An avalanche of small telecom trades piled up to at least $100 million in volume last week as market players continued to try to touch the bottom of the deep end with their toes. The biggest divers in distressed land were Level 3 Communications-- down to 68 after trading in the 80s just weeks ago--and 360networks, which traded at 19 late last week. The credit was trading at 97 last fall.
The volume of trading in telecom paper was such that dealers talked about little else last week. One desk claimed to have traded $100 million of telecom by itself. But most of the trades were tiny, indicating there is no strong sense that credits have hit bottom. Dealers said the pieces were traded in small chunks, as little as $2 million, to minimize risk. "People trade smaller when they don't want to get hung," a dealer noted. "Trading desks don't want to take the mark-to-market risk on big sizes of volatile paper," another trader said.
Par players also were dragged into the action. Nextel Communications' bank debt was hauled down to 90 1/3, from 95 two weeks prior. McLeodUSA's debt traded down to 87 from 95 two weeks ago. Calls to spokesmen at both companies were not returned by press time. "The whole [telecom network] was overdone. If you look at where the debt trades in comparison to the money it took to build out the network, it's trading at 20% of what it's costing to build it out," one dealer said.
Even against a toppling of several telecom names, 360's fall was still startling to dealers. An estimated $25 million of the company's bank debt had traded over the week, as market players were abuzz with expectations that the company will file for Chapter 11 bankruptcy. 360networks missed a bond payment a little more than a week ago. "That's never a good sign," said a dealer. A company spokeswoman declined to comment and instead referred inquiries to recent press releases. A spokeswoman at Level 3 did not comment by press time.
The company recently tried to secure an additional $300 million credit facility as a last ditch attempt to avoid Chapter 11. "As far as what they've announced, it's still in negotiations. The longer it takes...well, you read between the lines," said a dealer. Traders say the steady decline of the credit is merely another example of the sector's troubles. "Long-haul fiber is experiencing tough times and facing ridiculous pricing pressure," said a dealer. "There's just not the demand they thought of."
Two weeks ago 360Networks' levels plunged to 28 as the company was looking for $350 million to close a funding gap left when Alcatel opted not to provide the capital infusion. 360networks needed the money for operations as well as to make interest payments on its bonds. The company has a $1.2 billion deal that breaks down into three tranches. Pricing is LIBOR plus 4 1/2 %. J.P. Morgan Chase and Credit Suisse First Boston are the lead arrangers.