IMC slates add-on, Pennzoil prices $250 mln; Echostar, UAL little moved on news

By Paul Deckelman and Paul A. Harris

New York, Oct. 29 - IMC Global announced its intentions Monday of bringing a $75 million add-on offering to the primary market, while Pennzoil-Quaker State Co. priced a $250 million offering at a yield of 10.125%. In secondary market dealings, meanwhile, traders saw little movement in the bonds of either Echostar Communications Corp. or United Airlines, despite major news developments for each company.

IMC Global's offering looks set to complete the whole sale process in just two sessions; the deal was announced Monday, underwriters led by bookrunners Goldman Sachs & Co. and J.P. Morgan held a conference call Monday, and pricing is scheduled for Tuesday. The deal (Ba1/BB) is talked at a price of 100.5 to 101, a source familiar with the offering told Prospect News (see story below for more details).

Also in the primary, Pennzoil priced its offering of seven-year notes (Ba3/BB-) via J.P. Morgan.

Both IMC Global and Pennzoil will use proceeds from their offerings to repay bank debt.

Although not talking specifically about these deals, one syndicate official said that current low long-term interest rates have created an attractive opportunity to raise cash or free up bank credit lines for those issuers who do not have to pay up too much relative to Treasuries.

"People might see this as an attractive time to lock in (current interest rates) on the long end," one syndicate official told Prospect News, stipulating that this is especially so for the better credits in the high yield universe.

"Now is the time, in particular if they want to create additional capacity under their bank deal, if they want to create some additional dry powder to utilize for strategic acquisitions and expansions.

"There are a lot of assets out there, right now. And cash is king. If you have access to capital, and you have the means, there are a lot of opportunities out there."

Considering the equation from the point of view of investors, another high-yield syndicate official suggested that economic uncertainty and the current low short-term rates increase the high yield market's attractiveness relative to the leveraged loan market.

"On a yield basis, you can get 8% to 10%, in high yield," the official said. "I think that represents a very attractive relative value gain.

"I think the leveraged bank loan market right now is pretty soft," this official said. "You're seeing much better fundamentals right now from high yield. You've got a lot of cash in the high yield market, looking to buy high-quality issuers. And the secondary trade performance has been very solid. If you can weed through the distressed telecom and cyclical commodity, chemical and industrial credits the high yield market is pretty strong right now."

Against the yields on offer in junk bonds, this official said bank loans do not appear to offer favorable compensation for the risk.

"Three-month Libor right now is 2.27%," he noted. "When you look back at the leveraged loans of three years ago, Libor plus 225 (basis points) was a pretty standard rate," he said. "So LIBOR plus 225, we're talking about 4½%, and you're taking a fair amount of risk and there's not a lot of reward for doing that."

However a loan syndicate official dispute claims his market was on more shaky ground than high yield bonds, saying: "I'm not sure that it's worse than the bond market.

"Clearly secondary prices are soft," the syndicate official continued. "That has made new issuance a challenge, on the institutional side of the market, in particular. They've taken a little bit of a wait-and-see attitude, I think, until the secondary market firms. And that has made it tougher to push through the more highly leveraged paper. But I think there is good liquidity on the institutional side. And my guess is that we'll see new issuance pick up.

"The institutional side of the market, in particular, has been slow to respond to the secondary trading levels. They haven't aggressively gone after new issue commitment. So deals have been slow to move through the leveraged loan market."

In the secondary arena, "it was quiet and trading was pretty much range-bound, with not a whole lot going on," a trader said, while a second opined that "I've seen better."

The first trader noted that there didn't seem to be very much activity in the bonds of Echostar, which over the weekend finalized a deal to buy Hughes Electronics Corp. from General Motors Corp. for $26 billion in cash and stock. The way was cleared for Littleton, Colo.-based Echostar to buy Hughes and its DirecTV operation - Echostar's only major rival satellite broadcaster - after NewsCorp. withdrew from the negotiations.

He opined that Echostar DBS Corp.'s 9 3/8% bonds due 2009 should have started the day around 102 bid/103 offered, but opened the session a bit wider, around 101 bid/103 offered, before trading around the 102 level, "so there was really no change there. You would have thought they would trade off a little bit, with the kind of money they have to come up with to do this deal, but that issue really didn't run up, nor did it get hammered down. It stayed status quo."

At another desk, the 9 3/8% notes were seen around the same 102.75 bid level they held on Friday, while Echostar Broadband's 10 3/8% notes due 2007 were quoted unchanged at 105 bid.

The trader suggested that the bonds weren't going anywhere because market participants saw the deal as "a double-edged sword" - while a Hughes purchase would put Echostar in a commanding position in the satellite broadcast industry and give it the kind of market penetration currently enjoyed by only the largest cable-TV operators, "this has a long road ahead of it before it gets approved," with federal antitrust regulators expected to cast a very wary eye on the satellite mega-deal.

Equity players also entertained their doubts about whether this combination would ever actually come to pass; Echostar's stock was down $1.18, or 4.67%, in Nasdaq trading, finishing at $24.08. Volume of 25.2 million shares was more than eight times the usual daily turnover.

There was also little movement seen in the battered bonds of United Airlines, following the weekend ouster of embattled United chief executive offcier James F. Goodwin and his replacement by UAL Corp. Board member John W. Creighton, former CEO of Weyerhaeuser Co., where he enjoyed a reputation of having good relations with the company's unions. UAL's unions had been pushing for the ouster of Goodwin, especially after his recent warnings that the nation's No. 2 airline could be grounded for good sometime next year due to ongoing financial problems.

While UAL shareholders took the company's stock up 22 cents, or 1.58%, to $14.15 on the NYSE, bondholders were more restrained in their response. A market source saw the company's 9% notes due 2003 holding steady at their recent levels around 78 bid.

"Those bonds have been at depressed levels for a while, as the whole sector got weaker." Expectations of a major management shakeup seemed to have been "built right in" to recent price levels, he suggested.

"I didn't see much trading in it," a trader at another desk said. "I only saw it quoted offered. I didn't see any two sided markets."

Elsewhere, Focal Communications Corp.'s bonds held steady at the higher levels to which they had moved during Friday's session on news that the Chicago-based provider of phone and data services had closed a $430 million recapitalization designed to give it greater financial and operating flexibility. With the additional capital and reduction in debt, Focal said it anticipates being fully funded until it becomes cash flow positive in the second half of 2003.

After having gained a point on Friday, its 11 7/8% notes due 2010 stood at 29 bid and its zero-coupon discount notes due 2008 were at 19 bid.

Also higher in the wake of financing news was Station Casino Inc., whose 8 3/8% notes firmed to par from 99.25 bid Friday. The Las Vegas-based gaming operator announced that it had come to an agreement with its lenders on amending certain revolving bank credit facility covenants.

Traders said there didn't seem to be much impact on the high yield market from the news that the government of Argentina had hired Merrill Lynch & Co. to help it renegotiate terms on some $38 billion of debt held by international investors - a signal to those investors that the third-largest Latin American economy would in effect default on the debt.

A trader said the news might impact "a few crossover guys" who dabble in the emerging markets arena as well as high yield, but "I think people have been staying away from that stuff for a while. Some of that stuff is down eight, 10 points in the middle of the curve (i.e., intermediate-term debt with maturities in the 2008-09 area)."

Another junk trader said the only thing he had seen were "a lot of bid-wanteds" on the Argentine debt, but again, not much actual dealings involving junk players.

He said that the focus of the junk market, such as it was, remained solely domestic on Monday, with "a lot of interest in steel paper again, the Algomas (which enjoyed a runup of several points from badly depressed levels last week) and the Bethlehems." He quoted the latter's bonds as having "inched up" a little to around seven cents on the dollar from prior levels below six cents on the buck.

Also in the metals sphere, he said, "a lot of people are anxiously awaiting Kaiser Aluminum's earnings. There are people buying its 12 ¾% notes - and I don't know why." He saw the Houston-based metals maker's notes quoted around 48 bid "in pretty sloppy dealings."

Apart from the metals, the trader saw Lucent's long-dated 2028 and 2029 paper "getting heavy," having declined from recent bid levels above the 65-66 area, to offered levels below 64. At the same time though, he said the troubled Murray Hill, N.J.-based telecommunications equipment maker's short-dated paper "seems to hang in there. Maybe people just don't have any faith in the long end of Lucent."

The trader further indicated that Exide Technologies Corp. investors seem to have lost faith in the Princeton, N.J.-based industrial battery maker, which said last week that it would delay announcing its second-quarter earnings - which will be lower than previously anticipated - until Nov. 8. Exide also said it would enter negotiations with its lenders for loan covenant waivers with its lenders. It further said it had replaced its chief financial officer and hired the noted turnaround specialist Jay Alix & Co. to advise it on restructuring.

Exide's 10% notes due 2005, which had fallen fallen four points Friday to around the 45 bid level "got demolished," he said, declining Monday to around 40.

On the upside, a trader said Chiquita Brands International Inc., was "a name in vogue," especially since it announced last week that its talks with its bondholders were progressing and would likely soon result in a debt restructuring plan that could be implemented via a Chapter 11 filing. He quoted the troubled Cincinnati-based banana importing giant's 9 5/8% notes, which last week had been in the upper 70s, as having firmed to the low-mid 80s.

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