resis added.
Moody's Investors Service and Standard & Poor's both upgraded some of Nextel's credit ratings ahead of the deal, with S&P citing, among other things, Nextel's "improved business risk profile."
Nextel's 9.75% notes due 2007 rallied briefly on the upgrades, gaining about 1/2 point to touch $64 1/4, but dropped back quickly to their previous levels around $63 3/4, once investors realized the huge supply hanging over the market from Friday's new issue.
"The existing notes haven't gone anywhere on the upgrade because of the huge supply out there," Resis said.
Price talk on the first tranche of the $1.3 billion issue, $800 million (proceeds) of senior discount notes due 2008, non-callable for five years, with a five-year zero coupon, has come in at 9.75% to 10%. Price talk on the second tranche, for $500 million five-year pay-in-kind cumulative exchangeable preferred securities due in 12 years, came in at a spread of 125 to 137.5 basis points higher than the zero coupon bonds.
Resis explained one could argue the first tranche looks cheap because it's pricing at roughly the same levels as Nextel's most recent junk bond issue in October of last year.
"Since then we've had this huge rally in Treasurys and the high-yield market and now the upgrades, so you could argue they're cheap," Resis said. |
