NII Holdings Bonds Diverge From Recovery Estimate

Bonds of NII Holdings Inc., the mobile-phone carrier that missed an interest payment last week, are trading at almost twice an estimated recovery value as creditors position themselves for a restructuring.

NII’s $900 million of 11.375 percent notes due August 2019 traded at 66.8 cents on the dollar at 10:27 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. While that’s down from 88.5 cents on June 30, it’s above an expected compensation range between 30 cents and 40 cents by JPMorgan Chase & Co. analysts.

Some of the disparity between the bond price and the predicted recovery may reflect investments made by creditors trying to gain an upper hand in controlling the restructuring process, according to Jacob Steinfeld, a JPMorgan analyst, who authored a report released Aug. 18 on the Reston, Virginia-based company. The carrier, which has $5.8 billion in debt, missed $118.8 million in coupon payments Aug. 15 and has been accused by the investor Aurelius Capital Management of being in default.

“Large holders likely want to maintain a certain percentage of holdings so that they would have a seat at the negotiation table,” JPMorgan’s Steinfeld said in a telephone interview. The analyst, who has rated the securities underweight since July 2013, reduced recovery expectations on the notes from a range between 40 cents and 50 cents, according to the report.

Restricted Investors

NII, which does most of its business in Latin America under the Nextel brand, is negotiating with creditors about how to restructure, including possible debt swaps or exchanging bonds for equity in a reorganized company, according to an Aug. 15 filing with the Securities and Exchange Commission. The company entered into confidentiality pacts that allow investors to access private information to facilitate talks, according to the filing; those private documents were made public on NII’s website.

The release of such confidential information allows creditors involved in the discussions to begin trading the company’s securities again, Philip Brendel, a distressed credit analyst at Bloomberg Intelligence, said in a telephone interview. “It can often mean at least some investors couldn’t come to terms and would not extend the confidentiality period.”

Tahmin Clarke, a spokesman for NII, didn’t immediately return e-mailed messages seeking comment.

Largest Bankruptcy

Standard & Poor’s cut the company’s rating to default yesterday after it failed to make the coupon payments, saying “we do not expect the company to make the payment within the 30-day grace period as we believe the company is likely to either restructure its debt or file for bankruptcy.”

NII lost $623.3 million in the three months ended June 30, capping nine consecutive quarterly losses, according to data compiled by Bloomberg.

NII’s airwave licenses in Brazil, its largest market, came too late to build faster networks that could compete with America Movil and Telefonica. The company lost 269,000 customers in Brazil in 2012, before recovering last year with 111,900 user gains. In Mexico, NII saw 637,200 subscribers leave in 2013, and losses have continued this year.

A bankruptcy filing by NII would be the largest by a telecommunications company this year, followed by Sorenson Communications Inc., Bloomberg data show.

Equity Sale

NII agreed to sell an equity stake in its Nextel Chile SA unit to Fucata SA, for an undisclosed amount, according to an Aug. 18 filing. The buyer is a conglomerate comprising Argentine media group Grupo Veintitres, British investment fund ISM Capital LLP and U.S. fund Optimum Investment Advisors LLC.

The Chilean market accounted for 1.5 percent of NII’s revenue in 2013, Bloomberg data show. The management said in the Aug. 15 presentation to bondholders that the impact of the sale for its Argentine and Chilean assets “is not expected to be material” and pegged the total value of less than $50 million.

“The further reduction in the recovery rate on the senior notes was driven by lower-than-expected recoveries from the Argentina and Chile assets and the reduction in towers,” said Steinfeld.

(Corrects name of company in sixth paragraph of story originally published Aug. 20.)
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