Lyondell Latest Bond Deal To Wipe Out Bank Paper; Staples Benefit

  • 25 Nov 2001
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The wave of corporate refinancings that is knocking off short-term debt with bond deals is having a ripple effect in the secondary loan market, where staple names are firming as other paper is retired. Last week, Lyondell Chemical Company announced plans for a $750 million bond deal that would take out some of its bank debt, making it the third company in two weeks said to be coming to market with a bond deal to replace existing bank debt. Most of the paper will be paid back at par ­ or better ­ so there is short-term upside. But chunks of bank debt are leaving a market that has not had significant new issues for three months.

"This is kind of bittersweet," one dealer said. "[Lyondell] paper has been beat up, and now it looks like it's going away. But the market needs paper out there. If the bond deal is completed, holders are going to get paid down, and it means more cash is taken out of the market." Traders said the most immediate result of the refinancing push is an uptick in levels of old reliables. Nextel Communications "B/C" paper last week traded up to 91 3/8 from 90. American Tower's bank debt moved up last week from 89 to 92. "It frees up cash to do other things," one dealer said of the refinancings. "People are sitting around with cash, looking to buy other things."

Lyondell's announcement follows Allied Waste's announcement two weeks ago that it had upsized its bond deal to $750 million from $500 million to pay down the bank debt (see related story, page 4). Last week a rumor of a pending bond deal for Owens-Illinois also sparked an uptick in trading levels to 97-98 range from 93.

Lyondell's "E" paper was getting steadily bid up from the 94 range to 101 7/8 between Monday and Tuesday. A trade of Lyondell paper was reported at 101 late Tuesday. The company announced Tuesday morning that it would launch a bond deal sometime this week. Calls to Robert Blakely, cfo, were directed to spokesman David Harpole, who did not return them by press time.

Initially, traders thought call protection on the "E" tranche would mean a payoff at 102. But as LMW went to press in the holiday-shortened week, traders said the company could pay down other pieces of its bank debt with the proceeds, repaying at par. Lyondell has a $1 billion credit facility that breaks down into two tranches. J.P. Morgan, Salomon Smith Barney, Credit Suisse First Boston and Bank of America are the lead arrangers. Pricing is LIBOR plus 3 7/8%.

  • 25 Nov 2001

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Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Citi 7,171 21 10.72
2 Bank of America Merrill Lynch (BAML) 6,901 20 10.32
3 JP Morgan 4,776 10 7.14
4 Credit Suisse 4,718 9 7.05
5 Lloyds Bank 4,420 14 6.61

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Rank Lead Manager Amount $m No of issues Share %
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1 Wells Fargo Securities 68,611.22 170 11.38%
2 Bank of America Merrill Lynch 59,056.08 169 9.80%
3 JPMorgan 56,861.85 163 9.43%
4 Citi 56,521.05 165 9.38%
5 Credit Suisse 44,888.95 123 7.45%