Paging Makes News in Quiet Market

Paging Network took a wild ride in the secondary high yield market last week, posting high returns the first few days and then taking a dive later in the week when it announced it would not make two coupon payments due Feb. 1.

Paging Network had been bucking the downward trend in the paging sector as of late, and, in fact, was said to be almost single-handedly keeping the sector in the black in recent weeks. Paging has been feeling intense pressure from other wireless players and had been performing badly in the high yield market for most of last year.

In the first few weeks of this year, however, paging had returned nearly 7%, far outpacing any other category, many of which posted negative results year to date. And before last Thursday, more than one portfolio manager said that PageNet was a big reason behind that upside.

Part of PageNet's earlier good performance last week was due to its pending merger with rival paging concern Arch Communications. There also were rumors last week that there may be a spin-off in the near future of PageNet's subsidiary Vast Solutions, a wireless data company.

If that were to occur, it could fetch a high price as many other data companies have in the recent past, according to investors familiar with the company. And the markets reacted last week.

On Tuesday, PageNet saw 44 million stock shares traded, compared with the more typical three million, investors said, to become one of the most actively traded stocks of the day.

Traders said early last week that PageNet had wanted to complete the deal with Arch before its interest payments came due on Feb.1, but on Thursday, PageNet announced that it would miss those interest payments equaling $33.4 million.

Those payments are on a $400 million, 10.125% transaction and a $300 million, 8.875% deal. And in addition to those defaults, the company said it may also violate some of its bank agreements.

In the wake of the default announcement, PageNet said it will increase the amount of stock that the junk bondholders will receive as part of the Arch merger.

Lack of Issues Help Trading

Elsewhere, activity in the high yield market was light last week, with prices overall falling less than a point, traders said.

Outstanding bonds in the secondary market continued to feel the heat from concerns over the interest rate, withdrawals from high yield mutual funds, and competition from better-performing asset classes.

One portfolio manager noted that the lack of new supply has been a blessing in disguise; it is one big reason that the secondary market is at least holding its own.

Fruit of the Loom, which has received a lot of attention as of late with its bankruptcy, lost about half a point on its 7% notes, and remains in the low 30s.

Focal Communications, a telecom play, saw increases last week of about two points on its 12.125% notes.

The market benchmark names like Level 3 Communications and Qwest Communications were largely unchanged.