Fruit of Loom up on Berkshire news; Trump rebounds; hear Chesapeake timing

By Paul Deckelman and Paul A. Harris

New York, Nov. 2 - News that billionaire investor Warren Buffet's Berkshire Hathaway has agreed to buy substantially all of Fruit of the Loom Ltd.'s basic apparel business operations helped to give the bankrupt underwear maker's bonds a boost Friday. Also on the rebound were the bonds of Trump Hotels & Casino Resorts Inc., despite a Standard & Poor's downgrade of the credit ratings of its Trump Atlantic City Associates entity to D after it missed $90 million of scheduled coupon interest payments which came due on Nov. 1.

In the primary market, meantime, more information on packaging-maker Chesapeake Corp.'s upcoming sterling-denominated began making the rounds and price talk surfaced on ABC Bancorp's planned $25 million offering of trust preferred securities.

Fruit of the Loom bonds "haven't really traded since, like forever," a trader said (actually, their market pretty much dried up after the company went into Chapter 11 in December, 1999). But they were being heard quoted around Friday in response to the Berkshire Hathaway news.

Fruit's 7% notes due 2011 and its 7 3/8% paper of 2023 were quoted up five points, to around the 38 bid level, while market players pegged its 6½% notes due 2003 at around 63 bid, all up about five points on the session.

Berkshire's New FOL Inc. subsidiary plans to acquire the Fruit of the Loom operations for $835 million in cash, subject to adjustments for certain liabilities as well as adjustment upward or downward depending on working capital levels, and the assumption of the ordinary-course post-petition liabilities and certain specified pre-petition liabilities of the business.

The U.S. bankruptcy court in Wilmington, Del. must sign off on any transfer of assets by the Cayman Islands-based Fruit of the Loom, which sought protection from the holders of its various series of junk bonds and other creditors via a filing with the court. The company said the deal already has the backing of both its Informal Committee of Senior Secured Noteholders, and the Official Committee of Unsecured Creditors.

Elsewhere, Standard & Poor's sliced the credit ratings of Trump Atlantic City Associates to D from CC previously, after it chose not to make the Nov. 1 interest payment on its approximately $1.3 billion of 11¼% first mortgage bonds due 2006.

Even so, the A.C.s moved up to levels around 60-62 bid Friday, versus Wednesday's close in the high 50s. Those bonds had plunged as low as the mid-lower 50s from prior levels around 60 earlier in the week after the company said it would withhold the interest payments as a tool to get bondholders to agree to accept more company-favorable terms on the debt.

Volume in the issue remained brisk, although it had declined from the very heavy levels seen Wednesday, the day the news broke, when at least $303 million of the bonds changed hands, according to the FIPS market tracking service. In Friday's dealings, about $80 million of the bonds had traded by the time the market wound down. A trader also saw some activity in Trump Castle Associates paper, most of it in the 69.5 bid/70.5 offered area.

S&P, while cutting the Trump A.C. debt to D, kept the parent company's debt at CC, pending its making its own scheduled interest payment next month.

Investors believe the support given to the Trump bonds, bringing them essentially back to pre-news levels, reflects an assessment of the underlying value of the properties securing the debt, since the A.C. bonds are secured by mortgages on the Trump Plaza and Taj Mahal hotel/casinos, while the company's several issues of Trump Castle Associates bonds are secured by mortgages on the company's third Atlantic City gaming palace, the Trump Marina. Trump has a 30-day grace period within which to make the missed interest payment and avoid default; after that, unpaid investors could begin foreclosure proceedings against the company's properties.

While the Trump bonds were bouncing off their recent lows, Conseco Inc. debt "opened stronger, but then faded, ending off ½ to a point from (Thursday)," a trader opined, while another said that the Carmel, Ind.-based insurer's bonds "took another bounce down," a trader said. "They feel a little soft," he added, quoting its 8½% notes due 2002 at around the 67 bid level, and noting that was down around 30 points from levels they held about three weeks ago. Conseco's longest-dated issues, like its 8.70% notes due 2027, were in the 25-30 area, while the rest of the curve between those two extreme maturities were around 45-50 bid.

Among other issues circulating in an otherwise not very active market, he said, Kmart Corp.'s bonds "which were getting creamed" earlier in the week, had bounced back. The 8 3/8% notes due 2004, which had been "hard to find" and had traded around 97-98 bid, swooned to around 90 on investor worries about how the Troy ,Mich.-based discount retailer would do in a difficult economic environment. Friday, he said, they had bounced off the lows and were around 95 bid and "still difficult to find."

He also saw Kaiser Aluminum's 12¾% notes, recently as low as the 49-50 bid area, opening in the 57-59 range Friday.

Williams Communications Group Inc. bonds continued to firm in the wake of benign earnings data and changes to its bank credit facility terms allowing it to defer until mid-2003 a requirement to raise more capital for the company by issuing additional debt and/or equity.

The Tulsa, Okla.-based telecom operator's results reflected a 6% sequential increase in network services revenue from the second quarter despite difficult market conditions. It reported negative EBDIT of $22.5 million, an improvement over the $29.8 million of negative EBDIT seen in the second quarter.

Williams' various issues of senior notes, which had pushed up to about 44.5 bid Thursday, after having fallen as low as 38-39 previously, were being quoted bid in the 46-48 area, but a trader said "they just hung in there and didn't make any run."

Among newly issued bonds, a trader saw Tesoro Petroleum Corp.'s new 9 5/8% notes due 2008 moving up to 101.5 bid/102 offered from their par issue price Thursday. Fellow junk oiler Chesapeake Energy Corp.'s recently priced 8 3/8% notes due 2008, however, remained below their 99.871 issue price, at 99.25 bid/99.75 offered.

In the primary, particulars surfaced on Chesapeake's £90 million offering of 10-year senior subordinated notes (B+). The roadshow starts Tuesday, according to one source, who added that pricing is expected the following week. The syndicate includes Credit Suisse First Boston and Goldman Sachs & Co. as joint leads, and co-managers Banc of America Securities and Wachovia Securities.

Price talk also emerged Friday on an upsized offering of trust preferred securities for ABC Bancorp. The deal due 2031 is now $30 million, increased from $25 million, and talked in the 9% area. Bookrunner Sterne, Agee & Leach, Inc. and co-manager Morgan Keegan & Co., are running the deal for the Moutrie, Ga.-based banking firm.

The hot sector on the primary market, during the week of Oct. 29, was energy, and the hot deal was the upsized and oversubscribed Westport Resources $275 million, which priced on Halloween.

One syndicate source, noting that the book on Westport was several times oversubscribed, said that at present demand for new issuance vastly exceeds supply.

Prospect News data shows an average monthly new issuance of $7.81 billion through the first eight months of the year which then dropped to $365 million in September, the month of the terrorist attacks, and climbed back to only $2.55 billion in October.

One way to look at it, the source said, was to consider that there was close to $16 billion worth of pent-up demand, chasing less than $3 billion of new product.

Looking at the last couple of months, the source said, "during that time you've slowed new issuance down to less than $3 billion. Basically, you've lowered net new issuance into the market by $13 billion.

"I think people's cash positions were already relatively healthy before we came into this period of time," the source continued. "So you end up where you don't have as much paper, and the secondary market's starting to trade up.

"I think that's why you're seeing stronger demand across the board. I think that's why you saw so many accounts on that Westport deal: it's not coming from a couple buyers - it's coming from pretty broad-based buying on a lot of these deals."

In a Friday conversation, Margaret Patel, high yield fund manager for Pioneer Capital Management, told Prospect that she was not one of the investors crowding the Westport dance card.

"I know that the Wesport deal went really well," she said. "But I saved my money for Tesoro ($215 million priced Thursday).

Noting that Westport is an E&P operation while Tesero operates refineries, Patel commented that refining is a stable sector.

"It's a commodity business, and it can be a narrow-margin business," she said. "But I think scale helps. And I think Tesoro, doing an acquisition to give them more scale helps. Bigger is better in the refining business."

As to the cash positions of the buy side, Patel said they have been decent, but "not a tidal wave."

"I think everybody feels that as people get used to these very, very low short rates, you're going to see a lot more money coming into the high yield area," Patel added.

"You always have names that you're holding that you would like to sell if only you had something else appropriate to buy. So I think that either to invest new money, or to restructure your portfolio, people would like to see new names. There's always room for good quality issuers.

"With short rates at 2% you're going to have to put your money someplace else, I think."

End

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