Corn troubles hurt Pilgrims, Smithfield; Casinos weaker; Huntsman slides as Apollo backs away

By Stephanie N. Rotondo

Portland, Ore., June 19 - Raging floodwaters in the Midwest continued to put pressure on the distressed market Thursday.

Just as ethanol producers were seen slipping in the previous session, so food companies such as Pilgrim's Pride Corp. and Smithfield Foods Inc. took a downward turn Thursday. Both companies were seen losing as much as 6 points over the week, and Pilgrim's, among others, might face a downgrade.

The rising cost of corn, as well as other foodstuffs, might also be playing a factor in the gaming arena. A trader said casinos such as MGM Mirage and Trump Entertainment Resorts Inc. were weaker across the board and, without any real news to drive the loss, speculated that the increasing cost of food might have been the reason.

Meanwhile, Huntsman International Inc. saw its debt decline at least 13 points during the session after an Apollo Management company filed a lawsuit to get out of a merger agreement. In its complaint, Apollo-owned Hexion Specialty Chemicals Inc. said the $28-per share agreement was no longer viable.

After announcing Wednesday that its fate remains uncertain, Thornburg Mortgage Inc.'s bonds continued to slide. In fact, the bonds were likely the biggest loser of the day, losing nearly 20 points.

Corn troubles hurt Pilgrim's Pride, Smithfield

Facing a corn shortage and higher prices for the commodity, companies such as Pilgrim's Pride and Smithfield Foods have seen their bonds take a dip recently.

A trader quote Pilgrim's 7 5/8% notes due 2015 at 84.25 bid, 85.25 offered, which he called "a little softer," and off 2 points in the last week.

Another trader pegged that issue at 84 bid, 85 offered and the 8 3/8% notes due 2017 at 78 bid, 79 offered. He also saw Smithfield's 7% notes due 2011 at 93.25 bid, 94.25 offered. The trader called the Pilgrim's Pride bonds down 6 points over the week and Smithfield bonds down a point from Wednesday, 6 points over the week.

"Over the past few sessions, those have all been lower, but there was nothing notable today," said another source.

As flooding continues to rage through the Midwest, anything related to corn is struggling. On Wednesday, the price of the commodity neared $8 a bushel as talk circulated that the damage might be worse than previously thought. The Department of Agriculture is expected to release a report later this month regarding the extent of the damage. However, estimates are 2 to 5 million acres of the crop have been damaged.

Standard & Poor's said Thursday that it might downgrade some food sector companies, including Pilgrim's Pride, Dean Foods Co. and Tyson Foods Inc. Just two days ago, Fitch Ratings cut Tyson to junk and, according to Gimme Credit analyst B. Craig Hutson, "a helicopter ride by S&P over the Mississippi River in Iowa and Illinois will cement a downgrade for Tyson."

In another sector, the corn situation has also been felt. Ethanol producers, which rely on the grain to make its product, are also losing ground. On Wednesday, both Aventine Renewable Energy Holdings and VeraSun Energy saw their debt dip. Come Thursday, a trader said the bonds were unchanged from previous levels - Aventine's 10% notes due 2017 at "63 and change" and VeraSun's 9 3/8% notes due 2017 at 57.

Also on Thursday, VeraSun said it would delay opening new ethanol plants, given the current situation.

Gaming sector weaker

The rising cost of food may also be affecting another sector: casinos.

A trader said casinos were down across the board half a point to a point. When asked what had prompted the move, he said, "I don't know, maybe the economy. People are choosing not to go gambling. They don't have any money after they buy food."

The trader called MGM Mirage's 7 5/8% notes due 2017 down a point at 84, while Trump Entertainment's 8½% notes due 2015 were likewise lower at 66 bid, 67 offered.

The trader also saw Harrah's Operating's 10¾% notes due 2016 softer at 84.25 bid, 84.5 offered. Boyd Gaming's 7¾% notes due 2012 lost a point to close at 90.5 bid.

At another desk, a trader quoted Harrah's 10¾% notes at 84.5 bid, 85 offered.

Huntsman dives as Apollo backs away

Huntsman bonds fell 13 points, a trader said, after Apollo Management's Hexion Specialty unit sued to get out of a buyout agreement.

The trader said the 7 3/8% notes due 2015 closed the session up slightly from its lows to 90.5 bid, 91.5 offered.

"It was a big deal in the morning; they got knocked down, but then they just kind of stayed there," the trader said.

He added there was "not as much trading as I might have envisioned."

Hexion filed a complaint with the Delaware Chancery Court to get out of the $28-per-share buyout of Huntsman. According to the complaint, Hexion said the deal was no longer in its best interests as Huntsman's debt has increased and profits have fallen below forecasts.

In a prepared statement, The Woodlands, Texas-based Huntsman said it would "vigorously enforce" the previous agreement inked in July 2007.

"We believe Hexion and Apollo's actions are inconsistent with the terms of the merger agreement and the obligations to Huntsman and its shareholders. These actions appear to be a blatant attempt to deprive our shareholders of the benefits of the merger agreement that was agreed to nearly a year ago," said Peter Huntsman, Huntsman president and chief executive officer.

Thornburg plunges

Thornburg Mortgage's 8% notes due 2013 were the disaster of the day, traders said. One saw the bonds plunge to 55 bid from prior levels at 71. Another saw them get "crushed" and finish at 55 bid, 58 offered, down 18 points.

A trader said that "there will be a lot of unhappy people" who bought the bonds around 68-69 during the early part of the session, only to see them plummet all the way down to 41 at one point, before finishing at 57.75.

The Santa Fe, N.M.-based company's debt began to slide in the previous session when it was announced that the future of the company was still uncertain.

Another trader saw Residential Capital LLC's 6½% notes due 2013 drop 3 points to 46 bid, 48 offered and saw ResCap parent GMAC LLC's 8% bonds due 2031 lose 1 point to 72.

Bond insurer Radian Group's 7¾% notes due 2011 fell 6 points to 73 bid, 75 offered, in line with a plunge in its shares, which fell in tandem with other bond insurance stocks.

Broad market mixed

Moody's Investors Service lowered its rating on Swift Transportation Co. Inc. Wednesday to Caa2 from Caa1. One trader said the trucking company's 12½% notes due 2017 closed the session weaker at 36 bid, 38 offered.

Another trader said he saw them offered at 39.5. He added that the bonds traded into a 39 bid Wednesday, leaving paper offered.

"It's old news and no surprise," said another source. "That's why they trade in the 30s."

Meanwhile, a trader said Spectrum Brands Inc.'s paper was "kind of active," its 7 3/8% notes due 2015 at 67 and its 11% notes due 2013 at 90.5.

Paul Deckelman contributed to this article.

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