The initial public offering for Global Crossing Ltd., the undersea telecommunications cable empire controlled by Beverly Hills financier Gary Winnick, is expected to be about $300 million, according to people involved in the deal.
As reported here last week, Winnick is floating an unregistered $650 million bond issue for Global Crossing, which has laid cable under the Atlantic from North America to Europe and is doing the same under the Pacific to Asia.
Winnick, through his Pacific Capital Group, owns Global Crossing, which has its headquarters in Bermuda.
When the bond money is raised and Merrill Lynch and Salomon Smith Barney are doing the heavy lifting Winnick plans to turn around and offer stock in Global Crossing to the public, probably in late summer.
Why the IPO, following the bond offering?
One reason is to give a cushion to bondholders. The bonds will sell more easily if the buyers know that an initial public offering is being readied to infuse Global Crossing with fresh additional capital. And, if there’s any trouble down the road, bondholders are at the front of the line (ahead of stockholders) in claims upon Global Crossing’s assets.
While the morning line on the IPO is $300 million, the real figure could be much larger. In the securities biz, there is the routine of registering for a set number of shares, with an “over-allotment” of shares (also called a “green shoe”) for exceptional demand.
The real target is usually the combination of the two, but no one wants to sell less than they registered for in a public offering. That looks like weak demand, or ineffective underwriting. So brokerages publicly register for the first amount, and then say enthusiastic demand forced them to exercise the green shoe to sell additional shares.
Global Crossing officials are in a quiet period and cannot talk.
Speaking of IPOs, Chatsworth-based Natrol Inc. has filed with the Securities and Exchange Commission for a public offering of 3.2 million shares (740,000 of them now held by existing stockholders). The filing price will be $12-$14 a share.
Natrol makes and markets dietary supplements.
Buried under work
Busy has been William Doyle, president of Kerlin Capital LLC, the independent investment banking shop in downtown Los Angeles. Doyle, you may remember, helped engineer the sale of Whittier’s Rose Hills Mortuary in 1996. He’s been buried by work this year again, including selling the 166-store Anaheim-based 3-Day Blinds Inc. chain to Summit Partners LLC, the Palo Alto-based venture capital firm; raising $180 million in fresh credit for Certified Grocers of California Ltd.; and devising a shareholder’s rights plan for Southwest Water Co., a West Covina-based publicly held water company.
Coming up for air, Doyle said there is abundant liquidity in today’s corporate finance and mergers world, particularly in the debt and private equity markets.
For example, Los Angeles-based Certified Grocers, a grocer’s buying cooperative, previously had only secured borrowing privileges from a bank. Doyle was able to arrange unsecured credit borrowing from a new bank group and institutional lender, “for a lower rate,” said Doyle. How low a rate? “Below prime,” he said.
Wall Street ratings
David Rosenthal, founder of Curtis-Rosenthal LLC, the fourth-largest real estate appraisal company in Los Angeles, finds he is pounding the pavement more and more for Wall Streeters particularly for underwriters who issue commercial mortgage-backed securities.
Rosenthal’s job is to examine commercial real estate and divine its worth. Though the equity-oriented real estate investment trusts, or REITs, get most of the ink, a huge force in Los Angeles commercial property markets are the mortgage-backed securities, issued by such underwriters as BankAmerica Corp., NationsBank Montgomery Securities or Goldman Sachs.
“Ballparking it, I would say about half of the appraisals we do, on the lending side, are for Wall Street the commercial mortgage-backed securities,” said Rosenthal, who started up his company in 1983. “It’s growing, and still growing. They were barely there five years ago.”
Listening to commercial real estate brokers in Los Angeles, it seems that Wall Streeters are feverishly throwing big wads of money at any pile of bricks in the city.
But Rosenthal said that the mortgage-backed securities, since they are rated by Moodys, Standard & Poor’s and other credit-rating outfits, are not so profligate.
Rosenthal even said that Wall Streeters do not pressure him to come in with a “high” appraisal, as did thrift loan officers in the mid- to late-1980s. Rosenthal credits the role of credit-rating agencies for some of the hands-off attitude of Wall Streeters, when it comes to influencing appraisals.
“They know the securities will be rated by Moodys, S & P; or Fitch you don’t want to get a bad reputation with those agencies. As a result, Wall Street actually brings discipline to lending it is a much more disciplined market than the 1980s,” said Rosenthal.
Playing the net
A love-hate relationship is emerging among local stock-pickers over El Segundo-based NetVantage Inc. The company makes systems that help local networks of computers work together and is an original equipment manufacturer, or OEM, for major computer makers. Bryant Riley, of West Los Angeles-based B. Riley & Co. Inc., thinks the stock is iffy, not showing much in profits.
Indeed, the newish company has been losing money, and, at about $9 a share, is trading at 25 times estimated 1999 earnings (no earnings slated for 1998). That used to be considered rich, but who knows anymore.
One senior broker at PaineWebber, who can’t be identified due to brokerage policies, says that once NetVantage begins posting black ink, look out. In a few years, the company could be not worth, but earning, dollars per share. And since Wall Street values growth stocks at more than 30 times earnings well, you get the picture.
Downtown brokerage Wedbush Morgan Securities just altered its rating on NetVantage to “accumulate” from “buy” on the stock, as shipments now appear to be slower than hoped. Still, Wedbush estimates the company’s sales will soar over $90 million in 1999, up from $27 million this year.
Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. His e-mail address is [email protected]
