Foundation PA Coal, Building Materials deals price; Delta gyrates on pilot news

By Paul Deckelman and Paul A. Harris

New York, July 21- Foundation PA Coal Co. and Building Materials Corp. of America were heard by high-yield syndicate sources to have successfully priced new deals Wednesday - the latter upsized by a third to meet increased investor demand. But that news was overshadowed by the drama involving EchoStar Communications Corp., which was first heard by market sources to be readying a quickly shopped, opportunistically priced drive-by offering of $1 billion of bonds. But news emerged late in the session of the abrupt resignation for personal reasons of parent EchoStar Communications Corp.'s chief financial officer and that planned mega-deal did not take place Wednesday as planned.

In the secondary market, Delta Air Lines Inc.'s bonds were heard to have headed skyward on news that the company's pilots had sharply increased the size of the concessions they are willing to give to the Atlanta-based air carrier to help it overcome its financial problems. But then those notes came off those peak levels as the day wore on, amid a generally sloppy market and after the company's chief executive officer said that the pilot's proposal was a good starting point - but still more concessions would be needed.

Although the ill-winds that took hold in the equity markets late in the session took the secondary junk market well of course, according to high yield sources, the new issue sector for the most part plowed through the session with taut sails.

An even half a billion priced in a pair of 10-year deals, both of which came at the tight end of price talk.

Meanwhile EchoStar DBS Corp. went into a parking orbit with a $1 billion drive-by after the company's CFO unexpectedly hit the button on his ejection seat.

Two deals, tight to talk

Foundation PA Coal Co., an entity formed by stockholders to acquire the U.S. coal mining assets of Germany-based RAG Coal International AG, sold $300 million of 10-year senior notes (B1/B) at par on Wednesday to yield 7¼%, which was the tight end of the 7¼%-7½% talk.

Citigroup and Credit Suisse First Boston ran the books.

"There is an appetite out there for paper from the coal industry," one market source observed.

"In the face of all the uncertainty in oil and gas, coal is a story that people are understanding better and better."

Meanwhile Building Materials Corp. of America priced an upsized $200 million issue of 10-year senior secured notes (B2/B+) at par to yield 7¾%, again on the tight end of the 7¾%-8% talk.

Citigroup and Deutsche Bank Securities ran the books for the debt refinancing deal from the Wayne, N.J. manufacturer of asphalt roofing products and accessories.

EchoStar countdown on hold

Early in Wednesday's session word circulated the market that EchoStar was expected to price $1 billion of 10-year senior notes (existing ratings Ba3/BB-) in a Wachovia Securities-led drive-by deal to be completed that afternoon.

However the deal was sidelined in the wake of EchoStar's Wednesday afternoon announcement that CFO Michael McDonnell's would resign effective Aug. 13 for personal reasons.

The company declined to comment on the bond offering, and the status of EchoStar's debt refinancing deal was unclear when Prospect News went to press Wednesday night (see related story in this issue).

Deal details

Much of the remainder of the July 19 week in the new issue market came into view on Wednesday.

Price talk of 9%-9¼% was heard on Refco Finance Holdings' planned $600 million of eight-year senior subordinated notes (B3/B), expected to price on Thursday via Credit Suisse First Boston, Banc of America Securities and Deutsche Bank Securities.

Meanwhile Loews Cineplex Entertainment Corp. shifted $100 million from its bond offering to its bank loan on Wednesday.

Price talk on the downsized $315 million of 10-year senior subordinated notes is 8¾%-9%, with pricing expected to take place Thursday, via Credit Suisse First Boston and Citigroup.

Elsewhere Middlebury, Conn. specialty chemicals producer Crompton Corp. provided details on a three-part $600 million high-yield bond deal (B) it is presently roadshowing via Deutsche Bank Securities, Citigroup and Credit Suisse First Boston.

The company is offering seven- and 10-year fixed-rate senior notes as well as six-year senior floating-rate notes. Tranche sizes remain to be determined.

The debt refinancing deal is expected to price in the middle of the Aug. 2 week.

And finally Stanadyne Corp. announced in a Monday press release that it intends to sell $160 million of 10-year senior subordinated notes (Caa1/B).

Goldman Sachs & Co. will run the books for the offering from the Windsor, Conn. provider of technology and services for engine components and fuel systems.

Proceeds will be used to help fund a leveraged buyout of the company by an affiliate of Kohlberg & Co. LLC, which is expected to close during the third quarter of 2004.

Foundation up in trading

When the new Foundation PA Coal 7¼% notes due 2014 were freed for secondary dealings they were heard to have firmed smartly to 101.25 bid, 101.75 offered, well up from their par issue price earlier in the session.

However, the new Building Materials Corp. 7¾% notes due 2014 did not get that same kind of warm aftermarket reception; a trader pegged them at 99 bid, par offered, down from their par issue price earlier.

And the trader saw Jean Coutu Group's new notes, which had priced on Tuesday, continuing to slip back from the highs they reached on pricing Tuesday and from the slightly lower levels at which they had ended that session.

He saw the Canadian drugstore operator's 7 5/8% senior notes due 2012 at 101.125 bid, 101.375 offered, down from 101.875 bid, 102.375 offered going home on Tuesday, while the company's 8 ½% senior subordinated notes due 2014, which ended bid around par Tuesday, eased a bit further to 99.75 bid, par offered Wednesday.

A market source meanwhile saw EchoStar's 10 3/8% notes due 2007 at 106.5 bid, and its 9 1/8% notes due 2009 at 110, both unchanged on the session, while at another desk, the company's 6 3/8% notes due 2011 were quoted a 1½ points lower at 99.75 bid.

Delta jumps higher, sinks back

Back among the established issues, a trader saw Delta's bonds "opening up five or six points" on news that the pilot's union had sharply increased its concession offer to the company, but said that they then "settled back" to end unchanged on the longer end to up only moderately on the shorter end.

He saw Delta's 7.70% notes due 2005 shoot up to 69 bid in the early going well up from 62 bid, 64 offered late Tuesday, before dropping from that high to fly home in a 65 bid, 67 offered context.

"They came off the high - but still ended higher on the day." he said.

However, he saw the Delta 8.30% bonds due 2029, which had ended on Tuesday around the 38 bid, 40 offered level, jumping to 43 bid, 44 offered on the news, but giving it all back by the end of the session to finish at 38 bid, 40 offered, unchanged.

Delta's New York Stock Exchange-traded shares jumped more than a dollar at one point, to a high of $6.49, but finished well off that high, in the end rising to just $5.49, up nine cents (1.67%).

The Air Line Pilots Association were reported by The Wall Street Journal to have offered pay cuts of as much as 23.5% to the beleaguered airline, which is trying to reduce its highest-in-the-industry pilot costs in order to get a more realistic cost structure that will let Delta compete better with sector rivals - both the old-line carriers like American Airlines, Continental Airlines, Northwest Airlines and the bankrupt United Airlines, as well as the low-cost carriers like long-time industry leader Southwest Airlines and its upstart cohorts like Jet Blue, AirTran and ATA Holdings. The pilots also offered work-rule concessions that could save additional money.

But Delta had already asked for pay cuts of at least 34.5% and total savings from the pilots of 45% and had said it did not want to indulge in piecemeal efforts to cut its spending.

On Wednesday, Delta CEO Gerald Grinstein told the pilots union that its proposal, which would save up to $705 million a year, is a good start - but doesn't go far enough.

Grinstein said of the proposal in a company statement that "the good faith effort it conveys is welcomed and appreciated even though, unfortunately and as we've discussed with ALPA, our rapidly deteriorating financial situation means more will be required to position Delta for long-term viability."

He said that he has scheduled a meeting for July 28 to discuss the company's future. Employees will be invited and questions will be taken about issues including the proposal - but it will not be a formal negotiation session.

Aquila rises on settlement

Elsewhere, Aquila Inc. bonds were seen "up a bit," a market source said, quoting the Kansas City, Mo.-based energy company's 14 7/8% notes due 2012 as having jumped to 126.25 bid from prior levels at 122.5, while its 8% notes due 2023 firmed to 86 bid from 84.5.

Aquila's 8.27% bonds due 2021 gained three points to end at 88 bid, while its 7 5/8% notes due 2009 were two points ahead on Wednesday at 95.5.

The movement follows news that a federal court had okayed a previously announced settlement of litigation between Aquila, insurer Chubb Corp. and two Chubb subsidiaries, Federal Insurance Co. and Pacific Indemnity Co.

In the settlement announced earlier this week, Aquila is providing $485 million of collateral that represents Chubb's complete exposure under gas forward purchase surety bonds. Aquila and Chubb had jointly filed a motion with the court seeking approval of the settlement.

Aquila had previously said that settlement of all outstanding issues with Chubb was a part of its multi-pronged financial recovery strategy. It also reached a similar $90 million settlement with another insurer, St. Paul Travelers.

Standard & Poor's which had previously said it might cut its ratings on $2.7 billion of Aquila debt, now says it might either cut the ratings or raise them.

Levi dips on VF report

Levi Strauss & Co. notes were seen down about a point or two, after VF Corp. - thought to potentially be a buyer for Levi's Dockers casual clothing unit - was reported to have said that Dockers is not high on its acquisition list.

Levi's 7% notes due 2006 dipped two points to 93.5 bid, 95.5 offered, while its 11 5/8% notes due 2008 fell two points to 98.75 bid, 99.75 offered, and its 12¼% notes due 2012 ended at 99.75 bid, 101.75 offered , down from 103 bid, 105 offered.

However, a trader said it was unclear to him whether the VF news report was the proximate cause of the decline - or whether it was just a case of investors who had racked up hefty profits on the sale speculation surrounding the San Francisco-based blue jeans maker's khaki clothing unit "taking their money off the table."

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