Hexion rises as liquidity remains adequate; Georgia-Pacific dips with offering; LCDX slides

By Sara Rosenberg

New York, April 20 - Hexion Specialty Chemicals Inc.'s term loan debt gained a little bit of ground during Monday's trading session after the company came out with preliminary quarterly results, and despite a ratings downgrade, it seemed like investors focused on the company's sufficient liquidity rather than on the negative news.

In more secondary happenings, Georgia-Pacific LLC's term loan B was softer after news emerged that proceeds from the company's newly announced bond deal will not be used to pay down this bank debt.

Also, the LCDX 12 index and the cash market in general were both lower in sympathy with equities being down.

Over in the primary market, Sears Holdings Corp. launched an ABL revolving credit facility into syndication that is meant to basically extend the maturity of its existing revolver.

Hexion inches higher

Hexion's term loan debt was higher during market hours even though the company put out not-so-great early first-quarter results and was downgraded by Moody's Investors Service, as comments over its liquidity position appeared to create a more positive tone, according to a market source.

"Moody's said plenty of liquidity and probably won't violate covenants. Low priced loan that will probably pay it's coupon for the next year," the source said in explanation of the bank debt's performance.

The term loan debt was quoted in the 48 bid, 52 offered context, compared to levels in the 46 bid, 50 offered context on Friday, the source said.

Moody's said on Monday that despite unusually weak credit metrics, Hexion has more than adequate liquidity at the current time due to the covenant light terms in its credit facility and the availability of $200 million of additional capital from its financial sponsor.

Moody's also remarked that the combination of these items would make a potential breech of the financial covenant over the next 12 months unlikely.

Hexion loan downgraded to Ba3

Hexion's corporate family rating was cut by Moody's on Monday to B3 from B2 and its senior secured bank debt was cut to B1 from Ba3. The outlook is negative.

Moody's said that the downgrade reflects the expectation of a deeper and more prolonged trough in several of the company's largest end-markets - construction, electronics and related commodity chemicals, as well as other important end-markets like transportation and automotive.

"We expect Hexion's credit metrics to deteriorate further in 2009, despite ongoing cost reduction initiatives and a meaningful level of debt reduction in the first quarter," said John Rogers, senior vice president, in the ratings release.

Hexion liquidity tops $400 million

Hexion also addressed its liquidity on Monday, saying that it estimates that it had liquidity of about $420 million as of March 31, which is comprised of cash plus available borrowings under its credit facilities and includes a commitment from certain affiliates of Apollo Management.

The company continued to say that it anticipates being in compliance with all of the terms of its outstanding debt, including the financial covenants, at the end of the first quarter.

Net debt is estimated at about $3.45 billion March 31, down from $3.73 billion at Dec. 31.

Hexion numbers show decline

In addition, on Monday, Hexion released early results for the first quarter, which showed the anticipation that sales, operating income and segment EBITDA will all come in when compared to the previous year's first quarter.

For the quarter ended March 31, the company expects post sales of about $900 million, operating income of $5 million to $15 million and segment EBITDA of $55 million to $62 million.

By comparison, in the first quarter of 2008, the company recorded revenues of $1.64 billion, operating income of $83 million and segment EBITDA of $154 million.

"Our volumes remained weak in the first quarter of 2009, declining 11% from the fourth quarter of 2008," said Craig O. Morrison, chairman, president and chief executive officer, in a news release.

"However, first quarter 2009 EBITDA improved sequentially when compared to the fourth quarter of 2008 demonstrating the effectiveness of our ongoing cost reduction initiatives. In addition, our disciplined focus on cash management improved net working capital during the first quarter of 2009. The company also reduced its total debt during the first quarter of 2009 through repurchases of debt securities. As a result, the company was able to reduce its net debt by about $300 million, while maintaining its liquidity in excess of $400 million," Morrison added.

Hexion is a Columbus, Ohio-based thermoset resins company.

Georgia-Pacific slips lower

Georgia-Pacific's term loan B weakened on Monday following the company's announcement that it would be selling some bonds and that proceeds from the offering would be used to repay borrowings under its domestic accounts receivable securitization facility and/or its revolving credit facility, according to a market source.

The term loan B was quoted at 94 bid, 96 offered, down from Friday's closing levels of 95 bid, 96½ offered, the source said.

The source explained that there have been rumors for months that Georgia-Pacific might do a bond deal to repay bank debt and that some investors assumed proceeds would be used to pay down the term loan B. As a result, when they found out the B loan wouldn't be paid down, there was some disappointment, which in turn pushed the loan lower.

Georgia-Pacific is an Atlanta-based manufacturer and marketer of building products, tissue, packaging, paper, pulp and related chemicals.

LCDX, cash soften

The LCDX 12 index and the overall cash market fell off in trading as stocks weakened, according to traders.

The index was quoted at 79.25 bid, 79.55 offered, down from 80.25 bid, 80.75 offered, one trader said.

And, cash was lower by about a half a point to a point in places, depending on the name, a second trader remarked, adding that activity was light.

As for stocks, Nasdaq closed down 64.86 points, or 3.88%, Dow Jones Industrial Average closed down 289.6 points, or 3.56%, S&P 500 closed down 37.21 points, or 4.28%, and NYSE closed down 259.10 points, or 4.73%.

Sears launches revolver

Moving to primary happenings, Sears held a bank meeting on Monday to launch an up to $4 billion ABL revolver due in January 2012, according to a market source.

Essentially, with this deal, the company is looking to extend the maturity on as much of its existing $4 billion revolver due in March 2010 as possible.

Price talk on the new revolver is Libor plus 400 basis points with a 100 bps undrawn fee.

Bank of America and Wells Fargo are the lead banks on the deal.

Sears is a Hoffman Estates, Ill.-based retailer.

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