September 30, 1999 19:50
Williams unit junk bond deal seen as new benchmark
By Nancy Leinfuss
NEW YORK , Sept 30 (Reuters) - Williams Communications Group Inc., a unit of energy giant Williams Cos. Inc. , on Thursday easily sold a $2.0 billion bond deal seen by many as a new benchmark issue for the junk bond market -- on the same day it priced stock in an initial public offering. Williams Communications Group , based in Tulsa, Okla., supplies telecom providers with voice, data, Internet and video transmission services over its nationwide fiber-optic network, which is parallel in some spots to its parent company's natural gas pipelines.
Concurrent with the debt sale, the company priced its IPO late Thursday of 29.6 million shares of common stock at $23 a share, the top of its expected range. The shares will be freed to trade publicly Friday on the New York Stock Exchange. Williams Cos. will retain a majority stake in the newly public company.
"The Williams' deal is being seen as a new benchmark for the high-yield market ... taking over for Level 3's," one high-yield syndicate player said, referring to a recent offering. "Investors like the name. It's one of the better credits."
Williams Communications's deal created quite a stir in the primary junk bond sector where supply has remained sparse. Year 2000 concerns, rising issuer default rates, substantial outflows from high-yield mutual funds, and downward momentum in equity markets have all combined to create illiquidity in the market and have kept nervous investors at bay, market players said.
Strong investor appetite for better-rated, well-known names however, pushed underwriters to boost the size of Williams Communications' offering twice before pricing on Thursday.
The B2/BB-minus rated offering, which began as a $1.3 billion offering, was later boosted to $1.675 billion on Thursday; then its size was increased again to $2.0 billion before the transaction was priced.
"The market just reacted in an extraordinary fashion to the quality of the story," said John Hagerty, managing director of high-yield capital markets at Merrill Lynch & Co., the lead underwriter for the offering, who said the deal garnered interest from about 200 buyers across the United States and Europe.
"The market really embraced the quality of the company, the quality of the sponsorship and then the quality of the management team. We have a company that has the sponsorship of The Williams Cos., SBC, Intel, as well as having the management credibility of having built and run this type of business before very successfully," Hagerty said.
Lehman Brothers Inc. and Salomon Smith Barney were also co-lead managers for the deal.
Hagerty said insurance firms, mutual funds and money managers were among the buyers of the two-part, $2.0 billion debt transaction. The deal included $1.5 billion in 10-year notes, priced to yield 11 percent and $500 million in eight-year notes, priced to yield 10.70 percent, the underwriter said.
When asked if the deal would become a benchmark for the high-yield market, Hagerty said, "We believe that this could become a benchmark bond for the market, absolutely."
Separately, Level 3 Communications Inc.'s current benchmark issue was seen trading at a 90-3/8 bid, with a yield of about 10.875 percent. Initial price indications for Williams Communications 10-year tranche were seen in that range, players said.
Williams Communications plans to use proceeds from the debt sale, along with the money raised by the IPO, at least in part to develop its fiber-optic cable network.
The network is expected to consist of 33,120 miles of fiber-optic cable connecting 125 cities by the end of 2000. Williams Communications said that nearly two-thirds of the network is installed and operational.
Separately, Williams Communications announced on Sept. 2 that it would sell at least $725 million of common stock in private placements to Intel Corp. , SBC Communications Inc. and Telefonos de Mexico S.A. de C.V. .
On May 25, Williams Communications and Intel, the world's top semiconductor maker, announced an agreement by which Williams would become a provider of network transport for U.S. Web-hosting computer centers that Intel's Internet Data Services business was building.
The next day, Williams Communications announced an alliance with Telmex to interconnect the companies' long-distance fiber-optic networks.
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