El Paso bonds better on pipeline deal, market otherwise quiet

By Paul Deckelman, Paul A. Harris and Ronda Fears

New York, Dec. 22- El Paso Corp. bonds were up solidly on Friday, albeit on relatively thin pre-holiday trading, on the news that the Houston-based energy company will sell some pipeline assets for $3.39 billion and use the deal proceeds to continue its ongoing debt-reduction efforts.

Elsewhere in the secondary market, trading was described as very restrained, and bond-price movements were seen as almost non-existent, even where there was legitimate news out about a company, as was the case for bankrupt issuers Delphi Corp. and Adelphia Communications Inc.

And quiet as that was, the primary market was even more becalmed, having effectively hung out the "Home for the Holidays" sign on Tuesday after having priced the Titan International Corp. and Metals USA Inc. deals. Whatever new-deal players were in for Friday's truncated session spent their time getting things ready for the new business that will be coming down the pike once 2006 turns into 2007.

Market activity was constrained by the early 2 p.m. ET close for debt markets in the United States recommended by The Bond Market Association ahead of the three-day holiday weekend, which would also see all U.S. financial markets closed for Christmas on Monday. Those places which were even open Friday had skeleton staffing, and people were leaving well before the official early close. The upcoming week promises more of the same, culminating with this coming Friday's early close and the full market shutdown for New Year's Day, on Monday, Jan. 1.

El Paso firmer on asset sale

"El Paso was the only real thing that happened today," a trader declared, noting that the company's bonds had moved up on the news that the nation's largest natural gas pipeline company had sold a pipeline subsidiary and some storage facilities to TransCanada Corp. and TC PipeLines LP for about $3.39 billion.

El Paso said that it would sell ANR Pipeline Co., its Michigan storage assets and a 50% stake in Great Lakes Gas Transmission to TransCanada and TC Pipelines, which will assume a total of $744 million in debt.

The trader said that the cash infusion into El Paso caused its paper to tighten. El Paso Production Co.'s 7¾% notes due 2013 moved up to 105.625 bid on the news, after having traded at 103 during the week ended Dec. 15.

He also saw some trades "in long El Paso paper," with issues such as its 7¾% notes due 2032 "all up a point or two, depending on the issue." The 73/4s finished around 108. He said that bid spreads on the El Paso Corp. 30-year holding company paper came in to 225 basis points over Treasuries from the 265-275 bps region previously, with its El Paso, Tennessee Gas and other operating company bonds "trading a little bit tighter - but they're also a little bit better rated."

He further called the company's 10-year Colorado Interstate Gas Co. paper plus 160 bid, "which I thought was on the low side."

Another trader pegged El Paso's 7.80% notes due 2031 at 108.5 bid, 109.5 offered, up 3 points on the day, although a market source at another shop had the El Paso Holdings 7¾% notes due 2013 up ½ point at 104.5, while El Paso Corp.'s 7% notes due 2011 were seen ½ point better at 102, and its El Paso Performance-Linked Trust's 7¾% notes due 2011 were quoted up 5/8 point at 104.375.

The first trader also said that "the ANR paper, which is generally higher coupon and operating debt, will probably get tendered for." He said "that stuff has tightened quite a bit - the long ANR paper is plus 150 spread bid. It's a BBB credit - so I guess they feel that's going to be taken out."

One of the other traders said he saw "absolutely no levels" on ANR's bonds, such as its 8 7/8% notes due 2010. Those bonds last traded earlier in the week around the 104.5 level.

On the equity side of the fence, El Paso's New York Stock Exchange-traded shares traded up 63 cents (4.25%) on the news to finish at $15.45. Volume of 9.4 million shares was nearly double the usual turnover.

El Paso will take the approximately $3.3 billion it expects to clear from the sale as its net profit, and use the funds to pay down its debt. The company had about $17 billion of debt at the end of 2005, which it had whittled down to $15.2 billion by the end of October via various transactions. Assuming the full amount of the proceeds is allocated to debt-cutting, and assuming other debt-cutting efforts, El Paso may be able to further bring that debt load down to as low as $10.3 billion next year, according to some estimates.

The company's president and chief executive officer Douglas Foshee said in a statement that the deal - which he called a "transformational event" - when combined with the efforts the company has been making over the last three years to cut debt and restructure its operations, "immediately elevates our credit statistics to a level that is at or very near an investment-grade level, one of our primary long-term objectives."

Williams could also rise

Apart from El Paso's big deal, one of the traders said, "I've seen some stray trades here and there, in some of the other names, but El Paso, as far as [being] anything to talk about, is the only thing" in the market.

"It's all been trying to figure out what's going to happen with El Paso, and how will it affect Williams [The Williams Cos. Inc., an El Paso rival]. That's another question."

He speculated that the news, and El Paso's gains "will probably drag Williams up with it." He noted that Williams "is better rated [Ba2 from Moody's Investors Service, BB- from Standard & Poor's, and BB+ from Fitch, versus El Paso's B2/B/NR], and they're probably more on track as far as profitability and a better balance sheet - so with El Paso selling assets to clean up their balance sheet and make them a stronger credit, Williams will probably follow right behind them."

Not much outside of gas names

Elsewhere, he saw Delta Air Lines Inc.'s 8.30% notes due 2029 as the most active bond to show up in the Nasdaq Trace bond reporting system, with some $10 million changing hands, but said they finished unchanged at 66 bid.

At another desk, a trader saw the bonds of the bankrupt Atlanta-based Number Three domestic air carrier unchanged as well, though at a lower level - 65.25 bid, 66.25 offered - while a third trader saw them up ½ point at 66.5 bid, 67.5 offered.

Delphi unmoved on delay news

Traders saw no movement in Delphi's bonds, even as the company announced that the bankruptcy judge overseeing Delphi's reorganization had pushed back a court session to consider the proposed $3.4 billion investment in the Troy, Mich.-based auto parts producer by an Appaloosa Management-led investor group because of the emergence of a second bid for Delphi.

A trader pegged Delphi's 6.55% notes due 2005 at the same 111.25-112.25 level as Thursday's close. He also saw its 6½% notes due 2009 at 111.75 bid, 112.75 offered, its 6½% notes due 2013 at 107.75 bid, 108.75 offered, and its 7 1/8% notes due 2029 at 111 bid, 112 offered.

Judge Robert D. Drain of the U.S. Bankruptcy Court in Manhattan was to have presided over a Jan. 5 hearing to consider the proposed investment by the Appaloosa-led group, which also includes Cerberus Capital Management, hedge fund Harbinger Capital, Merrill Lynch & Co. and UBS AG's UBS Securities.

But the sudden emergence of a rival $4.7 billion bid for Delphi from Highland Capital, a hedge fund claiming to hold about 8.8% of Delphi's stock, has thrown the original timetable into disarray; Drain rescheduled the hearing for Jan. 11, giving critics of the Appaloosa plan more time to marshal their arguments.

Appaloosa's plan contains a stipulation that it must be adopted by Jan. 22, or the investment group can walk away with no obligations.

Highland said that the Appaloosa plan would vest way too much power over the restructured Delphi in the investor group, to the exclusion of other shareholders, including Highland, which said that its plan would treat all shareholders equally.

Highland also objects to the Appaloosa group's plan to offer debtholders cash and equity, suggesting that they not receive equity in the company, which is expected to emerge from bankruptcy in the coming year and then be able to post multi-billion-dollar earnings before taxes and special items.

Delay for Adelphia too

Traders also saw little or no movement in Adelphia Communications, which late Thursday likewise announced a delay in its reorganization proceedings. A trader saw the bankrupt Greenwood Village, Colo.-based cable operator's 10¼% notes due 2011 at 95 bid, 97 offered and its 10¼% notes due 2006 at 91 bid, 93 offered, both unchanged.

Another trader saw the '11s quoted a point lower at 94-95, but said he had seen "no real trading" in the bond.

The Manhattan bankruptcy court was to have made a decision Friday on the company's motion to confirm its plan of reorganization and declare it effective. However, judge Robert J. Gerber said that a decision would not be rendered by then, and now might not be issued before Dec. 31, when Adelphia was hoping to emerge from Chapter 11, after 4½ years there.

Adelphia said Friday that the parties involved had agreed to push the effective date of the plan back from Dec. 22 to Jan, 12.

Adelphia, which filed for protection in 2002 after revelations of massive accounting fraud by its senior executives, sold substantially all of its assets to Time Warner NY Cable LLC and Comcast Corp. in a deal that closed July 31. Various creditor groups have been squabbling since then over distribution of those sale proceeds.

Small moves, even smaller volume

Among other names, a trader saw Highland Park, Ill.-based paper and plastic tableware maker Solo Cup Co.'s 8½% notes due 2014 half a point better at 86-87, "not on any news but because it's so freaking dead" that even normally small trades enjoyed exaggerated influence, he said.

And he said Canadian forest products company Tembec Inc. was "up a smidge," again on no news, with its 8 5/8% notes due 2009 at 69.25 bid, 70.25 offered.

Overall, "a lot of people were off today," a trader said. "It was thin pickings, indeed."

Last 2006 market week tops $1 billion

The final market week of 2006 saw $1.020 billion of issuance priced in four tranches, bringing the December total to $16.4 billion.

Hence December 2006 saw greater issuance than either December 2004 ($14.7 billion) or December 2005 ($12.6 billion).

As the curtain came down on the 2006 new issue market the primary saw nearly $157.26 billion of issuance on the year.

Quite simply, 2006 is one for the record books.

Nor is the margin a narrow one.

The 2006 issuance total is just slightly less than $15 billion over the previous record, 2004's $142.38 billion.

Looking toward January

Various syndicate officials concede they have visibility on anywhere from $30 billion to $50 billion of potential bond financings that are expected to come during the first half of 2007.

And market sources are forecasting that the opening month of 2007 will be every bit as busy as the final month of 2006.

Continuing a trend that gained momentum in the fourth quarter of 2006 the first deal out of the gate in 2007 figures to be another LBO mega-deal, sources say.

Aramark Corp. is expected to start a roadshow in early January for a $2.270 billion notes transaction that will involve senior and senior subordinated notes via JP Morgan and Goldman Sachs.

Proceeds will be used to fund the approximately $8.3 billion LBO of the company by chairman and chief executive officer Joseph Neubauer together with funds managed by sponsors by Thomas H. Lee Partners LP, Warburg Pincus LLC, JPMorgan Partners, GS Capital Partners and CCMP Capital Advisors.

Also expected during January is Rexnord Corp., with a $460 million offering of senior notes via Credit Suisse, Bank of America Securities and UBS Investment Bank.

The proceeds will be used to help fund the acquisition of Jacuzzi Brands, Inc.'s "Zurn" plumbing products business for $950 million.

And Alion Science and Technology Corp. disclosed in filing it made in mid-December with the Securities and Exchange Commission that it plans to offer $200 million of unsecured senior notes in January.

Proceeds will be used to repay its bridge loan and a portion of its term loan.

The company also disclosed that a group of lenders that includes Credit Suisse has agreed to delay applying a 1% premium on the bridge loan for two months.

Freeport $6 billion seen as January business

Finally in the run up to the holiday break, sources were advising Prospect News that while the Firestone Acquisition Corp. (Freescale Semiconductor Inc.) $5.95 billion multi-tranche deal that priced in mid-November represents record issuance, it is a record that will not likely stand for very long into the new year.

Indeed on Friday an informed source said that Freeport McMoRan Copper & Gold, Inc. is expected to bring high yield bond offerings totaling $6 billion during January.

The deal will be comprised of unsecured notes with seven- to 10-year maturities, expected to be priced in the range of 8¼%, according to a market source.

Proceeds will be used to help fund the acquisition of Phelps Dodge.

The financing also includes $10.5 billion in secured institutional term loans.

JP Morgan and Merrill Lynch & Co. are leading the financing.

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