Owens Corning zooms on creditor agreement; market awaits Amkor, Dean deals; European primary active

By Paul Deckelman and Paul A. Harris

New York, May 10 - Owens Corning's bonds jumped some 15 points to levels well above par on Wednesday - not too shabby for a bankrupt company whose bonds began the year stuck in the 70s. The Toledo, Ohio-based insulation maker's notes sizzled on the news that it had reached an agreement in principle with the representatives of each of its key creditor groups on the terms of a Chapter 11 plan of reorganization which - if confirmed - paves the way for Owens Corning to emerge from bankruptcy some time this year. It has been under court protection since the fall of 2000, driven there by a deluge of asbestos-related lawsuits.

Besides Owens Corning, bonds of such other asbestos-challenged issuers as Armstrong World Industries Inc. and Federal-Mogul Corp. were also several points higher.

The other major gainer in Wednesday's dealings was also seen coming out of the distressed sector, as Delphi Corp.'s bonds were being quoted up four or five points on the session, taking an upside ride on the continued strength of hopeful investor response to Tuesday's positive comments by the chairman and chief executive of General Motors Corp. - Delphi's former corporate parent and still its single largest customer - on the prospects for GM, Delphi and the latter's unions to coming to an agreement on cutting costs at Delphi that would avoid a potentially ruinous strike.

In the wake of the Federal Reserve's Federal Open Market Committee bumping the short term interest rate by 25 basis points to an even 5%, on Wednesday afternoon, a buy-side source told Prospect News that high yield appeared to be holding in.

The source said that everything appeared unchanged from levels seen Wednesday morning, and added that the 10-year Treasury had "shot down" in the morning only to rebound in the afternoon.

"The new issue calendar is picking up, but I don't think it will knock the market off of its feet," the source commented.

"The tone has been quiet. People have not been diving into things."

Still, in the primary market, investors were heard to be waiting on a pair of $300 million offerings - from Amkor Technology Inc. and from Dean Foods Co. Amkor's offering of 10-year notes could come to market as soon as Thursday.

Meanwhile most of Wednesday's primary market news emerged from Europe, where the session's issuance totaled €950 million and £65 million in three tranches from three issuers.

Syndicate sources saw pricings Wednesday for euro-denominated offerings for Mecachrome International Inc. and Lottomatica SpA, and a sterling-denominated issue from PolyPipe.

Lottomatica €750 million hybrid a blowout

The session's largest transaction came from Italian lottery operator Lottomatica, which priced a €750 million issue of 60-year non-call 10 capital securities (expected ratings Ba3/BB) at par to yield 8¼%.

The yield came at the tight end of the 8¼% to 8½% price talk.

The notes will pay an 8¼% coupon until March 31, 2016, at which time they become callable. If they are not called at that time the coupon will step up to six-month Euribor plus 505 basis points.

Credit Suisse ran the books for the acquisition deal.

A buy-side source in Europe told Prospect News that the deal had been a blowout, with the order book six-times oversubscribed. The source added that the par-pricing securities were seen at 102.375 bid at the London close.

Mecachrome upsizes

Meanwhile Mecachrome priced an upsized €200 million issue of 9% eight-year senior subordinated notes (Caa1/B-) at 99.302 to yield 9 1/8%.

The Merrill Lynch-led debt refinancing deal came in the middle of the 9% to 9¼% price talk and was increased from €175 million.

Mecachrome is a Montreal-based maker of precision-engineered industrial components for the automotive and aerospace industries.

Polypipe prices £65 million

Also from Europe Pipe Holdings 1 PLC (Polypipe) priced a £65 million issue of 10-year floating-rate PIK notes at par to yield three-month Libor plus 825 basis points.

Deutsche Bank Securities ran the books for the debt refinancing and dividend funding deal from the Doncaster, England-based building materials company.

Amkor, Dean Foods to drive through

The completion of the euro- and sterling-denominated transactions above would have left the forward calendar with slim pickings for the remainder of the week had it not been for two prospective issuers stepping forward with quick-to-market offerings that are expected to price by Friday's close.

Amkor talked its $300 million offering of 10-year senior notes (Caa1/CCC+) at 9¼% to 9 3/8% on Wednesday, and set pricing for Thursday.

The Chandler, Ariz., provider of semiconductor packaging and test services will use the proceeds, in part, to refinance debt.

Also Dean Foods is expected to price a $300 million offering of 10-year senior notes (Ba2/BB-) before the end of the week.

The Dallas-based food and beverage company will also use the proceeds to refinance debt.

Both the Amkor and Dean Foods deals are Citigroup-led off-the-shelf transactions.

Finally Transmeridian Exploration Inc. announced that it plans to price a $40 million add-on to its 12% senior secured notes due Dec. 15, 2010, along with an approximately $10 million concurrent offering of common stock.

The Houston-based independent energy company priced the original $250 million issue of notes in a notes and warrants transaction in December 2005.

Creditor deal lifts Owens

Back in the secondary market, Owens Corning - whose bonds had already jumped about seven points on Tuesday, as the market was swept by rumors that something very big was up - picked up right where they had left off on Tuesday, and climbed steeply on the company's announcement that it had reached agreement with its creditors on a bankruptcy exit plan.

Traders saw its bonds soar as high as 118 bid, before dropping a couple of points off that peak to still end the day with a spectacular 14 or 15 point gain. A trader saw its 7½% notes due 2018 closing the day at 115 bid, 116 offered, while its 7% notes due 2009, which started the session a point behind the 71/2s, closed at 113 bid, 114 offered.

"The bonds just rocketed," he said, seeing the 71/2s at 116 bid, 117 offered before they settled in at 115 bid, 116 offered, which he called "like 16 points up. Man, oh man!"

Yet another trader said the Owens bonds were about 14 points better on the day, at 114 bid, 116 offered, after having traded as high as 118.

Owens Corning's over-the-counter-traded shares meanwhile boomed 73 cents (78.49%) on the day to end at $1.66 on volume of 26.4 million - about 20 times the usual turnover.

The plan was approved by creditor groups as varied as the bondholders and the asbestos claimants - even the ad hoc equity holders committee, although all of the existing stock will be cancelled and they will only get warrants to buy new stock. It basically calls for bank debt holders and non-bondholder unsecured creditors to receive cash for their claims - the bank debt holders will be made whole - bondholders to get equity, with a recovery percentage of about 58%, and the asbestos claimants to get cash and equity through a trust fund mechanism that will pay their claims at about 50 cents on the dollar.

The plan must still be voted upon by the individual claimants and approved by the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing the restructuring of Owens Corning and a number of other companies that were also driven bankrupt by asbestos claims, including Lancaster, Pa.-based floorcovering maker Armstrong and Southfield, Mich.-based automobile components manufacturer Federal-Mogul.

The bonds of those companies, meantime, were seen better on Wednesday, in apparent sector sympathy with Owens Corning. A trader saw Armstrong's 6.35% notes and 6.50% notes 4½ points better on the session at 84.5 bid, 85.5 offered. Federal-Mogul's bonds were two points better at 63 bid, 64 offered.

Delphi gains continue

Among the other auto components companies, there were none better on Wednesday than Delphi - a trader saw its 6.55% notes due 2006 punch up to 79 bid, 81 offered, well up from 74 bid, 76 offered on Tuesday.

He saw its 6½% notes due 2009 also up five points on the day, at 78 bid, 80 offered, while its 6½% notes due 2013 and 7 1/8% notes due 2029 were each up four points on the day, at 76 bid, 78 offered.

A trader called the big move "a stealth move." Another trader attributed the gain to "continued strength from [GM boss Rick] Wagoner's comments."

Wagoner told reporters in Detroit Tuesday that hammering out an accord to help Delphi cut its costs without provoking a union walkout was a major priority for GM - and he expressed optimism that it could be done.

GM, former subsidiary Delphi and the United Auto Workers union have been bargaining for months in the hopes of coming up with a formula that will let the bankrupt Troy, Mich.-based parts provider slash its heavy labor costs - generated by a contract structure it inherited from GM when it was spun off in 1999.

Delphi says it needs to cut costs as much as 40%, a demand the union has so far strenuously resisted.

Delphi is asking the U.S. Bankruptcy Court for the Southern District of New York for permission to void the contracts it negotiated with the UAW and other unions and establish a lower wage and price structure. A second day of hearings on its motion was held on Wednesday, and the court will again take up the issue Thursday. The unions have threatened a strike if Delphi tries to go ahead with such a move - and GM, which is heavily dependent on Delphi for parts and which could be badly hurt by a strike, is taking a key role in the talks in hopes of preserving labor peace.

Delphi's Pink Sheets-traded shares meantime jumped 29 cents (30.53%) to end at $1.24 on heavy volume of 33.6 million, pushed up by the hopes generated by Wagoner's statements.

With GM having so much riding on a peaceful resolution of the Delphi conflict with its unions, the carmaker's bonds were also up for a second straight day on Wagoner's statements that progress is being made. Its 8 3/8% benchmark notes due 2033 gained a point, to 76 bid, 77 offered, a trader said.

El Pollo Loco flies

Elsewhere, EPL Finance Corp.'s 11¾% notes due 2013 were being quoted up 6½ points on the session at 110. The issuer's corporate parent - Irvine, Calif.-based chicken restaurant franchiser and operator El Pollo Loco Holdings Inc. - on Monday registered for an initial public offering of up to $135 million in common stock, according to a filing with the Securities and Exchange Commission.

Pope & Talbot better on earnings

On the earnings front, Pope & Talbot Inc.'s 8 3/8% notes due 2013 moved up 1¼ points to 87 bid, 88 offered, even though the Portland, Ore.-based pulp and lumber producer reported a sharply wider first quarter net loss of $12.9 million (79 cents per share), versus its year-earlier red ink of $655,000 (four cents per share); company executives said on their conference call that the results were a sequential improvement from the even larger losses posted in the 2005 fourth quarter.

They also said that "has substantially completed" the negotiation and documentation of a new $300 million revolving credit and term loan facility with certain institutional lenders to refinance its existing Canadian and U.S. revolving credit facilities and its receivable sales arrangement, and certain leases (see related story elsewhere in this issue).

Mirant Corp.'s 7 3/8% notes due 2013 firmed 3/8 point to 100.75 bid, 101.25 offered, while its 8½% notes due 2012 were ¾ point better at 102 bid, 102.5 offered; a trader said the rise was due to the Atlanta-based power generating company's "very good numbers."

Rotech Inc.'s 9½% notes due 2012 were "a little better," a trader said, at 84.25 bid, 84.75 offered, and its shares were seen moving up on Wednesday, apparently fueled in part by merger and acquisition rumors surrounding the Orlando, Fla.-based provider of home medical equipment and related products and services.

The company's Nasdaq-traded shares - after having fallen to levels below $4 Friday and then having plateaued down there Monday and Tuesday, began climbing Wednesday, gaining 25 cents (6.17%) to end at $4.30. There was talk on investment-related internet bulletin boards that Rotech might link up with another company, with Apria Healthcare Group Inc. mentioned as the most likely possibility. Rotech did not respond to e-mail and phone requests seeking comment.

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