Junk Market Pipeline Revives In A Hurry


Could it be that the new issues market is back, just at the time when most market observers thought it would be winding down for the year? If last week was any indication, the answer would be "yes," at least for the well-known names.

There was one billion-dollar transaction announced last week, another being talked about, and a third issuer that said it plans to spend at least $250 million in the coming months, most of which would come from the high yield debt market.

And to top it all off, Global Crossing is thought to be planning another $400 million issue to help finance its recent Racal acquisition.

The billion-dollar offering, slated to price last Friday, came from United Pan-Europe Communications - on the heels of a $900 million equity sale and another $1.5 billion junk bond offering three months ago.

UPC, a dominant cable company in Europe, has been raising money in both the U.S. and Europe as it expands its system and, in the process, has become a benchmark name in the junk bond market. It has been on a tear snapping up cable properties, spending $2.7 billion this year alone to double in size. And if it is able to buy Deutsche Telekom's cable business, which it is attempting, it will double yet again.

Several investors said the large junk bond deal caught them by surprise, as the market has been hampered by waning interest and sluggish prices in recent weeks.

Adding to the shock was another billion-dollar deal from wireless company VoiceStream. That one had not yet officially launched at press time, but market participants said it was being put together and should come soon.

VoiceStream, one of the last remaining independent nationwide wireless providers, is in the process of "rolling up the GSM platforms," according to one portfolio manager.

GSM - or global systems for mobility - is one of the three types of technology used to deliver wireless calls through the air. The other two are TDMA (time division multiplexing access) and CDMA (code division multiplexing access).

GSM has the smallest penetration in the U.S. market, but there are indeed a number of companies who use the technology, and it appears that VoiceStream is buying these players to turn them into one company that can compete against the likes of Nextel, Bell Atlantic and AT&T. Although, it still is possible that even after it rolls the GSM platforms together, VoiceStream would be a takeover target for one of the telecom behemoths, an analyst noted last week.

In June, VoiceStream paid a 55% premium for OmniPoint, another GSM player, for a total of $4.6 billion in cash, stock, and assumed debt (HYR 6/28/99). A GSM roll-up also could have implications for expansions into Europe, where - unlike the U.S. - it is the dominant technology used for wireless calls.

VoiceStream officials did not return phone calls last week.

And if European cable and GSM wireless did not incite any interest for investors, they may look to Citadel Broadcasting, a radio station company that said it will spend at least $250 million over the next six month to buy market share. And most of that will come in the form of junk bonds.

The company's chairman, Lawrence Wilson, spoke at a conference when he announced those plans, according to high yield investors. Officials from Citadel did not return phone calls.

And finally, in the way of future new issues, Global Crossing is said to be eyeing the market to partially finance its recent acquisition of Racal Electronics' phone network. As part of the financing of the overall $1.6 billion transaction announced earlier this month, there was a $400 million bridge loan. And the talk in the market is that the issuer will repay that bridge loan with junk bonds.

One of the few corporate deals that actually priced last week was from ASAT Finance LLC. The Hong Kong-based firm - the third-largest independent semiconductor packaging and testing company - sold a $155 million issue with a coupon of 12.5%. It priced at 97.7430 to yield 13%.

To complete the deal, the issuer included 3% equity warrants. The transaction was rated B1 by Moody's Investors Service and single-B by Standard & Poor's. It is initially callable in 2003 at a price of 106.25, and then prices fall to 103.125, and par.