LCDX finishes up 1 point; Huntsman gains, Hexion falls on court order news; Axygen increases price talk

By Paul A. Harris

St. Louis, Sept. 30 - The LCDX 10 index gained a point on Tuesday to end the day at 93.1 bid, 93.3 offered. However sources said that the cash market was flat to softer.

The bank loans of Huntsman Corp. rose while those of Hexion Specialty Chemicals, Inc. fell on news that Huntsman received a favorable ruling in Delaware Court of Chancery on Monday, with a judge denying contentions by Apollo Management, LP and Hexion Specialty Chemicals, Inc. that they ought to be excused from consummating the merger.

Meanwhile a bank loan portfolio manager said that the government's proposed financial rescue package, which the U.S. House of Representatives defeated on Monday - spreading tumult in the capital markets - needs to be revisited and passed.

The Securities and Exchange Commission's ruling permitting alternative accounting methods to mark-to-market accounting for securities where no active market exists will not stanch the present bleeding, the investor contended.

Market still weak

The LCDX index moved higher throughout the Tuesday session, sources said.

Before 10 a.m. ET it traded at 92.9 bid, 93.1 offered, a market source said, up from Monday's close of 92.6 bid, 92.85 offered.

The index ended the session at 93.1 bid, 93.3 offered.

"Loans are still weak, even with equities and the credit indexes rallying," a trader countered.

"It all comes down to financing issues in the loan market right now.

"It's all sellers, and absolutely no buyers."

Meanwhile prices seemed flat to a bank loan portfolio manager.

"Maybe things slightly drifting down," the source commented on Tuesday afternoon, but added that there was not much trading going on.

"Monday was a day when everybody stared at TV screens, so nothing got done," the investor said.

"Today all you have is some hope that the bailout passes later in the week or over the weekend.

"That may mean that a few people are willing to buy the really great stuff."

As an example of "really great stuff" the investor pointed to Wrigley Co.'s Libor plus 350 basis points term loan B, which priced at 99.00 in mid-August.

The Wrigley's loan was trading in the context of 98 offered on Monday, the investor said.

"It was trading over par last week," the source added.

"That deal was oversubscribed. You couldn't get it."

Ford rebounds

The investor said that the loan paper of Ford Motor Co. is useful for judging the sentiment of the market because with Ford's cornucopia of securities - bank loans, bonds, credit default swaps and stock - players have a tendency to place and hedge substantial bets.

Ford's loan was at 65½ bid, 66½ offered late Tuesday afternoon, up from earlier levels of 65 bid, 66 offered.

The paper traded as low as 64 bid, 66 offered on Monday.

However late Monday morning before the news circulated that Congress failed to pass the financial rescue package it was at 68 bid, 69 offered.

Huntsman steady, Hexion plunges

Monday's news concerning a Delaware court ruling disallowing Hexion and Apollo to vacate the Huntsman merger saw Huntsman's bank loans holding in, while its junk bonds and stock went soaring.

Huntsman's bank loan was at 87¾ bid, 88¾ offered, the portfolio manager said, adding that it had been at 87 bid, 89 offered on Friday, and hence was flat in a down market.

Meanwhile the Huntsman 7 3/8% notes due 2015 were at 84 bid Tuesday afternoon, up from 80½ bid on Monday, according to a high-yield syndicate official.

And the company's stock (NYSE: HUN) gained more that 71%.

"The news has really thrown everyone for a loop," the portfolio manager said.

"Hexion bank debt is way down," the source added, spotting the Hexion loan at 74½ bid, 76½ offered, whereas the paper had been at 79 bid, 81 offered last Friday, and in the mid- to upper-80s the previous week.

"The question is whether or not bankruptcy is on the table for Hexion," the investor said.

"No one knows whether the banks have truly underwritten this, and would have to take the hit.

"I think there will be a lot of behind-the-scenes moves to figure out this deal."

Bailout hopes

The portfolio manager believes that Congress will revisit the financial rescue package that was defeated by an even dozen votes on Monday.

And this time they're more apt to pass it, the source added.

"I think a lot of them were pandering to their voters, even though their leadership was telling them that something very bad was happening," the investor said.

"They thought they could get away with voting 'No,' and letting someone else pass it, but it didn't work.

"You have 12 peoples' minds you have to change before the next vote.

"I think the market has a dim enough view of politicians that it believes that 12 of those minds can be changed."

'Fess up

Meanwhile the SEC plan, permitting alternative accounting methods to mark-to-market accounting for securities not actively traded, is not a good idea, the portfolio manager insisted.

"Leaving the bad stuff on the banks' balance sheets is problematical.

"We've criticized other countries for that, including Japan.

"It's no good to hide the truth."

Whether or not mark-to-market accounting is suspended the destruction of value continues to happen on the balance sheets, and will eventually come to light, the investor contended.

"Under those circumstances how will the banks behave? Will they be willing to extend credit?

"I think the answer is 'No,' because the CEO and the risk officer are going to be staring at the balance sheet, mentally marking to market, and seeing the need to build capital as opposed to loaning it."

Axygen seen raising pricing

Axygen Scientific Inc. is expected to increase pricing on a $28 million add-on to its term loan to Libor plus 600 basis points area from original talk of Libor plus 525 bps, according to a market source.

GE Capital is leading the deal.

Proceeds will be used to fund the acquisition of Sorenson BioScience, Inc., a Salt Lake City-based manufacturer of disposable plastic liquid handling products.

Axygen's original term loan priced at Libor plus 300 bps.

Axygen is a Union City, Calif.-based supplier of laboratory plastics.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.