Avaya $300 mln (proceeds) converts talked at 2.75-3.25% yield, up 27.5-32.5%

By Ronda Fears

Nashville, Tenn., Oct. 24 - Lucent spinoff Avaya Inc. launched on Wednesday $300 million in proceeds of 20-year zero-coupon convertible notes with pricing guidance of a 2.75% to 3.25% yield to maturity and a 27.5% to 32.5% initial conversion premium. Merrill Lynch is lead manager of the registered deal, which is scheduled to price after the market close Monday.

The Basking Ridge, N.J.-based firm, a communications networks solutions and services provider, said it would use proceeds to refinance a portion of its commercial paper debt. There is a greenshoe for $45 million in proceeds. The 20-year issue will be non-callable for three years, with puts in years three, five and 10.

Deutsche Banc Alex. Brown convertible analysts said the mid-range of the price talk would put the Avaya convert pricing about 1.5% to 3.5% cheap to fair value, assuming a credit spread of 450 basis points over Libor, a 50 basis point borrow cost and 40% volatility in the stock. The implied volatility would be 37.2% to 32.7%.

Also Wednesday, before the market open, Avaya reported a fiscal fourth quarter net loss of $328 million, which was narrower than the net loss of $543 million for fiscal fourth quarter 2000. Net income from ongoing operations was $18 million, or 4c per share, versus $20 million, or 7c per share, a year before. Revenues for the quarter dropped 29.2% to $1.44 billion. For fiscal 2001, the company posted net income from ongoing operations of $214 million, or 66c per share, compared with $156 million, or 55c per share, in the previous fiscal year. Annual revenues declined, however, by 9.3% to $6.8 billion.

"In 2001, we demonstrated our ability to manage the business on an expense-to-revenue basis, exiting the year at an SG&A (selling, general and administrative) annual run rate more than $600 million less than our total SG&A expense in fiscal 2000, and we are committed to sustaining that management discipline throughout 2002," said Garry McGuire, chief financial officer of Avaya, which was spun off from Lucent about a year ago.

"With the economic difficulties that are already apparent for 2002, we are taking a conservative view and are preparing for a decline in revenue on an annual basis, and approximately flat sequential revenue in the first quarter 2002. We will continue to manage our expenses aggressively, and are targeting revenues and earnings per share better than the current market view for 2002."

The company did not make specific earnings or other target figures.

Avaya common shares closed down $1.30 to $10.60.

End

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.