Williams Comms. pays up to sell $1 bln junk bonds
August 3, 2000 01:01 PM
(Recasts, adds details, background) By Jonathan Stempel
NEW YORK, Aug 3 (Reuters) - Williams Communications Group Inc. WCG sold $1 billion of junk bonds on Thursday, 43 percent more than planned and only the second junk bond sale of $1 billion or more since March, to help it finish construction of its 33,000-mile fiber-optic cable network.
Rising interest rates, more demanding investors and weak demand for its bonds in Europe, though, forced the Tulsa, Okla.-based company to rejigger its sale and pay out heftier yields than it did last September, when it sold $2 billion of junk bonds.
Investors said the familiarity of the Williams name and the large size of Thursday's sale should ensure that the new bonds will be easy to trade in the $680 billion junk bond market.
Nevertheless, Williams had to pay out one percentage point more in yield than it did last year, even though investors said its new bonds attracted $2 billion to $2.5 billion of demand.
"The yields are high enough to get investors' attention," said Paul Ocenasek, a St. Paul, Minn.-based manager who already owned the company's bonds and bought some of the new ones for his $950 million Lutheran Brotherhood High-Yield Fund.
At the same time, Williams scrapped its expected sale of euro-denominated eight-year notes, as Europe's common currency sank near its all-time low and following a few weeks of heavy euro-denominated junk bond issuance.
Junk bonds, also known as high-yield bonds, yield more than high quality bonds to compensate investors for extra risk.
SELLING MORE
Williams sold $575 million of eight-year senior notes at 100 to yield 11.7 percent, or 575 basis points (5.75 percentage points) more than 10-year U.S. Treasuries.
It also sold $425 million of 11.875 percent 10-year senior notes at 99.29 to yield 12 percent, or 605 basis points (6.05 percentage points) more than 10-year Treasuries.
"We've seen telecom valuations in the equity and high-yield market come down, and that's one reason this sale was priced cheaper than I would have expected a month ago," said Kevin McCormick, who bought some of the 10-year notes as head of high-yield funds at New York-based Weiss, Peck & Greer.
"However, I'm comfortable that Williams will be a survivor, and when I can buy high-quality, high-yield bonds at 12 percent, that's an attractive investment," he added.
The 10-year notes were expected to yield 12 to 12.25 percent, and the eight-year notes 0.25 to 0.35 percentage points less.
Lehman Brothers Inc., Merrill Lynch & Co. and Salomon Smith Barney arranged the private sale. They also arranged Williams' bond sale last September.
SPENDING MORE
Analysts said one big factor adding to the bonds' appeal is Williams' relationship with San Antonio, Texas-based phone giant SBC Communications Inc. SBC . SBC owns some of Williams' equity and has designated the company as its preferred long distance provider.
Williams said last week it has completed more than 28,000 miles of its fiber-optic network, which it said will eventually reach 125 major U.S. cities. It also recently said it plans to spend about $5.8 billion on expansion by the end of 2001, though it hasn't said how it will raise the needed funds.
"The company has made it pretty clear that it plans to have a well-balanced capital structure," said McCormick. "I would expect we may see some sort of equity or derivative equity financing, such as preferred stock or convertible bonds."
Last week, credit rating agency Moody's Investors Service rated Williams' senior debt "B2," a medium junk grade, and revised its rating outlook to stable from positive.
Another agency, Standard & Poor's, last week cut Williams' senior unsecured debt rating one notch to "B-plus," roughly one step above Moody's rating, and said its outlook is stable.
The actions came after Tulsa-based Williams Cos. WMB , which owns 85 percent of Williams Communications, said it will split in two. Moody's said the split, together with Williams Communications' rising leverage, prompted its outlook revision, while S&P said for rating purposes it will now treat Williams Communications as a stand-alone company.
Williams Communications' junk bond sale was the largest since Santa Clara, Calif.-based Web hosting firm Exodus Communications Inc. EXDS sold nearly $1.2 billion in June. |
