New Issues Slow Down; December May See Uptick
November 22, 1999
Last week wasn't so hot in the primary market, but investors are already looking ahead to December. The new issues market hit the skids last week to the more normal - that is to say, slow - holiday-type schedule. This came one week after a spate of drive-by offerings, large deals that came and priced in just one or two days (HYR 11/15/99).
This week was expected to be even slower, of course, with Thanksgiving, but there are rumblings that December actually will see activity pick up, said Lutheran Brotherhood portfolio manager Tom Haag.
Another buy-sider noted that while people haggle about the volume of new issues in the coming weeks, one thing that's practically certain is that only the bigger, more liquid deals will entice any investor interest. Almost anything less than $250 million will be a tough sell, the investor said.
The days will be waning when investors are happy to provide financing to developmental-stage issuers that are posting negative cash flows.
The deals that priced last week include Global Crossing, which came to market with $2 billion of high yield debt in two separate issues, one for $1.1 billion and the other for $900 million. The two-year-old telecom company, one of the bellwethers in high yield, is building an underseas network.
The larger piece received a rating of Ba2 from Moody's Investors Service and BB from Standard & Poor's. It featured a coupon of 9.5% and priced at 98.4 to yield 383 basis points over Treasurys.
It is initially callable in 2004 at 104.75, and then prices fall to 103.167, 101.583, and par in each subsequent year.
The $900 million piece, which carried the same rating, had a 9.125% coupon and priced at 98.12 to yield 344 basis points over the curve.
Nextlink also fit the mold of what investors said were the ideal issuers - big, well-known and looking to raise a lot of debt.
Its offering, for $855 million, was also in two tranches. The bigger one, a zero-coupon issue for $455 million, received a rating of B2 from Moody's Investors Service and single-B from Standard & Poor's. It priced at 55.25 to yield 621 basis points over comparable Treasurys.
It is first callable in 2004 at 106.063, and then prices fall to 104.042, 102.021 and par.
The other tranche, for $400 million, carried a coupon of 10.5% and priced at par to yield 458 basis points over the curve. It is callable for the first time in 2004 at 105.25, and then prices fall to 103.5, 101.75 and par.
Global Telesystems also priced a deal for 500 million euros in two tranches, of 275 million euros and 225 million euros, while North American Van Lines tapped the market for a $150 million deal and Verio Inc. raised $400 million.