Nextel active as company reiterates guidance; Intrawest plans bond issue; Gerresheimer back

By Paul Deckelman and Paul A. Harris

New York, Sept. 9 - Nextel Communications Inc. bonds continued to firm on in an otherwise quiet market Monday, helped by the wireless communications company's reiteration of its previously announced guidance.

In the primary sphere, Intrawest Corp. announced plans for a an upcoming $125 million add-on bond deal, while German packaging maker Gerresheimer Holdings GmbH & Co. KG is relaunching a euro-denominated issue which had previously been put on the back burner due to unfavorable market conditions

Just as had been the case on Friday, Nextel seemed to be where the junk secondary market's focus was. Looking at the TRACE bond-tracking system maintained by the National Association of Securities Dealers, which follows a number of widely traded bonds, a trader remarked that Nextel "traded more than all of the other names combined."

But while Nextel had finished last week having firmed smartly to around the 78 bid level, well up from previous levels in the mid-70s, mostly on investor anticipation of wireless industry consolidation, the activity on Monday was more of the up-and-down variety.

Traders quoted Nextel's benchmark 9 3/8% senior notes due 2009 as having opened a bit higher at 80 bid/81 offered, and then having firmed even further, to around 81 bid.

"Nextel popped up," a trader said, "and held at those [higher] levels most of the day" before coming back down from those peaks late in the session; he quoted the bonds as going home at around 79.5 bid/80 offered, due to apparent profit-taking off recent hefty gains.

Another trader, who also termed Nextel easily the most active name, quoted the 9 3/8s as having firmed to around 80.25 bid/80.75 offered from their upper-70s levels late Friday. He saw its 10.65% notes, which had ended Friday around 80 bid, as having moved as high as 84 bid/84.25 offered. At yet another desk, Nextel was said to be "up a couple" at 80 bid/81 offered.

Nextel shares meanwhile, were busy and volatile. After having finished Friday at $7.98, the pushed as high as $8.47 during the session, before giving up all of those gains to actually close nine cents lower (1.13%) at $7.89. Volume of over 56 million shares was more than double the issue's usual turnover, making Nextel the most actively traded Nasdaq issue Monday.

Nextel bonds and shares had been given a boost last week on renewed speculation of possible coming wireless industry consolidation, fueled by news reports of preliminary merger talks between Deutsche Telekom's VoiceStream Wireless Corp. and BellSouth Corp. and SBC Communications Inc.'s Cingular wireless joint venture.

On Monday, the Reston, Va.-wireless company gave its bond and shareholders a bit more concrete good news to base their buying hopes upon. Nextel announced ahead of chief executive officer Tim Donahue's scheduled appearance at a Morgan Stanley investors conference in Miami that "third-quarter business trends in its domestic operations are expected to allow Nextel to post another strong quarter."

Specifically, the company said that so far in the current third quarter its results "are tracking to meet or exceed our previous guidance for 2002 of approximately 2 million net subscriber additions and greater than $3 billion in operating cash flow."

As of the end of the second quarter, Nextel, which added 471,000 new subscribers to its customer rolls, had about 9.64 million customers overall - mostly businesses.

Back in July, Nextel had projected that it expected EBITDA, or operating cash flow, to increase to at least $3 billion in 2002 from $1.9 billion in 2001, attributing the anticipated rise to the benefits from its operational and financial plan.

Last month, Nextel - which in July had unexpectedly posted its first-ever quarterly profit in over 10 years of operation-said that it expected to show an earnings gain in the third quarter, aided by continued strong new subscriber additions and a reduction of $733 million in its debt and preferred securities since the end of the second quarter. Analysts, however, think it more likely that third-quarter per-share earnings will come in around break-even.

In the statement Monday, Donahue attributed the continued strong performance to "robust demand for our differentiated services, combined with our industry-leading customer retention rates."

At the conference, Donahue further elaborated on Nextel's expectations, saying that he anticipated that the company would spend about the same on capital expenditures in 2003 as it is spending this year, about $2 billion - analysts had been expected a capex reduction - with the spending figure likely to fall to $1 billion in 2004.

And he pledged to continue to try to separate Nextel from the ranks of other large wireless carriers, such as VoiceStream, Cingular, AT&T Wireless and Sprint PCS, whom he said are all competing against one another by cutting prices, while Nextel was offering more services to try to hold and enlarge its customer base.

Apart from Nextel, not much was going on, traders said. "It was basically a quiet Monday," one opined. "I don't see much happening between now and Wednesday, and Wednesday's going to be quiet as well."

The Bond Market Association has recommended two one-minute periods of silence on Wednesday, at 8:46 a.m. ET and 10:29 a.m. ET in memory of those killed in last year's Sept. 11 terrorist assaults in New York, Washington and Pennsylvania, and further recommends a 2 p.m. ET close that afternoon. There will be numerous memorial activities going on across the nation, including some at Ground Zero in lower Manhattan, just steps from the Financial District.

Apart from Nextel, a trader said that Gap Stores bonds "were a little stronger," aided by last week's sales report from the San Francisco-based apparel chain; while it posted its 28th consecutive monthly decline in year-over-year comparable store sales, it was the smallest erosion so far, leading some to believe the company may be turning a corner.

Pioneer Natural Resources' 7½% notes due 2012 were seen a touch firmer, although in not much activity; they firmed to 103 bid/104 offered, with a trader acknowledging that "it's possible" the price action might be linked to the company's announcement last week of a successful oil and gas discovery in Tunisia.

Xerox Corp. bonds were being quoted unchanged to slightly lower, probably on profit-taking off recent highs, even as the Stamford, Conn.-based copier giant reiterated that it expects to turn a profit this year. Xerox's 5 ½% notes due 2003, which a week ago had traded around 91 bid, ended at 87.5 bid/88.5 offered, off a point on the session, while its 9 ¾% notes due 2009 were unchanged at 82 bid/84 offered.

CEO Ann Mulcahy told the annual shareholders meeting that Xerox was in good shape to deliver a full-year profit for 2002. If it does so, it will be the company's first yearly profit since 1999.

One high yield primary market source told Prospect News, Monday, that the combination of Jewish holidays and the marking of the first anniversary of the Sept. 11 terrorist attacks would keep the capital markets comparatively quiet until the week of Sept. 16 is well underway.

Nevertheless the week of Sept. 9 got underway purposefully on Monday with new business announced by Intrawest, pending business firmed up and fleshed out by Stone Container and previously withdrawn business re-launched by Gerresheimer Glas.

Intrawest began the roadshow Monday for a $125 million add-on to its 10½% senior notes due Feb. 1, 2010 (B1/B+) via Deutsche Bank Securities, according to syndicate and company sources. The roadshow will wrap up Friday.

The Vancouver, B.C. resort developer and operator, whose flagship operation is the Whistler Blackcomb ski resort in British Columbia, will use the money to repay $125 million of debentures coming due in December and to pay down bank debt.

Price talk of 8 1/8%-8 3/8% emerged Monday on the Stone Container deal. The official title of the issuer is Jefferson Smurfit Corp. (U.S.) (operating subsidiary of Smurfit-Stone Container). The Chicago-based cardboard box company's $700 million of 10-year senior notes (B2 existing/B) is expected to price Thursday via Morgan Stanley.

It is coincidence, market and syndicate sources have told Prospect News, that Stone Container's deal is in the market simultaneously with Jefferson Smurfit Group plc's €900 million equivalent of 10-year senior notes in dollar, sterling and euro tranches via Deutsche Bank Securities and Merrill Lynch. That deal, to fund acquisition of the company by Madison Dearborn Partners, was scheduled to start its roadshow Monday, with a European roadshow following exactly one week from Monday.

The two deals, sources reiterated, are not in any way related.

Market sources had been telling Prospect News to expect Düsseldorf pharmaceutical packaging firm Gerresheimer Glas to bring back the deal it postponed in the "choppy" market of late July. Official word of Gerresheimer's return surfaced on Monday.

Gerresheimer is back in the market with an offering of €125 million of nine-year senior subordinated notes (B3/B), according to syndicate sources who added that the deal is expected to price Tuesday. Price talk is 11½%.

JP Morgan and Goldman Sachs & Co. are joint bookrunners.

In Monday's "Situation Room" report from Bank of America Securities, that institution's head of syndicated finance research Lucine Kirchhoff and head of high yield credit strategy Ali Balali note comparatively vigorous acquisition financing activity in both the leveraged loan and high yield markets.

"Acquisition-related financing is...picking up in the high yield market," the report states. "Brand Services Inc.'s expected $165 million senior subordinated offering will fund the acquisition of Brand Services by JPM Partners from DLJ Merchant Banking and Swift & Co.'s proposed $250 million senior note offering is expected to fund the acquisition of ConAgra Meats Co by Hicks Muse and BoothCreek. Finally, a EUR900 million offering in late September is expected to fund the acquisition of Jefferson Smurfit by Madison Dearborn Partners."

Finally on Monday, a sell-side source told Prospect News that the second consecutive inflow to the high yield mutual funds - $284 million for the week ending Sept. 4, as reported by AMG Data Services - might be seen to reflect relative value, if indeed it is seen to reflect anything at all.

"There is no real explanation other than the asset class had been so beat up and so much cash came out of the funds in the previous 11 weeks that investors felt opportunities existed in the secondary and, to a lesser extent given the volumes, the primary market," the source said.

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