During a week dominated by headlines of the bombing of Afghanistan, outbreaks of anthrax attacks, and the potential for more terrorist activity here in the U.S., the capital markets continued to limp along with few bright spots. “Uncertainty” is the word on the lips of most bankers and traders on Wall Street. And while jittery investors bid equities up almost to pre-September 11 levels, the mood is still somber as they await third-quarter earnings announcements — with decidedly low expectations.
Despite the tightening of capital, analysts do not expect a credit crunch to cripple the markets. Recent multibillion-dollar deals by Conoco Inc., Devon Energy Corp., and Tyson Foods Inc. — all to finance mergers — demonstrate that investors are willing to bite on investment- grade corporate debt.
Centex Pulls Debt Issue
Some companies, however, are not crazy about the terms lenders are demanding. For example, Centex Corp., a Dallas-based home builder, postponed its scheduled corporate debt issuance on Friday, due to market conditions. The company was hoping to issue $200 million of three-year notes underwritten by J.P. Morgan Securities and Salomon Smith Barney.
“We’re going to take a step a step back and opportunistically look at the market, just given where spreads went since the September 11 attacks,” Gail Peck, managing director of corporate finances at Centex told Reuters news service. Peck stated that there was no immediate need for the financing.
Spreads on investment-grade bonds have risen as much as 30 to 50 basis points since 9/11. Some industries, such as airlines and leisure, have been forced to offer even higher coupons. The debt market has been just about closed to high-yield issues.
Not everyone is pulling the plug on debt issuance. Elwood Energy LLC issued $402 million of 25-year senior secured bonds in the 144a private placement market. Credit Suisse First Boston was the sole lead manager of the deal.
Global Crossing Considers Swapping
Troubled high-speed communications service provider Global Crossing Ltd. is exploring ways to deleverage its balance sheet. The Bermuda- based company, which is carrying about $9 billion in debt on its books, held preliminary discussions with potential investors about a debt-to-equity swap, according to a report in the Financial Times.
Global Crossing also been able to generate interest from potential buyers for the two units that it put up for sale earlier this year, Global Marine Systems and IPC Communications. According to the paper, the company has received a firm offer for one and preliminary interest in the other. Combined, the two businesses could fetch as much as $1 billion.
Speculation that Global Crossing will have a difficult time servicing its large debt load has driven the company’s share price under $1. Executives at the company have insisted that $2.4 billion in cash on hand will be more than enough to get the company through the end of 2002. In the past three years Global Crossing has gone through several reorganizations and is now operating under its fifth CEO since it went public in August of 1998.
Little Venturing Goin’ On
Venture funding deals are still few and far between as the market continues to fall way behind last years record pace. Venture deals totaled $378 million last week, down 28 percent from the prior week. Venture capital investments during the same period last year exceeded $1.8 billion according to VentureWire, an online industry newsletter.
Venture capitalists that braved the rough waters include Microsoft Corp. which announced last Wednesday that it was investing $51 million in Beverly, Massachusetts-based Groove Networks Inc., a vendor of Web- enabled peer-to-peer file-swapping technology.
The second VC deal to be announced on Wednesday was a $54 million investment in Metro-Optix, led by Van Wagoner Capital and Palantir Capital. That deal brings the total amount raised by the telecom network equipment maker to $136 million. Metro-Optix will use the funds to expand manufacturing and ratchet up research and development.