U.S. Can bonds jump on asset-sale news; Wind Telecom prices two-part add-on deal

By Paul Deckelman and Paul A. Harris

New York, Feb. 15 - U.S. Can Corp. bonds were solidly higher Wednesday on the news that Ball Corp. agreed to acquire U.S. Can's United States and Argentinean operations for 1.1 million shares of Ball common stock and the assumption by Ball of $550 million of U.S. Can debt.

American Airlines parent AMR Corp.'s bonds continued to gain altitude, up several points as world crude oil prices - a leading indicator of future trends in jet fuel prices - fell further, to $58 per barrel.

On the downside, bonds of asbestos-challenged companies like Owens Corning and Armstrong World Industries Inc. swooned on the news of the latest Washington political maneuvering, which has blocked - at least for now, and maybe even for the remainder of the current congressional term - passage of a controversial bill that would establish a national trust fund mechanism for paying asbestos-related medical claims.

High-yield market sources said that the broad market was unchanged to perhaps slightly higher in light trading on Wednesday.

One source said that the CDX 100 index was also unchanged on the day.

In the primary arena, Wind Acquisition Finance, a unit of Italy-based Wind Telecommunicazioni, successfully priced a two-part add-on offering of euro- and dollar-denominated notes at significant premiums to par, with the euro-denominated add-on pricing on top of tightened price talk.

Despite the new deal, the primary market continued its crawl toward the month of March, once again producing very little news. Sources continued to forecast that the remainder of February could see little to no meaningful build-up in practically empty new issue calendar.

A little more risk to the downside?

One buy-side source who did not get involved in either of the Wind add-on tranches that priced Wednesday commented that there was nothing to be very surprised about in remarks Wednesday from new Federal Reserve chairman Ben Bernanke in testimony before the House Financial Services Committee.

"You had Bernanke saying things could still overheat," the buy-sider observed, but added that an estimated 1.1% gross domestic product for the fourth quarter of 2005 does not exactly suggest that inflation is presently the greatest threat that the U.S. economy faces.

"I think there is more downside to the Fed continuing to raise rates than people think," the buy-sider said.

The source added that for investors able to play both, leveraged loans appear to be "a much better choice" than high yield in 2006, and added that the second half of the year could see a slowdown in high yield.

"At this point you continue to clip the coupon on what you own," the buy-sider cautioned, adding that in the present environment it would not seem to make much sense selling anything.

Wind taps 2015 notes

Wednesday's sole transaction came from Italy's Wind Telecomunicazioni which priced a two-part add-on to its senior notes due Dec. 1, 2015 (existing B3/existing B-/confirmed B).

The company priced a €125 million add-on to its 9¾% euro-denominated notes at 106.0 resulting in a yield of 8.67%. The dollar price came on top of the talk which had been revised from 105.50 area.

Wind also priced a $125 million add-on to its 10¾% dollar-denominated notes at 105.50 to yield 9.72%. The dollar price came on top of the price talk.

Deutsche Bank Securities, ABN Amro and Banca IMI were joint bookrunners debt for the debt refinancing deal.

With regard to the original issues, the company priced €825 million and $500 million, both at par, on Nov. 22, 2005. Hence it realized significant interest savings with Wednesday's transactions, which left the issue sizes at €950 million and $625 million.

Steinway week's last deal?

News also circulated during the mid-week session on the only deal left on the forward calendar as business expected to price this week.

Steinway Musical Instruments Inc. talked its $175 million offering of eight-year senior notes at 7% to 7¼% on Wednesday.

The UBS-led debt refinancing deal is expected to price on Thursday.

Solectron steady at higher levels

Secondary market traders did not see the new Wind Telecom bonds in aftermarket activity.

Solectron Corp.'s new 8% notes due 2016 were meantime seen holding steady at 101 bid, 101.5 offered, about the same level to which the Milpitas, Calif.-based manufacturing services provider's bonds had moved on Tuesday after pricing earlier that day at par.

U.S. Can jumps on sale

Back among the established issues, U.S. Can's bonds were seen up about five points across the board, a trader said, on the Ball Corp. news.

The rise in the Lombard., Ill.-based aerosol can manufacturer's two series of notes was "the big news of the day," the trader observed, quoting its 12 3/8% subordinated notes due 2010 at 106 bid, 107 offered, while its 10 7/8% secured notes, also due 2010, were at 111 bid, 112 offered, each up five points. The trader said that the bonds were currently callable, the jump in price spurred by investor belief that those bonds will be subject to early redemption at a premium in the wake of the deal.

Broomfield, Colo.-based Ball's 6 7/8% notes due 2012 were being quoted down half a point at 101.5 bid, 102.5 offered.

Granite gyrates on sale troubles

In other asset-sale related news, the trader said that Granite Broadcasting Corp.'s bonds were bouncing around at lower levels, as the market digested the news that the New York-based television station group owner - which has already agreed to sell its stations in its two largest markets, Detroit and San Francisco - will shop those properties to other would-be buyers as the original buyer tries to decide whether it is still interested in them.

"They were down first thing in the morning," the trader said of Granite's 9¾% notes due 2010, which had finished on Tuesday around 87.25 bid, 87.75 offered, but which "were down right out of the gate," trading as low as 86, with some quotes heard as low as 84. Then the bonds rebounded, rising to 87 bid, 87.75 offered, about unchanged to down ¼ point at the most.

Granite announced that it had amended its existing agreements with AM Media Holdings LLC, which agreed back in September to acquire Granite's WB Network-affiliated television stations, KBWB, Channel 20 in San Francisco and WDWB, Channel 20 in Detroit for $177.5 million in cash and $2.5 million of AM Media stock.

But that was before the recent announcement by the WB's corporate parent, Time Warner, that the fledgling network, which has struggled financially since its inception in the late 1990s, will cease operations in September. Although the remnants of the WB will be combined with those of the industry's other struggling new network, the CBS-owned UPN - which is also slated to cease operations in September - there is no guarantee that existing WB or UPN affiliates in individual markets will be asked to carry the resulting new "CW Network".

Granite said that the amendments eliminate the exclusivity, or "no-shop," clause in each agreement, thereby freeing it to hold talks with other parties that might be interested in acquiring the stations, while AM Media continues to evaluate its interest in the transactions in light of the recent WB announcement. The amendments also allow either party to terminate the agreements at any time.

AMR keeps gaining as oil drops

Elsewhere, AMR Corp.'s 9% notes due 2012, which rose two points in Tuesday's action as world crude oil prices fell below $60 per barrel, continued to climb on Wednesday as oil continued to fall. Crude prices fell $1.92 to $57.65 a barrel in New York trading, while heating oil - which is refined like jet fuel and whose price movements are seen as a proxy for jet fuel - fell to levels not seen since last summer; March heating oil shed ¼ cent to close at $1.6075 a gallon, and on an intraday basis, it fell as low as $1.601, a level not seen since June.

Those falling prices are good news for airlines, particularly large traditional carriers like AMR's American Airlines, the world's largest carrier. The 9s were seen by a trader up a point to 94 bid, while at another desk, a market source saw those bonds at 94.5 bid, up two points on the session.

Movie Gallery drops again

On the downside, The Movie Gallery Inc.'s 11% notes due 2012 - which on Tuesday were seen having fallen anywhere from three to six points, depending on whom you talked to, to around the 60 bid level - remained on the slide Wednesday, declining to 58 bid, 59 offered.

The Dothan, Ala.-based Number-Two U.S. video rental chain operator - it bought larger rival Hollywood Entertainment Corp. last year - was lower the past two days, apparently on the news that Walt Disney Corp., one of the largest producers of filmed entertainment in the world, along with Cisco Systems, Intel Corp. and several financial partners, are forming a new Burbank, Calif.,-based venture, MovieBeam, which will provide movies-on-demand service, some in high definition, in 29 major metropolitan areas across the United States, including New York, Los Angeles and Chicago.

Such a service could further hurt revenues at The Movie Gallery and Hollywood Entertainment, as well as those of Dallas-based rental industry leader Blockbuster Inc, whose 9½% notes due 2012 fell three points Tuesday, but firmed half a point Wednesday to 84.

Rental industry sales have already been reduced by competition from the popular Netflix service and various pay-per view movie options offered by cable television and satellite broadcast providers.

Armstrong, Owens Corning plunge

The biggest losers on the session were the bonds of the bankrupt Toledo, Ohio-based insulation maker Owens Corning, and the bankrupt Lancaster, Pa. -based floorcovering maker Armstrong World Industries, reacting to the unexpected setback in the Senate to the proposed $140 billion asbestos trust fund claims mechanism.

A trader saw the asbestos names "down five to eight points" on the news, with Owens Corning's 7½% notes that were to have come due last year at 81.5 bid, 82.5 offered, down from 90 bid, 91 offered previously, while Armstrong's 6½% notes, also due last year, dropped to 65.5 bid, 66.5 offered, from prior levels in the lower 70s.

Another trader saw all of Owens' bonds at 81 bid, 82 offered, down from 88 bid, 90 offered, while Armstrong's were at 66 bid, 67 offered, off from 73 bid, 75 offered.

"Anyone who's been banking on Congress to do the appropriate thing is [expletive] crazy," he declared. "When have you ever known a congressman or senator to do the appropriate thing?" he asked, rhetorically.

The Senate on Tuesday night had failed to overcome a parliamentary move that was blocking consideration of the bill, which would set up a $140 billion, industry- and insurance-funded national trust fund to handle asbestos claims.

Although the bill is still technically alive and Senate majority leader Bill Frist of Tennessee has indicated that he might try for another vote on the parliamentary maneuver, some critics and supporters alike in Washington said that for all intents and purposes the bill had been killed for this session.

Opponents of the bill - an unlikely coalition ranging from liberal Democrats who believe the trust-fund setup will shortchange potential future claimants to conservative Republicans who see taxpayers possibly left holding the bag should the fund run out of money - had invoked a Senate rule requiring a "supermajority" of at least 60 votes to overcome budgetary objections to bills. The asbestos trust fund bill fell just short, at 59-40, with one senator, Democrat Daniel Inouye of Hawaii, absent due to a family illness. Frist changed his own "yes" vote to a "no" as a parliamentary tactic to allow him to bring the bill back up for another vote. The bill's primary sponsor, Republican Sen. Arlen Specter of Pennsylvania, the chairman of the Senate Judiciary Committee, which last year narrowly approved the bill, late Wednesday called the bill still "very much alive." He said Inouye had told him he would vote to overcome the parliamentary roadblock stopping the bill if another vote were to be held. Specter held out the prospect that the bill could be brought up for another vote.

The budgetary objection had been lodged by Republican Sen. John Ensign of Nevada - a conservative who found himself in an uneasy alliance with some labor unions and liberal groups and with trial lawyers, a key Democratic constituency, in opposing the bill and trying to kill it. The latter group objected because the bill - if enacted - would take consideration of medical asbestos claims out of the courts, which now have jurisdiction, and put it into the trust fund. The attorneys said that the fund would drastically limit potential payouts to claimants (many attorneys currently handle asbestos cases on a contingency basis, for little or no money up front, in return for collecting a sizable portion of any judgment or settlement).

Other critics of the bill said that many people exposed to asbestos in the past might not yet manifest symptoms of medical problems, but should be able to sue and collect should such problems arise in the future. They said the $140 billion would likely be inadequate to cover all present claims plus future claims. It is estimated that 600,000 lawsuits are pending and as many as 75,000 new cases are filed annually.

Among the Republicans like Ensign who defied their party's Senate leadership as well as the White House, there was sentiment that should the trust fund run short at some future point, the government would end up having to make up the difference with taxpayer money.

Supporters of the bill, including Specter and his Democratic colleague, Sen. Patrick Leahy of Vermont, the ranking Democrat on the Judiciary Committee, had contended that taxpayers would not be held liable and that all of the money for the fund would come from companies with asbestos liability exposure and their insurers.

Supporters said that the trust fund set-up would lead to quicker settlement of claims than the courts, allowing people made sick by asbestos to get their money when it might still be able to do them some good, and by capping legal fees would direct more of the payout money to the affected individuals and less to the lawyers. They said that claimants would be able to be compensated even if the company liable was in bankruptcy or even out of business.

They also said that with each affected company kicking in a certain amount to the fund, based on the number of asbestos cases currently pending against it and projections of likely future cases, companies would have some sense of certainty about the maximum size of their liability, and would be able to plan accordingly and thus straighten out their finances.

Over 80 companies have been forced into bankruptcy over the past few years by cascading asbestos claims, including Owens Corning, Armstrong, USG and Federal-Mogul, as well as such other companies as Columbia, Md.-based chemical manufacturer W.R. Grace & Co.

Many other companies, such as Toledo, Ohio-based packaging maker Owens-Illinois Inc. - which was one of Owens Corning's joint venture corporate parents until the 1950s - Philadelphia-based container company Crown Holdings Inc. and Atlanta-based forest products company Georgia-Pacific Corp., did not go bankrupt, but did incur sizable asbestos liabilities and have had to collectively set aside many hundreds of millions of dollars as provisions against current and future claims.

USG steady

But while the bonds of Armstrong and Owens swooned on Tuesday night's news out of Capitol Hill, other asbestos-challenged companies' bonds seemed to stand firm, since they apparently are nowhere nearly as dependent as Owens and Amstrong on passage of the claims fund bill.

The second trader, for instance, saw "no impact at all" on the bonds of bankrupt Chicago-based building materials manufacturer USG Corp, quoting its 8½% notes that were due last year at 144 bid and its 9¼% notes that were due in 2001 at 147 bid.

USG, he said, "announced their own plan several weeks ago, assuming that there would be no bill coming out of Congress. They had no faith at all in Congress,"

A trader at another shop likewise saw the bonds of Owens-Illinois little changed, with its 7½% notes due 2010 at 101 bid, off perhaps ¼ point, while its 8.10 notes due 2007 were down 3/8 point. Owens-Illinois also recently announced plans to set up its own trust fund to settle all remaining asbestos medical claims.

Crown Cork's 7½% long-term bonds due 2096 were half a point lower at 81.75 offered. Georgia-Pacific's 7.7% notes due 2015 were 5/8 point better at 98.125.

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