Western Oil Sands slates; Starwood plans $1 billion two-part deal; Synagro prices

By Paul Deckelman

New York, April 8 - Western Oil Sands Inc. announced a revived - though downsized - version of its offering which had originally been going to come to market last September, but which was shelved at that time as high-yield market conditions soured in the wake of Sept. 11. Also joining the calendar, lodging giant Starwood Hotel & Resorts Worldwide Inc. announced plans for an approximately $1 billion two-part offering of senior notes, which will likely be of most interest to high-grade investors but which could see some junk market play due to its status as a split-rated (Ba1/BBB-) credit.

Synagro Technologies Inc. meantime priced a $150 million bond deal at the tight end of pre-deal market price talk. And talk emerged on Crescent Real Estate Equities LP/Crescent Finance Co.'s $375 million deal, due at mid-week.

Traders meantime called secondary activity dull and featureless. It was "a pretty slow day, with no flow," one said, while another remarked that "not a lot of stuff was in the Street."

White Plains, N.Y.-based Starwood said its mega-deal would consist of five-year and 10-year Rule 144A notes, with tranche sizes to be determined. It expects to use the deal proceeds to repay all of its increasing-rate notes, totaling $500 million, and an identical amount of senior credit facility debt.

Market sources were hearing that following a short roadshow this week pricing was expected by the end of the week via book-running manager Lehman Brothers, and co-lead managers Deutsche Bank Securities Inc., J. P. Morgan Securities and SG Cowan.

The other deal joining the slate Monday was Western Oil Sands Inc.'s planned $425 million 10-year offering, retooled from the $465 million seven-year deal which the Calgary, Alberta-based energy operator had been shopping last September but which was postponed in the wake of the turmoil in the financial markets following the Sept. 11 terrorist attacks on the U.S.

Syndicate sources said the revived deal will be brought to market via joint-book-running managers TD Securities and Salomon Smith Barney, with the roadshow scheduled to start Wednesday and pricing expected next Tuesday (April 16). Proceeds from the bond issue will be used to fund Western Oil Sands' remaining share of the capital expenditures required to complete development of the Athabasca Oil Sands drilling project in Alberta, which is 20% owned by Western Oil Sands, with Shell Canada Ltd. owning 60% and Chevron Texaco Corp. owning the remaining 20%.

If post-Sept. 11 was a poor time to come to market with such an offering, now would seem to be a propitious time for such a deal, with world crude oil prices above the $26 per barrel level and US gasoline prices at their highest levels in months, pushed up by the continuing Mideast turmoil.

"I think that's why they're doing it now," a secondary trader noted, predicting Western Oil would likely get their bonds sold this time, especially since Standard & Poor's affirmed the BB+ rating which it had given to the originally proposed offering, while Moody's Investors Service had rated the original offering at Ba2.

"Ba2/BB+ is not a bad rating, considering that people with a CCC attached to one side are getting deals done."

But the trader said the recent spike in world oil prices, while pushing the stocks of a broad variety of energy and energy-related companies up, had done little for the bonds of such companies.

High-yield oil issues, he said, "are already so tight (many trading at or near par levels) that how much higher can the bonds go?"

And while oil stocks jumped Monday in response to Iraq's move to stop its oil sales as a gesture against perceived American support for Israel in the current showdown with the Palestinians, the bonds were unmoved.

When all is said and done, he opined, "once you dig into the story, it's no big deal," considering that Iraq's 2 million-barrel daily production represents only a relatively small percentage of U.S. oil purchases and likewise a small percentage of the Organization of Petroleum Exporting Countries' daily output.

"It's not that bad," he further declared, adding "we won't see a reply of the '70s," when a concerted oil embargo by Mideast countries after the 1973 Yom Kippur War had Americans waiting on long gas lines.

"There are other countries we can get our oil from besides OPEC, such as Mexico and Russia," he noted. U.S. firms such as high yield oiler Parker Drilling are actively involved in the development of oil in the latter land - so much so, the trader noted, that Parker, trying to pour more funds into its Russian explorations, recently announced an exchange offer for its $250 million of 9¾% senior notes due 2006, trying to entice holders to swap those bonds for new notes with a higher coupon (10 1/8%) - which matures in 2009. "There are alternatives" to Iraq and OPEC, he concluded.

Back on the new-deal front, Synagro Technologies was heard by syndicate sources to have sold $150 million of seven-year senior subordinated notes via joint book-running managers Lehman Brothers and Banc of America Securities.

The notes priced at par to yield 9½%, at the tight end of pre-deal market price talk suggesting a yield in the 9½% to 9¾% range.

And market sources heard price talk of between 9% and 9¼% for Crescent Real Estate Equities LP/Crescent Finance Co.'s planned offering of $375 million Rule 144Asenior notes due 2009. The Fort Worth, Tex.-based real estate investment trust is expected to bring the notes to market on Wednesday afternoon via joint book-running managers J.P. Morgan and Deutsche Bank Securities, and co-managers Fleet Securities and SG Cowen.

It is expected to use the deal proceeds to repay bank debt and redeem the preferred units of one of its subsidiaries.

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