Parmalat declines after bankruptcy filing; WestPoint Stevens, Levi easier

By Paul Deckelman and Sara Rosenberg

New York, Dec. 24 - The long-awaited other shoe dropped on Wednesday as Parmalat Finanziaria SpA officially filed for the Italian equivalent of Chapter 11 protection from its junk bond holders and other creditors in the wake of a burgeoning Enron-like scandal that saw police raid the home of the company's founder and former chairman, looking for clues that might explain the big dairy products company's stunning collapse. Parmalat's bonds continued to retreat, although the drop from their already distressed prior levels was not dramatic

Distressed-debt traders meanwhile saw little activity among troubled domestic names in the abbreviated pre-holiday session, which was characterized by extremely light trading ahead of the 2 p.m. ET close and Thursday's complete market shutdown. Two names which were quoted somewhat lower were Levi Strauss & Co. and WestPoint Stevens Inc., although no real trading was seen.

Parmalat's bonds, which had fallen to bid levels around 20-21 on Tuesday, were down a bit further Wednesday after Italy's largest food processing firm sought bankruptcy production under expedited big-company bankruptcy rules approved by the cabinet of Prime Minister Silvio Berlusconi. As expected, Parmalat's chairman and chief executive officer, turnaround specialist Enrico Bondi, was named as the head of a special government-appointed commission that will try to turnaround the company while keeping as much of its assets and workforce intact.

A trader said that Parmalat's bonds, including its sole dollar-denominated issue, the 6 5/8% notes due 2008 opened at bid levels as low as 14, which he called "a silly bid" that nobody took seriously. The bonds quickly moved back up to closing quoted levels around 18 bid, 22 offered, although he said that no bids were seen.

A distressed-debt trader pegged the Parmalat dollar notes and its euro-denominated bonds at around 18 bid, 20 offered, with the bonds now trading flat, or without accrued interest, in the wake of the insolvency filing.

He noted that the bonds - which have fallen to current extremely junky levels at or below 20 cents on the dollar from investment-grade status and levels at or around par in the first part of the month - "are certainly volatile and might have traded down as low as 13 or 14 before coming back up. They do bounce around."

At another desk, the 8 5/8% dollar notes "were down another couple of points" Wednesday, a market source said. He quoted the 6 5/8s at 17.5 bid, 20.5 offered, down from prior levels at 21, as were the company's euro-denominated 5 7/8% notes due 2007. The 5¼% notes due 2004 were heard at 20 bid, 23 offered, down from 23 bid, 25 offered on Tuesday.

"I don't imagine [the bonds] moving up any time soon," he said.

Parmalat's once high-flying bonds have been knocked down to current levels under 20 and its stock reduced to virtually worthless paper in the wake of a massive liquidity crisis that has shaken the global dairy products producer, which is perhaps best-known in the U.S. for its line of long-storage milk products, available in most supermarkets, which do not need refrigeration prior to being opened the way conventionally packaged milk is.

The first red flags went up when Parmalat failed to make a €150 million payment to redeem maturing bonds on Dec. 8, and only managed to finally pay the bonds off several days later with the help of emergency loans, despite the company's previous assertions that it had more than €4 billion in the bank.

Those boasts appeared to be little more than hot air on Dec. 19, when Bank of America declared that documents purporting to have come from the bank guaranteeing that Parmalat had €3.95 billion on hand in the account of a subsidiary were forgeries. And the size of the presumed "hole" in the company's accounts only widened during the past week, as it was revealed that some €2.9 billion of bonds which the company had said it had already paid off, had not been, widening the hole to some €7 billion.

Prosecutors declared that this looked like an obvious case of fraudulent accounting and began questioning former company officials and others whom they thought might be able to shed some light on the phantom €4 billion and the other irregularities.

However, the man they would most like to grill - company founder and former chairman and chief executive officer Calisto Tanzi - has so far proven to be unavailable; he was said to be out of the country but had promised to return soon for questioning. Tanzi was forced to step down from his posts in favor of Bondi earlier in the month. Meanwhile, police searched Tanzi's home, near the Italian city of Parma, his company's home base, for further clues about the missing money.

Elsewhere, "it was quiet " on the distressed scene, a distressed-debt trader said, noting that he had not seen any activity at all in such recently prominent distressed names as Werner Holding Co., whose bonds have fallen to levels around 55-56 following the Greenville, Pa.-based ladder-maker's announcement that it will no longer sell its products through The Home Depot - its largest single customer, accounting for 31% of sales - but rather will sell its ladders through Home Depot rival Lowe's.

Levi Strauss, whose bonds have recently been fading badly on forecasts of slow sales in the upcoming year, were seen down about another point or so, its 11 5/8% notes due 2008 quoted at 65.5; The San Francisco-based blue jeans maker's two other bonds, the 7% notes due 2006 and the 12¼% notes due 2012, were also quoted trading virtually right on top of the 11 5/8%; traders have said the fact that those three bond issues, which used to trade a few points from one another, have now largely converged, is a sign that a major restructuring, or perhaps even a bankruptcy filing for the company, is in the cards.

WestPoint Stevens Inc. bonds were being quoted down two points in extremely light dealings, and with no fresh news seen out on the West Point, Ga.-based maker of textiles, towels and bed linens. Its 8 7/8% notes due 2008 were languishing at 12.5 bid.

Finova Corp. bonds, such as its 7½% notes due 2009, were holding steady at the firmer levels to which they had moved in Tuesday's trading, after the Scottsdale, Ariz.-based financial services company reported in a Securities and Exchange Commission filing that through its principal operating subsidiary, Finova Capital Corp., it had received $276 million in final settlement of substantially all amounts owed to Finova from its largest borrower, a timeshare resort development company.

The cash settlement resulted in an estimated $91 million recovery in excess of Finova's carrying amount and will be recorded in the company's financial statements for the year ended Dec. 31.

The bonds were quoted at 58.5 bid, 60.5 offered, up from 57 bid, 58 offered late Tuesday.

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