Huntsman, Tronox up on sale plan; Allied Waste active amid tender, Smithfield on the slide

By Paul Deckelman and Paul A. Harris

New York, Aug. 31 - Huntsman International LLC's bonds, and those of bankrupt chemical sector peer Tronox Worldwide LLC were seen up on Monday, though on relatively restrained trading, after the former's corporate parent, Huntsman Corp., made a $415 million proposal to buy bankrupt Tronox's titanium dioxide and electrolytics businesses, an offer which will function as a stalking-horse bid that could produce higher offers from other would-be acquirers.

Also on the asset-sale front, Blockbuster Inc.'s bonds were seen better in delayed reaction to Friday's news that it will sell one of its overseas operations and use the proceeds to enhance its liquidity.

There was brisk activity seen in some issues of Allied Waste North America Inc.'s bonds, as corporate parent Republic Services Inc. - which had acquired Allied Waste in a merger that closed last December - announced plans to tender for some of Allied Waste's bonds. Republic also did an upsized bond deal in the high-grade market, some of the proceeds of which will be used to fund the tender offer.

There was no fresh news out on Smithfield Foods Inc. - but a trader said that the Virginia-based pork processing giant's bondholders are certainly not living high off the hog these days, with the company's paper, including a recently priced add-on tranche, having come down by several points in the last couple of weeks.

The Mashantucket Pequot Tribe's bonds were seen continuing to languish in the 20s, the levels down to which they had fallen last week, on published reports indicating that the operator of the big Foxwoods casino resort in Connecticut could face a default on a $700 million credit line possibly as early as this week.

With a very busy August now behind it, the junk primary swings into a new month, and the last one-third of the year - but the start of September is not expected to be any different than the end of August was, as the new deal market remains becalmed in the run-up to the upcoming Labor Day holiday weekend.

Market indicators seen softer

A trader saw the CDX Series 12 High Yield index - which had lost ½ point on Friday - easing by another 1/8 point on Monday, at 88 bid, 88½ offered

The KDP High Yield Daily Index, which had risen by 6 basis points on Friday, meanwhile dipped by some 5 bps on Monday to 66.17, while its yield moved out by 2 bps to 9.38%.

However, in the broader market, advancing issues - which led decliners for a ninth straight session on Friday, holding a nearly five-to-four advantage, remained ahead of them again on Monday, although by the relatively small margin of a couple of dozen issues.

Overall market activity, reflected in dollar-volume totals, jumped by 24% from Friday's anemic pace.

A trader said that "not a whole lot was shaking" during the session, noting: "It's the Monday before Labor Day. It was pretty quiet out there."

A trader said that amid the mostly quiet market, "I guess in terms of movement, the only real chatter was in Foxwoods, which was considerably down last week and the beginning of this week, by about 20 points.

"Other than that," he allowed, "the market had a decent tone, slightly better on light volume."

He ascribed this to "a lack of real supply, and lack of real focus." He said most market participants seemed "focused on month-end activities, as well as holiday week-type stuff."

He said that "nothing of note" seemed to stand out.

"It was pretty quiet," another trader said. "It's going to be a horrible week," in terms of progressively declining activity levels as the week rolls on and gets closer to Friday, which, while ostensibly and officially a regular session - the Securities Industry and Financial Markets Association earlier this year announced n end to its traditional practice of recommending an abbreviated session on the Friday before Labor Day - is likely to be treated as a de facto half- day by market participants, traders said.

Huntsman higher, Tronox trades up

A trader said that Tronox Worldwide LLC's 9½% notes due 2012 were quoted at 29½ bid, 31 offered, which he called up about 4 points on the day, helped by the news that Huntsman has offered $415 million to buy some of the assets of the bankrupt Oklahoma City-based maker of titanium dioxide, a whitener used in products as diverse as paint, plastics and even cosmetics and food products.

However, he said that there was "not much trading, just looked like it was one trade."

Another market source saw a handful of sizable trades in the bonds at the 29 level, calling that up anywhere from 4 to 7 points from previous levels, with previous round-lot trades recorded at 22 and the most recent prior trades, period, at about the 25 level.

Meanwhile, Salt Lake City, Utah-based Huntsman's 7 3/8% senior subordinated notes due 2015 were seen having moved up 1 or 2 points to the 86 level, while its 7 7/8% subs due 2014 bounced around in the upper 80s to lower 90s on mostly odd-lot trades before going out in a smallish trade around the 90 mark, up around 3 points on the session, although a market source said that strictly on a round-lot basis, the bonds were actually little changed, around 89.

Market participants were trading paper on the news that Huntsman has signed a "stalking horse" agreement with Tronox, offering $415 million for the latter's titanium dioxide and electrolytics businesses. Under the terms of the agreement, with the Huntsman offer now on the table as the minimum base price for those assets, Tronox can receive other bids for those assets, with Huntsman given the right to increase its offer. The U.S Bankruptcy Court in Manhattan, which is overseeing Tronox's reorganization, will likely conduct an auction for those assets sometime in the fourth quarter this year.

If the Huntsman deal with Tronox does hold up, Huntsman indicated that it would fund about 50% of the eventual purchase price by issuing debt.

Huntsman - or whoever else may emerge as the winning bidder - would take possession of Tronox's titanium dioxide facilities in the United States and in the Netherlands, its electrolytic production facilities in the United States, and its joint venture interest in an Australian titanium dioxide mine and beneficiating operation. Certain other Tronox assets are not covered by the deal with Huntsman.

Tronox is currently the world's fourth-largest producer of titanium dioxide. If Huntsman were to win and combine those assets with its own Huntsman Pigments LLC operations, it would likely become the world's second-largest titanium dioxide producer, with some 17% of the market, trailing only industry behemoth E.I. DuPont de Nemours & Co., which has about 23% of the market, according to industry estimates.

Blockbuster better on asset-sale news

Another company with asset-sale news was Blockbuster, which announced on Friday that it had sold Irish entertainment retailer Xtra-vision Ltd. to Ireland's Birchhall Investments Ltd. for up to $45 million in cash.

On Monday, a market source saw the Dallas-based DVD rental company's 9% notes due 2012 up more than 2 points on the day to the 53 level.

Another source pegged the bonds going home at 52, still up more than a point on the day. Trading approached the $10 million mark - a not inconsiderable level on a relatively sluggish day.

Blockbuster -- which bought Xtra-vision in 1997 -- said it plans to use most of the proceeds from the sale to boost its liquidity, as it prepares to deal with approximately $415 million of debt obligations coming due this year and next.

Activity in Allied Waste

One of the more active names seen around on Monday - although generating relatively little in the way of actual bond-price movements - was Allied Waste North America, some of whose bonds gyrated around in the wake of news that the company's corporate parent, Republic Services Inc., had announced a tender offer for some of three series of its unit's bonds, and one series of its own bonds, although the more active issues are not among those being tendered for.

Now regarded as only quasi-junk ever since its takeover last year by the investment-grade rated Republic Services, Allied Waste's split-rated bonds (NR/BB/BBB-) attract some interest from both junk bond investors and high-grade players as well - and on Monday a market source saw a combined mid-afternoon total of more than $30 million of the Phoenix-based solid-waste disposal company's 6 1/8% senior secured notes due 2014 trading at just below the 103 bid level - not far off from where those bonds had finished on Friday.

Its 6 7/8% notes due 2017 were meantime seen trading busily around the 104 level, about where they had gone out on Friday, with nearly $20 million having changed hands by mid-afternoon.

Ironically, despite the busy trading, neither of those bonds are being taken out by the tender offer. Republic announced that it had begun a Dutch auction-style partial tender for four series of considerably shorter maturity bonds - Allied Waste's 6½% notes due 2010 and its 5¾% and 6 3/8% notes due 2011, and Republic's own 6¾% notes due 2011. Although there is a total principal amount of $1.463 billion of the four series of bonds currently outstanding, Republic said it plans to spend no more than $250 million tops to purchase a portion of those bonds, excluding accrued interest, funding the tender offer with some of the proceeds of its upsized $650 million 10-year bond issue that priced Monday in the high-grade market.

All three of the Allied Waste issues covered by the tender offer traded in a 103-105 context, on considerably lighter volume than the 2014s and the 2017s. They were, little changed from the levels seen on Friday and in line with the proposed bid ranges with the company laid out in the tender offer terms.

Smithfield continues to suffer

Apart from names which had specific news attached to them on Monday, a trader said that "the bonds that everyone is waiting earnings for in September - the weak sister -- continues to be Smithfield Foods."

He noted that the Smithfield, Va.-based hog producer and pork processor - considered the world's largest - sold $225 million of 10% notes due 2014 in early August as an add-on to the existing tranche of the same kind of bonds, with the add-on pricing at 104, to yield 8.969%. Fast forward to the present - just three weeks or so later - and those bonds are no better than an offered price around par-1001/2.

He saw similar erosion in the company's more established bonds as well - its 7% notes due 2011, which had been bid around 951/2-96½ in early August, "continue weaker" and were most recently seen at 93-931/2, while its 7¾% notes due 2016 have dropped to 821/2-83 from prior levels around 86-861/2.

He said that the bonds have been drifting lower even as the company's New York Stock Exchange-traded shares "have been hanging in there" in a $12 to $12.50 context, "which isn't bad," closing Monday at $12.27, down seven cents, or 0.57%, on lighter-than-usual volume.

"I don't know what's going on with them," he said, "but the paper is decidedly weaker."

There have been some suggestions that Smithfield, along with other pork producers, is being hurt by the continued bad publicity from the swine flu epidemic - even though the meat-packing industry asserts and health authorities acknowledge, that the disease cannot be spread to humans via pork consumption as long as the meat is cooked properly (however, there is some transmission risk to people working with hogs in farming operations and slaughterhouse operations like Smithfield and similar companies).

"It has nothing to do with swine flu - it's a misnomer," he said. He mentioned that the analysts are saying there's an over-supply of hogs, which is driving down prices, and that "people don't want to eat pork - maybe there [swine flu] it's related. But the paper's really gotten hammered. I don't know if the Street is looking into really bad earnings coming up, or what."

Foxwoods still flailing around

A trader said that Mashantucket Pequot Tribe's 8½% notes due 2015 were at 24 bid, 26 offered, "up a little bit" from the lows around 20 which they hit late last week -- though still about 20 points down from levels before that - on "not much supply," on continued investor speculation on the financial problems of the tribe, which runs the big Foxwoods casino in Connecticut.

The tribe is trying to restructure $2.3 billion of debt and is looking to head off a possible default on its $700 million credit line, which reportedly could come as early as this week absent any relief from its lenders. The tribe has a loan payment due on Tuesday. The chairman of the council which runs the tribe, Michael Thomas, was quoted in press reports last week as having told members of the tribe via e-mail that the tribe had drawn down the remaining $91.9 million from the credit line and had put it into a "locked box" and would use the money only to pay for the tribal government or to make regular monthly "incentive" payments to the tribe's members, rather than using the money to pay the banks or bondholders, while an unidentified senior advisor to the tribe was quoted as saying it was looking for creditors to take "a big haircut."

However, a spokesman subsequently sounded a more moderate note and said the tribe hoped to reach a consensual restructuring accord on its debt satisfactory to all parties.

On Monday, tribal leaders met with the membership in closed-door meetings to discuss the situation with them. There was no immediate word Monday night on the outcome of those meetings, nor any word as to whether the scheduled interest payment would be made.

Quiet in the primary

As expected, the primary market remained dead quiet during the final day of August.

However, even as the Dog Days of August have now played out, 2009 will sport three more full September "Dog Day" sessions, and one unofficially abbreviated session (Friday).

That's because no activity is expected in the new issue market until players re-convene one week from Tuesday, trailing the three-day Labor Day holiday weekend in the United States.

However this syndicate banker did mention that the primary market was caught off guard last week when, despite expectations of complete quiet ahead of Labor Day weekend, Vector Group Ltd. priced an upsized $85 million add-on to its 11% senior secured notes due Aug. 15, 2015 at 94.00 to yield 12.453%, last Thursday.

Jefferies & Co. ran the non-rated general corporate purposes deal which was upsized from $60 million.

That type of activity cannot be ruled out, the source said.

Meanwhile this source professed visibility on a couple of deals that are apt to come - probably as drive-bys - during the post-Labor Day week.

Although the banker declined to furnish names, one of the deals is expected to emanate from the technology-media-telecommunications sector, the other from the energy sector.

Other sectors previously paraded out as post-Labor Day possibles include health care and natural resources.

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