Banks try to bail on Huntsman-Hexion; Teva keeps financing facilities; banks still stingy with credit

By Aaron Hochman-Zimmerman

New York, Oct. 28 - Stocks posted a strong recovery on Tuesday, but investors wondered how long it will last.

The eyes of the market are now on Wednesday's Federal Open Market Committee meeting.

Beyond Wednesday and into the foreseeable future, credit markets remain very difficult, an analyst said.

Financing for deals is available, but not for everyone.

"It depends a lot on the deal," he said. "But just in general, it's tough."

"Who knows how much worse the global economic environment will get?" he asked.

Hunstman Corp. and Hexion Specialty Chemicals, Inc. were struggling to keep their financiers, Credit Suisse and Deutsche Bank, beholden to their agreements despite the banks' claims that the new entity will be insolvent.

In the pharmaceutical sector, Israel's Teva Pharmaceutical Industries Ltd. and Barr Pharmaceuticals, Inc. were grappling over their own financing issues.

Shares of both firms were up as Teva announced that it will be able to keep its financing arrangements until the close of the merger.

Also in finance, market watchers are keeping their eyes on the regional banks to see which will be the next to be snapped up.

"That's what the government is encouraging," the analyst said.

Meanwhile, the Dow Jones Industrial Average launched skyward to end better by 889.35 or 10.88%, at 9,065.12, while the Nasdaq Composite Index added 143.57, or 9.53%, to finish at 1,649.47.

The S&P 500 jumped by 91.59, or 10.79%, to close at 940.51.

Hexion fights to secure deal financing

Late Monday night, Hexion Specialty Chemicals received word that the financing banks, Credit Suisse and Deutsche Bank, insist that the new entity formed by the merger of Hexion and Huntsman will be insolvent and will not "meet the condition of the commitment letter," a Hexion press release said.

"As a result the banks do not plan to fund the proposed closing of the merger scheduled for [Tuesday morning]," the release continued.

Hexion, which at one point opposed the $6.5 billion merger for the same reason, has changed its tune.

The Columbus, Ohio-based chemical company expressed its dissatisfaction with the banks' decision and advised the banks that it will fight to ensure the contractual obligations are upheld.

"I'm definitely not confident ... there's no way it's happening at $28.00 [per share]," an equity analyst said.

"I think you might be able to get enough support behind the $22.00 share price proposed," he said.

An alternative for Hexion to save itself may be to file bankruptcy, he said, but that is unlikely because of how much Apollo Management, LP has to lose, he said.

As for Huntsman, "it's a good company," he said.

"The next time you can buy it down, just go ahead and do it," he said.

"They could renegotiate it down to $18.00 [per share] and that would still be a win ... for everybody," he said.

The challenges facing the financing of the deal left Huntsman out of the day's major rally, but shares of Huntsman (NYSE: HUN) were still better by $0.28, or 2.33%, to finish the session at $12.28.

Teva clings to credit facilities

Teva Pharmaceuticals announced that it will still have its Bank of America-led unsecured credit facilities in place in order to close its deal with Barr Pharmaceuticals.

Teva's $7.5 billion in cash and stock for Barr is dependent on the facilities, which have outstanding balances of nearly $1.65 billion and $292 million that mature in October 2011 and June 2013, respectively.

Teva also has access to an unused $300 million revolving credit facility.

"We are pleased that we have successfully negotiated with Barr's lenders to maintain these credit facilities, post-closing, under terms and conditions that meet our requirements," Eyal Desheh, Teva's chief financial officer, said in a company statement.

"The combination of the amended Barr credit facilities, Teva's available cash on hand and our committed bridge financing will provide us with sufficient funds to complete the acquisition of Barr as well as support the continued growth of our business."

Shares of Teva Pharmaceuticals (Nasdaq: TEVA) added on $2.37, or 6.27%, to end at $40.15.

Shares of Barr Pharmaceuticals (NYSE: BRL) improved by $5.41, or 9.59%, to close at $61.80.

The deal is expected to close late in 2008.

General Growth soars on officer removals

Meanwhile, shares of General Growth Properties Inc. added over 70% after the company replaced chief executive officer John Bucksbaum and president Robert Michaels with company directors Adam Metz and Thomas Nolan, respectively, according to an SEC filing.

The two were removed in relation to "recent undisclosed, unsecured loans made by the Bucksbaum family trust to Michaels [$10 million] and former chief financial officer Bernie Freibaum [$90 million] in order to repay personal margin debt related to GGP stock," Friedman, Billings, Ramsey & Co. analyst Paul Morgan wrote in a late-day note to clients.

The company claims no Securities and Exchange Commission rule violations occurred, but the loan deal did violate company policy.

The firings, which Morgan called "most surprising," came as "the company is undertaking a fire sale of its Las Vegas Strip assets," he wrote.

Going forward, the need for capital as well as the promotion of Metz and Nolan will likely encourage talk of a "strategic combination" as a solution to General Growth's balance sheet problems.

However, "we continue to believe that the M&A option is an unlikely rescue for GGP investors, given the potential suitors' unlikely willingness to incur nearly $30 billion of debt much of which matures in the next few years," Morgan wrote.

Shares of General Growth Properties (NYSE: GGP) bolted on $1.42, or 72.08%, to close the day at $3.39.

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