Qwest Communications International Inc.'s phone book unit, QwestDex, is planning an October sale of as much as $1 billion of junk bonds to help finance its $7.05-billion takeover by two leveraged buyout firms, a person familiar with the matter said Monday.
Carlyle Group Inc. and Welsh, Carson, Anderson & Stowe agreed to pay $2.75 billion in cash for QwestDex's Eastern U.S. operations and $4.3 billion for its Western U.S. operations.
The leveraged buyout would be the second-largest after Kohlberg Kravis Roberts & Co.'s $31.4-billion purchase of RJ Reynolds Nabisco in 1989.
The junk bond sale would be the largest since Owens-Brockway Glass Container Inc., a division of Owens-Illinois Inc., sold $1 billion worth in January. Junk, or non-investment-grade, bonds have suffered in 2002 as investors have balked at buying them, wary of record defaults as more debt-laden companies have filed for bankruptcy.
"A $1-billion high-yield deal is a big deal in any market," said Brendan White, a senior portfolio manager at Fort Washington Investment Advisors in Cincinnati, which owns some Qwest bonds. It's unclear how much QwestDex would have to pay to attract investors, analysts said.
Yields on many existing junk bonds now are above 12%.
Junk bond mutual funds have suffered investor redemptions for 11 straight weeks, AMG Data Services said. That has removed a key group of buyers from the market.
Nonetheless, junk bond prices rebounded somewhat last week, pushing yields down a bit.
Companies have sold just $3.1 billion of new junk bonds since June 30, the weakest start to a quarter since the third quarter of 1996, according to Dealogic.
QwestDex sells advertising in 269 directories in 14 states, with a circulation of 45 million. Its bond sale would be the first of two by the company that could raise nearly $3 billion, the person familiar with the matter said. QwestDex might tap the leveraged loan market for about $3 billion and issue $1 billion of equity, the source said.
Shares of Denver-based Qwest, the No. 4 U.S. local phone firm, were down 2 cents to $2.67 on the New York Stock Exchange.