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Deutsche Bank Sweetens Telecom Sale

Deutsche Bank last week sweetened a $150 million offering for US LEC Corp., a telecom provider, in the wake of investor resistance.

Deutsche Bank last week sweetened a $150 million offering for US LEC Corp., a telecom provider, in the wake of investor resistance. Even though telecom has been a battered sector, this was viewed as highly unusual given many recent high-yield deals have been wildly oversubscribed. The $150 million five-year, floating-rate issue was eventually priced last Thursday at LIBOR plus 850 basis points and at a discount at 99 1/2. The call prices were increased to 105 1/2 after two years, 103 1/2 the following year and down to par in its final year. It could not be determined what the previous call prices had been.

Mark Fedorsik, managing director in high-yield capital markets at Deutsche Bank, said more than 30 investors participated. "It was priced at the back end of price talk, which was 825 to 850 over LIBOR," he stated. Fedorisk said there is nothing unusual about the transaction's structure. Calls to Richard Aab, chairman, and Michael Robinson, executive v.p. and cfo of US LEC, were not returned by press time.

That the deal did not immediately trade after it was free to do so also caught investors' attention. "It's unique because deals are flying off the shelf right now and trading up two or three points off the block, but we haven't even seen it trading yet," an investor added the day it was priced. Fedorsik noted the deal traded up a couple points the day after it was priced.

Investors agreed the deal's reception was noteworthy because investors have suffered steep losses in the high-yield telecom world and are not eager to make new investments there. "Many investors were burned and wouldn't even consider the new issue," said one portfolio manager who chose not to participate in the deal. "In a market where everything is 10 times oversubscribed, this deal wasn't. It'll get tucked away with a few big buyers, and it won't really trade," he predicted.

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