Owens-Brockway sees "a little bit of luck" on timing for $1 billion junk deal

By Paul A. Harris

St. Louis, Mo., Jan. 16 - The massive new junk bond deal from Owens-Brockway Glass Container, Inc. benefited from fortuitous timing that allowed it to take advantage of extensive liquidity in the present high yield market, according to a source close to the company.

Asked about the decision to come to market this week, the source invoked Alfred P. Doolittle, the affable tosspot from "My Fair Lady."

"At the end of the day a little bit of luck never hurts," the source commented. The high-yield market already looked appealing to Owens when it started looking to bring the deal, the source said. But he noted the company could not have anticipated the most recent weekly cash flow of $1,207.556 million into high yield mutual funds as recorded by AMG, reportedly the biggest such inflow since 1998.

Owens-Brockway's offering of seven-year senior secured notes (B2/BB) began at $300 million, was upsized through the week to $500 million, and finally priced Wednesday at $1 billion, more than three times the original amount.

The source told Prospect News that Owens-Brockway, a subsidiary of Owens-Illinois, Inc., had persuaded investors on two issues that it currently faces: a lawsuit in New York brought by bondholder Murray Capital and an asbestos liability upon which the company expended $248 million in 2001, and figures to pay out another $220 million in 2002.

The source acknowledged that a judge in the Supreme Court of the State of New York recently ruled against the company's motion to dismiss the Murray Capital suit over a bond indenture which Murray contends bars Owens subsidiaries from using their assets to secure the company's debt. But the source still claimed that Murray Capital's position in the issue is not sufficient for it to press the suit.

"That the indenture clearly states, as most large indentures do, that there is a 'limitation on suits' provision where the only suit that can be brought against (Owens) is by the trustee, with the support of at least 51% of any issue.

"Murray Capital only owns $4 million to $4.5 million of a $1.7 billion issue."

The company's asbestos issue, according to the source, stems from a "block and pipe insulation" it manufactured between 1948-1958, amounting to $40 million in sales over those 10 years.

The company has been to court over 600 times in asbestos litigation, the source said - adding that Owens has prevailed in 70-75% of the cases.

"Last year the company was in court five times and won four out of five," the source said.

"And based on actuarial studies, about 75% of the people who could have been exposed to (the asbestos product) have already died. In 2000 those studies said that while 25% are alive now, that will drop to 16% by 2005, and 9% by 2010.

"The average age of a person filing a claim against the company is 76 today. There is some evidence that if you haven't developed a disease by the time you're well into your seventies or early eighties you're probably not going to. Or you continue to die from what they call 'competing causes.'"

The source noted that Owens has demonstrated a propensity to contest in court plaintiffs' claims it does not consider valid and has working relationships with over 100 major law firms that litigate on behalf of plaintiffs in asbestos cases.

Commenting on the $1 billion Owens-Brockway offering, the source noted that demand from the buy-side seemed intense.

"If you follow the market you'll know that it has been on and off for the last couple of years," the source said. Owens-Illinois, as well as other companies that have asbestos issues, have been effectively blocked out of the high yield market for much of that time "because of Owens Corning's filing (for Chapter 11) in October of 2000."

The source said that the company presently has $5.3 billion in debt, with no near-term maturities.

"However," the source added. "when you have a lot of debt and you're highly-levered, you never want to wait too late to address your maturities. You want to address some of that refinancing risk whenever you have an opportunity."

End

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