Halliburton tumbles on asbestos verdict: the next fallen angel? $1 billion of new deals price

By Paul Deckelman and Paul A. Harris

New York, Dec. 7 - With Enron Corp. the latest in a string of big names to make the pilgrimage from investment-grade territory deep into distressed junk bond land, traders Friday were eyeing oilfield services giant Halliburton Co., wondering if it might be next, after a jury delivered a big negative verdict in an asbestos litigation case. In the primary market, another busy session saw $1.04 billion of new bonds price, bringing the week's total to $2.115 billion.

Dallas-based Halliburton - the company formerly headed by Vice President Dick Cheney - reported in a Securities and Exchange Commission filing that a Baltimore jury had awarded $30 million in asbestos damages against its Dresser Industries subsidiary. The Baltimore verdict was the second adverse asbestos ruling in recent days for the company; it said in a regulatory filing last Monday that a Texas district court had ordered Dresser to pay $65 million to five plaintiffs, upholding a jury verdict issued in a September trial. The latest verdict brings the total of recent asbestos-related damage awards against the company to $150 million. Halliburton said it would challenge the Baltimore verdict.

While the company has always maintained that the asbestos liability issue does not pose a major threat to its situation, the investment community apparently does not agree. Halliburton shares fell $8.85 (42.45%) in New York Stock Exchange trading Friday, to $12, their lowest close since April, 1992; volume of 75 million shares was about 15 times the usual daily 5 million-share turnover.

On the bond side, a distressed-debt trader said, "Halliburton was the big news here Friday. It just fell out of bed, down anywhere from 10 to 25 points, depending on the maturity, and just really bounced around." He quoted the company's 6% notes due 2006 as having been offered at 85, well down from prior bid levels around 101.

The trader noted that Halliburton, for the moment, remains an investment-grade credit (A1/A+), but suggested that there might be "more (ratings activity) to follow.

He opined that while the verdict in question was $30 million - not a particularly large sum for a multibillion-dollar company - "it's not just the $30 million. It's deeper than that," since the successful verdict was likely to spur other litigants to take on the company.

"The problem with asbestos over the last 18 months," another trader said, "is that the amount the plaintiffs have sought, on average, has gone through the roof, which is why so many of these guys have filed."

High yield issuers forced into bankruptcy court over the past year or so under a flood of escalating asbestos claims include building materials makers Owens-Corning, USG Corp. and Armstrong World Industries, chemical company W.R. Grace and auto-parts producer Federal-Mogul Corp.

The trader noted the case of junker McDermott International Inc.'s Babcock and Wilcox construction unit, currently in Chapter 11 due to asbestos problems. "They filed because their average exposure per incident went up dramatically. It looks like the plaintiffs are getting smart, and the lawyers are all buying new cars and telling their plaintiffs 'I promise, you'll have one soon too'," he said.

But in a statement, Halliburton said even if its appeal do not succeed the company has "substantial" insurance which it expects will pay "most" of any verdict amount.

The company added it is managing its asbestos claims aggressively.

And in an apparent attempt to draw a distinction with the problems at Enron, Halliburton said: "Our businesses are strong and healthy and our financial disclosure is accurate and complete."

Meanwhile Enron's senior bonds were heard to have eased about a point to the 20-21 bid level. The bonds had fallen sharply down to the mid-teens the week before as the Dynegy deal went down in flames, leaving only angry lawsuits and countersuits between the two companies in its wake.

But then they had pushed back up to as high as the mid 20s around mid-week following last weekend's bankruptcy filing on a sense of relief that the dreaded "other shoe" had finally dropped, and in tandem with a rise in the company's shares powered by investor hopes that Enron might be restructured.

Those shares had dropped back Thursday, but rose again slightly Friday (up 9 cents on the NYSE, or 13.64%, to 75 cents).

Questions, however, remained about whether Enron would be able to fully line up the $1.5 billion of debtor-in-possession financing which is supposed to let it maintain operations as it restructures; at last glance, bankers J.P. Morgan Chase and Citigroup, which are fronting the bankrupt company $500 million, were still trying to get other banks to sign off on the other $1 billion.

On the legal front, Dynegy filed motions which would move Enron's Chapter 11 case from the bankruptcy court in Manhattan down to Houston, where both companies are headquartered and where many of Enron's numerous energy industry creditors are also based.

Meanwhile, a federal judge in Houston heard testimony Friday on a creditor bank's request that the court freeze the accounts of 29 Enron officers and directors who have been accused by some creditors of fraud.

Amalgamated Bank had filed a lawsuit accusing Enron executives and board members of selling more than $1 billion of their own Enron shares at the same time they were allegedly concealing the company's deteriorating financial condition. As part of the case, the bank wants the court to open personal records of the 29 defendants, in hopes of revealing the extent of additional liquidations and limited partnerships not currently made public. Enron's troubles with the SEC include allegations that the company engaged in improper accounting of its dealings with supposedly arms-length partnerships, some of which were connected to management figures such as the company's since-ousted chief financial officer, Andrew Fastow. Enron, which earlier in the week had laid off some 4,000 employees at its Houston home base, was meantime reported Friday to have laid off at least 200 additional employees from its energy trading unit as a cost-cutting measure; a Houston TV station separately reported that Enron workers were "streaming" out the company's downtown headquarters, after having been told to go home and informed that they would be paid for the next eight days and would find out on Dec. 15 if they still have jobs.

Another high yield company newly arrived in the bankruptcy courts Friday was Arch Wireless Inc., which filed petitions, along with several subsidiaries, late Thursday in Massachusetts, where the paging and messaging company is based. Arch's filing followed the commencement of involuntary Chapter 11 proceedings against a company subsidiary by some creditors several weeks ago; Arch announced that it had filed voluntarily as a means of implementing a restructuring plan agreed to by its senior secured creditors, which will see all of the company's current equity and over $2 billion of bank and bond debt converted to new equity and debt.

A trader quoted Arch's bonds around 8 bid, unchanged on the bankruptcy news, which was expected. "There's not a whole lot lower for them to go," he asserted.

Another trader said his shop had really stopped watching Arch all together, since it had fallen to price levels just pennies on the dollar. "Arch? When we heard that they had filed, everyone here wondered why they hadn't already filed before. That whole paging industry is just going kaput," he said, made as obsolete as the 10-cent rotary-dial pay phone by the proliferation of cellular and PCS wireless telephony.

Elsewhere, Del Webb's 9¾% notes due 2008 were being quoted around the 105 level after the Phoenix-based homebuilder's new corporate parent, Pulte Homes, announced it would redeem the bonds next month around that level. But a market observer said his desk had seen the bonds already north of 104 for some time on expectations that this would happen.

Several other issues scheduled to be bought back from their holders, Gaylord Containers' 9 3/8% and 9¾% senior notes due 2007, were in the 88 bid range, while its 9 7/8% senior subordinated notes due 2008 had firmed five points during the week to 41 bid; the gains followed the announcement early in the week by Temple-Inland Inc., which is buying Gaylord and taking out its bonds as part of that deal, that it had raised the price it would pay for the notes to $875 per $1,000 for the senior notes and $400 per $1,000 for the subs, well up from prior levels. The tender offer expires Jan. 7.

In the primary, Friday saw another $1.04 billion price, bringing the week's total to $2.115 billion.

But time is beginning to run out for deals to price this year. One sell-side official reckoned during a conversation with Prospect News that new issuance, in order to be priced during the remainder of 2001, would have to appear no later than Dec. 17, one week from Monday.

"I think there's a lot of stuff that's not on the forward calendar, that will probably get done," the official said.

"But as for deals that will come with a full roadshow, I think Dec. 17 is about the limit, for '01.

"We've got a bubble of deals that we just got through," the official added. "And we've got a lot of stuff for the first quarter. But I think we're starting to wind down for the year."

Asked at what point the investment banks might bring sufficient paper to satiate the buy-side, and turn a sellers' high yield primary market into a buyers' one, the official commented "I think if you see a lot of paper come - and it probably will come - you'll see the market go through some indigestion. You'll see the market take a little bit of a breather, as it kind of backs up a little bit. And then it will start to come back.

"I think you'll see the market being fairly liquid into '02. At some point - in late February or March, if the activity level is big in the first quarter - you'll see the market start to get a little bit of a pullback.

"But I think the expectation is that next year is going to be a pretty good year."

The four deals that priced Friday included:

--CSK Auto, Inc.'s upsized its offering of five years notes to $280 million from $225 million. The deal came at 12½% via bookrunners Credit Suisse First Boston, J.P. Morgan and UBS Warburg;

--International Specialty Holdings, Inc. sold $200 million of eight-year notes at 10.625%, the low end of talk, via bookrunners Bear Stearns & Co. and UBS Warburg;

--OM Group Inc. sold $400 million of 10-year notes at a yield of 9¼%, in the area of talk, with Credit Suisse First Boston running the books, and

--Radiologix, Inc. sold $160 million of seven-year notes to yield 10½% via Jefferies & Co.

On the calendar for the week of Dec. 10: 10 deals that figure to bring an additional $1.8 billion of new issuance into the high yield primary, including deals from Sovereign Capital Trust, Appleton Papers, Inc., Wheeling Island Gaming, Inc., Rent-A-Center, Inc., MeriStar Hospitality Partnership LP, Collins & Aikman Products Co., The Great Atlantic & Pacific Tea Co., Inc., United Surgical Partners, Inc., Senior Housing Properties, and IPC Acquisition.

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