Buyers Full of Telecom, They Should Look to Europe

Telecommunications issues have been dominating the high yield market for some time, as even the most casual observers know, but at the same time many of the portfolio managers are already overweighted in the industry.

That has made for the somewhat unusual situation, investors noted last week, where telecom is the most popular sector, and one that has huge capital needs, but one that also must pay higher coupons than would normally be expected.

In fact, industry analyst Phelps Hoyt, at KDP Investment Advisors, offered the idea that if another type of issuer, even a utility for example, came to the market with the types of coupons in the low teens offered by telecom issuers these days, they would find buyers faster.

To be sure, two of the telecom deals that priced last week, Canada-based GT Group Telecom and U.K.-based Atlantic Telecom, each featured coupons of 13.25%.

GT Group sold an issue with a face value of $855 million issue that priced at 52.65. It carried a rating of Caa1 from Moody's Investors Service and CCC-plus from Standard & Poor's.

The deal is initially callable in 2005 at 106.625, and then prices fall in subsequent years to 104.417, 102.208 and par.

Covad Communications Group sold a $425 million issue on Friday, Jan. 21 that carried a 12% coupon. It had a rating of B3 from Moody's and B-minus from S&P, and it priced at par to yield 521 basis points over Treasurys. It is first callable in 2005 at 106, and the prices fall in succeeding years to 104,102, and par in each year thereafter.

Also on Jan. 21, Nextel Communications sold a massive $1 billion issue that featured a 5.25% coupon and a rating of B1 from Moody's and B from S&P.

European HY Sees Industrial Issues

After continued domination by the telecom sector, the European highyield market saw two issues by industrial companies last week, giving cause for excitement among investors hungry to diversify their portfolios.

Dublin-based Clondalkin, a print and packaging producer, and Concordia, a Scandinavian bus operator, both hit the market with new issues.

The Clondalkin transaction, handled by Lehman Brothers, priced at 10.625% and was up about a half point in secondary trading as of Thursday, according to a buyside source familiar with the deal.

The price talk regarding the Concordia issue, which was expected to price on Friday, was at 11.125%, sources said. The deal was being handled by Goldman, Sachs & Co. and was expected to see enormous demand.

"There haven't been industrial names being issued for the last three months or so," a portfolio manager said. "[These] are the first two that people are able to buy to diversify their portfolios, so they're piling in."

Also issuing was the U.K.'s Atlantic Telecom, a transaction managed by Chase Securities, which came in at 13% on the 200 million euro tranche, and 13.25% on the GBP75 million tranche($122.9 million).