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Nextel Expected To Bring Jumbo Deal

Nextel Communications is expected to issue a $1 billion high-yield offering this month, according to buy-siders who have been approached about a deal.

Nextel Communications is expected to issue a $1 billion high-yield offering this month, according to buy-siders who have been approached about a deal. The paper should alleviate some of the hunger pangs that investors have experienced during recent weeks as supply dwindled. In fact, it may even force spreads wider, although high-yield professionals said there is no consensus on just how much wider given a deal has not yet been announced. "We've been seeing some decent demand, but a deal of that size should put some technical pressure on the market," said Kevin Cronk, portfolio manager at Columbia Management Group in Boston.

High-yield spreads have been tightening in recent weeks due in large part to the lack of new issuance. The Merrill Lynch Master II Index's option adjusted spread was 390 basis points as BW went to press late last week, down from around 400bps in mid-August.

"We've had a fair amount of large deals come to market, but anytime a $1 billion deal comes, it puts a little pressure on. But they are getting easier for the market to digest," said John Rote, head of high-yield syndicate at Banc of America Securities. Investors agree that Nextel, a frequent issuer, is notoriously opportunistic with its timing. "Over the last year and a half, where issuance has been close to record highs for the market, companies have been doing a good job of matching demand with their new issues," added Oleg Melentyev, fixed-income research associate at Merrill Lynch. This year has already seen more than $100 billion in new issuance. Renee Alexander, spokeswoman for Nextel, declined comment.

Just two new issues, totaling $485 million, have been announced thus far: deals from Fisher Communications and Grohe Holding. But buy- and sell-side professionals agree there is a healthy, unannounced pipeline. The recent rally in Treasuries should fuel as much, Rote said. Others echoed his sentiment and said they expect to see companies take advantage of current yields to conduct refinancings. Rote added he also anticipates leveraged buyout activity that requires high-yield financing will also continue.

Still, one Los Angeles-based portfolio manager remarked that brokers had not come to him with a forward calendar. "Maybe with the [Republican National Convention] they're all out of [New York], which could account for the lack of a visible calendar," he postulated, noting he normally had a good sense of what is in store for the fall prior to the holiday weekend.  

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