NEW YORK – Nextel Communications Inc. made a big splash in the capital markets last week with two big deals, neither of which will directly finance the carrier’s domestic specialized mobile radio operations.
The first, a debt issue, was sold to help finance the expansion of Nextel’s networks abroad. The second was an unusual hybrid debt instrument convertible into Nextel’s common stock. This offering is intended “to attract a new investor class that heretofore wouldn’t be able to invest in a negative cash flow company,” said Paul Blalock, investor relations manager for Nextel, headquartered in McLean, Va.
“Nextel doesn’t receive the proceeds or the dilution,” he added. Dilution refers to the effect on the earnings per share of common stock and book value per share of common stock when convertible securities are exchanged for common stock.
McCaw International Ltd., a subsidiary of Nextel, placed privately March 3 a $500 million issue of 10-year senior discount notes through Morgan Stanley & Co. Inc., New York. The notes are non-callable for five years, meaning that the company cannot redeem, or buy them back, from purchasers for at least five years from the original sale date.
This offering included warrants for purchase of 1 percent of the company’s stock. Warrants, which can be transferred and traded, typically are issued to enhance the marketability of the accompanying fixed income securities.
The issue was priced to yield 13 percent. “The debt deal started at $250 million, was oversubscribed and went to $500 million on very favorable terms,” Blalock said.
Proceeds will help McCaw International build out its SMR-iDEN (integrated Digital Enhanced Network) systems abroad, he said. McCaw is doing business in countries including Argentina, Brazil, Canada, Mexico and the Philippines.
On March 5, trading began on the American Stock Exchange for a separate issue, an unusual derivative security linked to Nextel Communications’ stock. STRYPES, an acronym for Structured Yield Product Exchangeable for Stock, is a proprietary financial instrument developed by Merrill Lynch & Co., said Dan Alfaro, a spokesman for the New York-based investment bank, which was lead manager of the offering.
“There have only been about a half dozen in history,” said Nextel’s Blalock. Dan Noonan, a spokesman for the American Stock Exchange, said that AMEX has only one other similar security trading on it.
“STRYPES allow investors the opportunity to earn interest while participating in the stock of a company not otherwise known to pay dividends,” said Richard Mikaliunas, vice president of capital markets for AMEX.
The securities were sold by Nextel STRYPES Trust, a newly incorporated Delaware business trust registered as a non-diversified, closed-end management company that is unaffiliated with Nextel. The trust will use proceeds of the STRYPES sale to purchase and hold a series of zero-coupon U.S. Treasury securities maturing on a quarterly basis. Listed under the ticker symbol MNX, each of the 7.2 million STRYPES issued represents the right to receive an annual distribution of $1.015, paid proportionately on a quarterly basis. The initial sale price of one STRYPE was $14.
Each STRYPE will be exchanged for between 84 percent and 100 percent of a single share of class A common stock of Nextel on the exchange date of May 15, 2000.
