Approximately $50 million of Global Crossing paper traded last Wednesday following a conference call that reported a dramatic earnings loss and the likelihood that the company will soon break a covenant in its loan agreement. Dealers reported a failed auction of $30 million where the prospective seller was reportedly asking in the high 30s. "People were not willing to bid up on the price after the company came out with bad numbers [Wednesday]," a dealer said. "It looks bleak, and the price reflects that."
Still, paper did trade in the high 40s, higher than the price indicated for the auction. Market players noted this was based mostly on size, as the trades came in $5-10 million chunks. "Price varies on size; a size buyer would want it at a discount," said a market player, explaining why a hefty $30 million piece would fail to move, but smaller pieces would trade up. Company officials last week announced a $3.35 billion net loss for the third quarter, compared to $544 million a year earlier for this period. Calls to Dan Cohrs, cfo of Global Crossing, were referred to Madelyn Smith, spokeswoman for the financial department. She declined to comment.
Market players seemed to still be trying to make heads or tails of the company's standing by late last week. Some noted the cost cutting measures, including the 1,200 staff layoffs the company announced. "After the conference call, some people took the announcements as positive and wanted to buy the debt. Some reacted negatively and wanted to get out," said a dealer.
One market player speculated that investors may be selling the bonds to buy the bank debt, in an effort to get a more senior position. The company has announced entering into discussions with its lenders to renegotiate the terms in the face of covenant trouble, but market players are unsure of when any deal will come to market and are skeptical that there is something imminent. "This is a long-term play. It's one of the toughest names in the sector; it's because of the size and everything that could go wrong did go wrong," a dealer remarked of Global Crossing's issues. He added that telecom credits are particularly susceptible because they tend to trend upward or downward as a group. "People's perceptions of them are connected. They went through an aggressive growth period, and then things shut down quickly," he said.
The company's woes became apparent last summer, when the debt notched down to 92 from 94 on telecom uncertainty (LMW, 8/12). Then by mid-October, a lowered revenue projection by Global Crossing pushed levels down to the high 50s and sparked heavy trading in other telecom credits. Global Crossing has a $3 billion deal that expires in 2004. Pricing on the revolver is LIBOR plus 21/ 4%, while the term loan is LIBOR plus 23/ 4%. J.P. Morgan, Goldman Sachs, Deutsche Bank, Citigroup, Merrill Lynch and CIBC World Markets are the lead arrangers