3rd UPDATE:Deutsche Bank,Credit Suisse Selling Huntsman Bonds
September 09 2009 - 1:52PM
Dow Jones News
Credit Suisse Group (CS) and Deutsche Bank AG (DB) are selling
down their exposure to Huntsman International's $600 million 5.5%
seven-year bonds, as well as the firm's $500 million loan facility,
according to three people familiar with the situation.
Huntsman issued the senior unsecured notes to Credit Suisse and
Deutsche Bank as part of a $1.7 billion settlement of a lawsuit
with the banks in favor of parent Huntsman Corp. (HUN) over a
failed buyout of the company. The loan was also part of that
litigation deal. The banks are now looking to sell their exposure
to junk-bond and leveraged-loan investors, according to Timothy
Doherty, analyst at KDP Investment Advisors. Writing in a note to
clients, Doherty said that Huntsman's debt balance won't be
affected by the sale; rather, the cash will be realized by the two
banks.
The sell-down highlights just how far the credit markets have
come since they soured two years ago in allowing banks to offload
debt from riskier companies that has been clogging their balance
sheets.
James Lee, senior fixed-income analyst at Calvert Asset
Management, described Wednesday's deal as a "refinancing" of the
$600 million bonds. He said the banks were looking to sell the $600
million 5.5% senior unsecured bonds due 2016, with the final yield
to be determined when the deal prices later Wednesday.
Yield guidance was set on the bonds earlier Wednesday at about
9.57%, according to Doherty, who added that the notes are being
offered at a substantial discount to par - around 80 cents - in
order to compensate investors for participating in the deal. A
spokesman for Huntsman Corp. wasn't immediately available to
comment on the debt sales.
The settlement related to the terminated merger agreements with
Apollo Management LP-owned Hexion Specialty Chemicals Inc.
Hexion, originally agreed to buy Huntsman in July 2007 for $6.5
billion. But the Huntsman buyout collapsed in June 2008 as the
credit markets soured and Apollo asked a Delaware court to rescind
the deal, arguing a combined firm would be insolvent. A judge ruled
against Apollo and ordered it to try to close the transaction.
Huntsman later sued the banks in Texas, accusing them of failing
to fund the deal because they wanted to avoid billions of dollars
in loan losses. In December, Huntsman reached a $1 billion
settlement with Apollo, which included a $250 million investment in
Huntsman by Apollo in the form of a convertible note.
As part of the settlement, Credit Suisse and Deutsche Bank
agreed to provide Huntsman with $1.73 billion in cash and
financing, according to Standard & Poor's LCD Unit. This
included the $600 million bond, as well as a $650 million in cash
and $12 million in reimbursements for litigation costs. There was
also the $500 million term loan due 2016. The banks launched a
sell-down of this loan earlier this week, according to LCD.
Huntsman used the proceeds of the settlement to pay down in July
and August 2009, all the $296 million principal outstanding on the
company's 11.625% senior secured notes due 2010, and all $198
million outstanding on 11.5% senior notes due 2012. The remaining
portion of the settlement bolstered liquidity at the company,
according to Standard & Poor's.
Although selling the bonds and loan can be construed as
self-serving on the part of the banks, Calvert Asset Management's
Lee said the debt is likely to find favor with investors.
"The settlement is the biggest positive Huntsman has.
Operationally the company isn't doing very well, but it has plenty
of cash," Lee said.
"Banks and fixed income investors love it when the company
doesn't need the money," he added.
-By Kate Haywood, Dow Jones Newswires; 212-416-2218;
kate.haywood@dowjones.com
(Peter Lattman contributed to this article.)