Nalco up after IPO filed; Delta steady despite bondholder rebuff to company

By Paul Deckelman

New York, Aug. 27 - Nalco Holding Co.'s bonds were seen up anywhere from one to more than two points Friday, following the Naperville, Ill.-based water treatment company's filing of an initial public offering to raise up to $800 million.

And an IPO for $550 million of new income deposit securities plus a 10-year senior notes offering for Buffet Holdings, Inc. was the major development - really, just about the only development - seen in an otherwise becalmed primary market.

Nalco's IPO news is seen as the catalyst behind the rise in the company's bonds Friday, since the $1.6 billion of senior and subordinated notes the company sold last October and the $694 million (face amount; $446 million proceeds) of senior discount notes it sold in January all have the standard equity clawback provision in their indentures, allowing the company to buy back up to 35% of the bonds during the first three years after issue using equity sale proceeds.

A market source quoted Nalco's 7¾% senior notes due 2011 as having moved up to 106.5 bid, a one point gain on the session, and its 8 7/8% senior subordinated notes due 2013 as having done even better than that, up a point-and-a-half on the session to 108 bid from 106.5 previously.

However, at another desk, the 73/4s were quoted at 107.25 - but that was called a rise of less than a point on the day.

The 8 7/8s were seen as high as 108.5, up more than a point, while the zero-coupon notes due 2014 were seen to have jumped more than two points to about 71.5 bid.

The preliminary prospectus filed on the company's behalf with the Securities and Exchange Commission says the proceeds will be used to pay a dividend to Nalco's parent, Nalco LLC, to pay down debt and for general corporate purposes.

Nalco has around $3.5 billion of consolidated debt following the sale last year by the French water utility Suez of what was then known as Ondeo Nalco for $4.2 billion to private equity firms The Blackstone Group, Apollo Management and Goldman Sachs' GS Capital Partners 2000 LP.

Delta steady despite bondholder no

Elsewhere, Delta Air Lines Inc. bonds were little affected by the news that a group claiming to represent holders of the majority of Delta's $1.7 billion of bonds secured by liens on the company's aircraft fleet had rejected Delta's explanations of its efforts to gain their consent to certain indenture changes, seen as a precursor to a debt exchange the company is expected to seek to bring its debt and interest costs down.

Traders saw the troubled Atlanta-based air carrier's benchmark 7.70% notes due 2005 still in the 45 bid area, while its 8.30% bonds due 2029 were still in a 27-28 bid context, "about where they've been" over the past few sessions, a trader said, "pretty much unchanged."

Delta, struggling to cut its bloated costs to bring its cost structure in line with sector peers, has about $20 billion of outstanding debt. Analysts and other observers say that even if it succeeds in getting $1 billion in annual savings from pay cut concessions it seeks from its pilots, it must still come up with another $1 billion of savings - and a debt restructuring is seen as one possible piece to that puzzle.

A trader said the announcement Thursday evening that the Committee of Senior Secured Aircraft Creditors' rejection as "inadequate" of a question-and-answer formatted release from Delta trying to justify the consent solicitation and the company's need to ultimately restructure its debt "probably didn't surprise a lot of people." He saw the bonds pretty much steady.

Calpine up amid Reuters row

He also saw Calpine Corp. noteholders apparently just as unmoved by a lengthy Reuters news story Thursday, which raised the possibility that certain of the company's accounting methods, though technically legal, were minimizing or even papering over problems which could come back to haunt Calpine - and its investors - further down the road.

That story quoted from a study an independent research firm, Rate Financials Inc., had done of Calpine's financial statements.

Reuters said that according to Rate Financials - which it described as specializing in "identifying red flags in company statements and then selling the research to money managers and insurance companies," Calpine "has underplayed expenses, allowing it to show higher profits; may have to slash the value of its assets and could be understating certain liabilities."

That caused the San Jose, Calif.-based independent power producer to issue an angry rebuttal Friday, in which it denounced what it called "flagrant, misleading and inaccurate allegations," and said that although it had "responded to questions related to these inaccuracies in advance of the article, Reuters elected not to reflect the company's position."

But the trader said that the whole controversy seems to be a tempest in a teapot, being reported as it was in the last full week of August, with few people around to react to the story. "It's sort of a tree-falling-in-the-forest kind of thing," he said. "If there's something to it, nobody paid any attention - or else everybody already knows about it and dismissed it as baloney."

Calpine's bonds were actually a touch better, with the company's 8¼% notes due 2005 at 98 bid, 99 offered, up half a point from prior levels, and its 8½% notes due 2011 at 62 bid, 64 offered, around a point above where they had been recently.

Calpine was "pretty much unchanged," said another trader, who quoted its 10½% notes due 2006 at 93.5 bid, 94.5 offered, and its 8½% notes due 2008 at 62.5 bid, 63.5 offered, on "no activity. Nothing was changing hands.

Williams higher, Allied Waste lower

A trader saw The Williams Cos., Inc.'s bonds a little firmer on very light trading, with the Tulsa, Okla.-based pipeline operator's 8½% notes due 2012 at 116 bid, up a point, and its 7 5/8% notes due 2019 at 108.5 bid, several points above the levels seen a few sessions ago.

Meanwhile, he quoted Allied Waste Industries Inc.'s 8 5/8% notes due 2007 at 77 bid, down from recent levels around 81, but saw no fresh news out on the Scottsdale, Ariz.-based solid-waste disposal company. There was, he cautioned "not much volume" in the name, "not at all."

Buffets only primary news

On the primaryside, new-deal activity remained in a late summer daze.

Early in the session, Buffets Holdings Inc. said that it was considering a $500 million offering of Income Deposit Securities, which would offer investors a blend of stock and bond debt in the Eagan, Minn.-based operator of several chains of serve-yourself restaurants.

By the end of the day, Buffet - which operates such eateries as Old Country Buffet, HomeTown Buffet, Tahoe Joe's Famous Steakhouse, Granny's Buffet, Country Roadhouse Buffet & Grill and Soup 'N Salad Unlimited - said it would belly up to the (salad) bar and fill its plate to the tune of $550 million, via

bookrunners Credit Suisse First Boston, Banc of America Securities and CIBC World Markets. The company is also planning further financing in the form of new 10-year senior notes and bank loans.

Proceeds from the proposed offering would be used to repay its existing debt and to repurchase common stock, warrants and options from existing holders.

Also on the new-deal front, Ainsworth Lumber Co. Ltd. - which on Thursday said it would issue new debt to partly fund its planned purchase of certain assets from Potlach Corp. - was said by a market source to be planning to more fully outline its planned debt issuance on a Monday morning conference call with potential investors.

The closely-held Vancouver, B.C.-based forest products company is expected to outline on the call how much of the US$457.5 million purchase price will be paid via new debt and how much will come from available cash on hand, as well as what form the new debt will take, and the banks that will be involved bringing it to market.

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