BSE outbreak causes meat-bond holders to have a cow; Parmalat slides further

By Paul Deckelman and Paul A. Harris

New York, Dec. 24 - Discovery of one case of bovine spongiform encephalopathy - the so-called "mad cow" disease - in the U.S. caused the bonds of two high-yield issuing meat-packing companies to be quoted sharply lower Wednesday, although actual trading was virtually non-existent because of the approach of the Christmas holiday break.

Elsewhere, Parmalat Finanziaria SpA's bonds were a bit lower, after the Italian dairy products company officially filed for bankruptcy protection from its creditors.

The mad cow news sent quoted levels on the bonds of meat-packers Smithfield Foods and Swift several points lower, but it was hardly a stampede, with few people in the market.

Smithfield's 7 5/8% notes due 2008 were pegged at 102 bid, down from 106.25 on Tuesday, while its 8% notes due 2009 fell to 106.75 bid, down from 111.25 previously.

Swift's 10 1/8% notes due 2009 likewise were quoted 106.5 bid, down from 112.5 offered, while its 12½% notes due 2010 were seen at 107 bid, off from 113.5.

At another desk, the Smithfield 7 5/8s were only seen off about a point or so, at 105.

"They tried to take it down on the mad cow news," a trader said, but with few people around to trade, "it wasn't a major reaction. It didn't get hit too hard. "

"I'd like to see how those bonds open on Monday," said another trader, who said it would be impossible to accurately gauge the effect of the mad cow news on sector bonds either Wednesday or Friday, with both sessions abbreviated due to Thursday's holiday.

"The beef sector has been doing very well," he said, noting that the Swift and Smithfield bonds have been trading well above par.

Assuming that the mad cow situation is not just one isolated case and the situation worsens "it should have some sort of impact on whoever relies on beef."

But in Wednesday's very limited dealings, that was largely confined to quoting the meat-packer bonds at lower levels.

Little reaction was seen in the bonds of fast-food restaurant issuers such as Yum! Brands, whose collection of fast-food nameplates includes the A&W All-American burger chain, or Jack in the Box, whose 8 3/8% notes due 2008 were unchanged at 102.5.

A trader said that another potential area of concern is dairy producers such as Land O'Lakes Inc.; he noted that when there was some concern about mad cow disease in Europe and Canada several years ago, milk prices were driven up as large herds of dairy cattle were destroyed. That, he said, would affect companies like Land O'Lakes, which buy raw milk and turns it into butter.

He saw Land O'Lakes' 8¾% notes due 2011 at 88 bid, down from 89.5 bid. 90 offered, but said actual dealings had been extremely light.

Still, he opined, "the supermarket sector could be a cause for concern" should the mad cow situation prove to be anything more than a one-tine flash in the pan.

"Because [Wednesday] was a quiet day, reaction to all of this was not like it would be on a regular trading day. We'll have to wait and see what the Department of Agriculture says, and wait and see what the damages are."

One industry sector that is sure to profit from any kind of extended mad cow scenario is scientific companies that produce tests for the disease, vaccines against it or devices for irradiating meat to eliminate it.

One such name is Bio-Rad Labs, which is the market-leading provider of tests for BSE. Its Amex-traded shares jumped $10.04 (20.17%) to $59.82, on volume of two million, about 20 times the norm. On the bond side, however, things were a little more restrained, with Bio-Rad's 7½% notes due 2013 up half a point at 108.5.

Elsewhere, Parmalat's bonds were "down another couple of points" after the troubled Italian dairy products maker filed for protection from its creditors under a newly streamlined large-company bankruptcy process aimed at keeping the company's assets and workforce as whole as possible during its restructuring. Company chairman and chief executive officer Enrico Bondi was tapped to head a government commission that will oversee Parmalat's reorganization.

Parmalat's dollar-denominated 6 5/8% notes due 2008 were quoted as low as 14 bid before ending at 17.5 bid, 20.5 offered. The company's numerous issues of euro-denominated notes also trading in that same lower context.

The bonds have been beaten down to current levels at or below 20 cents on the dollar in response to investor fears the company does not have adequate liquidity - concerns which were aggravated by revelations that nearly €4 billion supposedly on deposit with Bank of America is not, with the bank contending documents purportedly from B of A asserting that the money was in the account of a Parmalat subsidiary were false. Italian police and prosecutors are investigating the scandal, which has been compared to the collapse of U.S. energy trading giant Enron Corp. two years ago.

The primary market remained quiet during the abbreviated Dec. 24 pre-holiday session, according to market sources. No deals priced on Wednesday.

However Prospect News learned that New York City-based fragrance-maker Elizabeth Arden, Inc. has apparently sniffed an opportunity to tap the junk market, which sources say is expected to continue a brisk new issue pace early in the new year.

The roadshow will start in early January for an offering of debt securities from Elizabeth Arden, according to a company spokesman who declined to specify the size, structure and maturity, or to identify the bookrunner.

The company will use proceeds to help fund its tender for $104 million of 11¾% senior secured notes due 2011 and the redemption of $20 million of 10 3/8% senior notes due 2007.

The redemption of the 10 3/8% notes is not subject to pricing of the debt securities, and will be funded with the company's revolving credit facility if the tender offer is not consummated.

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