Sept. 11 commemoration overshadows market activity; terms emerge on Ferrellgas deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 11 - With somber ceremonies marking the worst terrorist attack in American history taking place just a few steps away from Wall Street on Wednesday, bond traders said their usual activities essentially ground to a halt, with just a few isolated trades here and there, and nothing that could reasonably be called a market movement.

Primary market activity was likewise held in check, although terms did emerge on the Ferrellgas Partners L.P.'s sale late Tuesday of $170 million of new 10-year notes.

With television screens at brokerage house trading desks riveted on the virtually non-stop coverage of memorial services at the site of the former World Trade Center, the Pentagon, and the field in rural Pennsylvania where United Airlines Flight 93 plunged to earth after a desperate struggle between the passengers and hijackers, very little was going on in the financial markets, which operated on abbreviated sessions. The opening bell at the New York Stock Exchange, for instance, was not rung until 12 noon, two-and-a-half hours behind its usual schedule, in deference to the mournful ceremonies going on at Ground Zero. The Bond Market Association, meanwhile, had recommended a 2 p.m. ET close for the Treasury and other fixed-income markets - but what scant activity there had been was over long before that.

"We were here - but we were closed, in effect," a junk trader said. "There was no trading going on - zero."

"There was zero trading, none whatsoever," another trader, at a non-New York brokerage house said. "There was no tone, no markets," he added, despite a few interesting bits of news that rolled across trader screens during the session.

One was the news that embattled conglomerate Tyco International Ltd. had hired a new chief financial officer, luring David FitzPatrick away from United Technologies Corp. For Tyco - already reeling from the scandal linked to former chief executive officer L. Dennis Kozlowski - the hiring of FitzPatrick is an important step in its efforts to regain the trust of the financial markets. It follows by a month Tyco's hiring of former Motorola president Edward Breen to fill the vacancy left when Kozlowski resigned abruptly in June, just before he was indicted on New York State tax evasion charges.

Wall Street had already delivered its verdict on Kozlowski's stewardship of Tyco, with its once high-flying shares having fallen more than 70% this year and its formerly investment-grade rated bonds, which had once hovered securely at or around par levels, now precariously split-rated at Ba2/BBB- and trading off many junk desks, at levels well below par.

News that FitzPatrick will replace Mark Swartz as CFO boosted Tyco's NYSE-traded shares $1.90 (11.95%) to $17.80 on volume of 28.6 million shares - slightly below the usual 31 million-share turnover, but pretty heavy considering the overall limited trading on the financial markets Wednesday.

But several traders said the news had done little or nothing for Tyco's bonds. "By the time it reached the market everyone was gone" with the session closing time pushed up one said, noting that the equity markets, by contrast, stayed open until their usual 4 p.m. ET close. Another trader noted the stock surge, and said "we see their bonds [trade at our desk] - but definitely not today [Wednesday]." One market source opined that he thought the Tyco bonds might be up as much as three points on the session on the news in very light trading, although he had not seen any actual markets in them. At another desk, Tyco International Group SA's 6 3/8% notes due 2011 were quoted up about a point-and-a-half to 85 bid.

FitzPatrick - who had also held key executive posts at both General Motors Corp. and Eastman Kodak Co. before moving over to United Technologies in 1998 - is widely respected on Wall Street. Breen said in a statement that "Dave's respect and reputation among the financial community for uncompromising integrity, and his overall grasp of financial and business issues, are strengths that I value highly. He is a perfect fit for Tyco."

During FitzPatrick's tenure as CFO at United Technologies, the company got generally high marks from many investors and other observers for its relatively straightforward financial reporting and conservative management style - this at a time when companies left and right are coming under scrutiny by investors - and regulators, in some cases - for allegedly opaque accounting and risky strategies.

One such company is Tyco itself. Swartz was closely linked in the eyes of many in the investment community with Kozlowski's regime, during which Tyco embarked on a more than $60 billion whirlwind expansion campaign, buying over 700 smaller companies. For some time, the acquisition binge made Tyco one of the darlings of Wall Street.

But the Securities and Exchange Commission is probing Tyco's acquisition accounting, as well as executive use of corporate funds. Tyco was embarrassed in the weeks after Kozlowski's departure by press revelations that it had spent as much as $135 million on loans to Kozlowski which were later forgiven, lavish homes used by its high-living bon vivant CEO - including a posh Fifth Avenue apartment featuring pricey art treasures and a $6,000 gilded shower curtain - and donations to Kozlowski-favored charities.

Of more concern to many investors was the slowing pace of Tyco's growth - and the apparent inability of Kozlowski and Swartz to reverse the trend. In January, Tyco announced plans to unlock shareholder value by splitting itself into four parts, and selling off its CIT financial unit. But just months later, the CIT sale brought in less revenue than originally anticipated, and Tyco was forced to abandon the break-up plan, with Kozlowski himself now terming it "an ill-timed mistake."

Market-watchers likewise saw no activity Wednesday in the bonds of AT&T Canada, which announced that it had elected to not o make bond interest payments totaling approximately US$47.8 million, due on Sept. 15 and approximately C$5.4 million due on Sept 23.

The troubled Canadian-based telecommunications company said that it has chosen not to pay US$38.25 million of interest on its US$1 billion of 7.65% notes due on 2006 and US$9.53 million of interest on its US$250 million of 7.625% notes due 2003, with both payments due on Sept. 15. It also said it would not pay C$5.4 million of interest due on Sept. 23 on its C$150 million of 7.15% notes.

The company invoked the 30-day grace period, noting that if payment has not been made by that time, the company's debtholders would have the right to demand accelerated and immediate payment of these facilities and/or all of AT&T Canada's outstanding debt.

The Toronto-based company warned that if that were to happen - with either holders of the company's public debt, or lenders under its senior credit facility to demand accelerated and immediate payment - "the Company would not have the resources to fulfill those obligations in the absence of a successful capital restructuring."

AT&T Canada said in a statement that it is currently in "constructive discussions" with its bondholders, bank syndicate, corporate parent AT&T Corp. and their respective representatives, "and we are encouraged by our discussions thus far." It said that its objective remains achievement of a restructuring of its public debt that has the support of the bondholders and said that it still views a consensual restructuring as "achievable and in the best interests of all of our stakeholders."

In the primary terms circulated Wednesday of the public offering late Tuesday jointly issued by Ferrellgas Partners, LP and Ferrellgas Partners Finance Corp.

And Gerresheimer Holdings GMBH & Co. KG became that goodbye deal of the summer as the notes offering was postponed for the second time in six weeks.

"Most of us were here a year ago today and this seems like the most appropriate place to be spending today," one source from an investment bank in Manhattan told Prospect News Wednesday, making reference to commemoration activities which took place around New York City and the U.S. to mark the first anniversary of the events of Sept. 11.

Early in the session terms were heard on Ferrellgas' deal. The Liberty, Mo.-based propane company priced $170 million of 10-year senior notes (B2/B) at par to yield 8¾%, in the middle of the reported 8¾% area price talk.

Credit Suisse First Boston and Banc of America Securities ran the books.

A short time later a syndicate source informed Prospect News that Gerresheimer Glass had cited market conditions as it postponed its offering of €125 million of nine-year senior subordinated notes (B3/B) via Goldman Sachs and JP Morgan. Price talk was 11½%.

On July 26 the Düsseldorf, Germany-based pharmaceutical packaging manufacturer pulled a similarly structured €150 million deal, also citing market conditions.

"It sounds as though the euro market maybe isn't as healthy as people once thought it was," a source close to the Gerresheimer deal told Prospect News.

Another market source told Prospect News shortly after Gerresheimer was pulled that the European bond market continues to "be under a great deal of pressure.

"People just kind of walked away from it for a while because the returns have been so awful," the source added. "And although in the U.S. they're lemmings I would say there are probably more lemmings in Europe.

"I think that it's going to be a while before the high-yield market comes back over there."

That said, much of the remainder of Wednesday's news seemed to emerge from the eurobond market.

Prospect News learned from market sources that pricing is expected late in September or early in October for Legrand, SA's €600 million equivalent of 10-year non-call-five notes, which are expected to come in euro and dollar tranches via Credit Suisse First Boston, Lehman Brothers and RBS.

The Limoges, France electronic equipment supplier's offering is an LBO deal, with Kohlberg Kravis Roberts & Co. LP and Wendel Investissement acquiring the company from Schneider Electric SA.

And TI Automotive is expected to launch $250 million of new notes during the week of Sept. 16, according to a market source who added that JP Morgan and Salomon Smith Barney are the underwriters.

Late in the session one sell-sider mentioned that with Wednesday's abbreviated session and this coming Monday's religious holiday pending, momentum might be hard to generate for the next several days in the high-yield market.

"We saw signs that investors have cash to put to work with the Smurfit deal pricing with such a tight coupon," the source said, making reference to Jefferson Smurfit Corp. (U.S.)'s $700 million of 10-year senior notes (B2/B) which priced Tuesday at par to yield 8¼% - in the middle of 8 1/8%-8 3/8% price talk - via Morgan Stanley.

"If we see another inflow this week we might actually begin to feel some momentum," the source added.

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