Buysiders say they will maintain their positions in Nextel Communications paper, at least for the short term, despite a three-to-four-point price drop in its outstanding high-yield paper last week on news of a $1 billion convertible deal. Benchmark 9 3/8%s of '11 fell from $83 before the deal was announced to $79-$80, before returning to the previous levels. Market players say the new issue raised particular concerns because it is pari passu with the high-yield debt, meaning it will not be subordinated to straight bonds, as convertibles typically are. Still, the new bond is seen giving the company another $1 billion for capital expenditure in a tight market and improving financial liquidity, which investors say balances the scales for the credit. A call to the company was not returned as of press-time.
Tom Haag, high-yield portfolio manager at Lutheran Brotherhood in Minneapolis, says he didn't sell on news of the new deal, because he feels the credit is still strong on a long-term basis.
"The decision to tap the convertible market provides them with an additional liquidity cushion," says Katie Heagy, credit analyst at Federated Investors in Pittsburgh, who expects Nextel to have capital expenditure requirements for a network upgrade in the next year. She expects the bond to trade at higher prices if Nextel hits its second-quarter earnings numbers. For the moment, Heagy says Federated is holding, "If Nextel doesn't work, the whole of high-yield wireless doesn't work."