Buysiders and traders say the chemical sector has made a quick turnaround in the last couple of weeks, with levels shooting up on a few benchmark names as investors look to deploy extra cash gleaned from paydowns on existing deals. "You can't find chemical paper anywhere," said one loan investor. Lyondell, Equistar, Hercules, and Huntsman International have all jumped significantly as loan investors compete with bond investors for a better relative value on the names.
Last week, Huntsman shot up five points to 98 from 93 on news that Deutsche Bank and other existing lenders approved an amendment to roughly $2 billion in the company's existing credit lines. A banker on the deal said pricing on the lines moved up 50 basis points from LIBOR plus 4% based on a new grid with a 5.5 times leverage ratio versus the previous 4.5 times leverage ratio grid. "I bid 97 1/2 for the paper today and the offer was 98," said an investor last Thursday. A loan investor voting on the amendment said she felt confident Huntsman had the fundamentals to bring leverage ratios down by third quarter next year as the chemical sector took a blow following Sept. 11.
Last week Lyondell continued to climb to 100 1/4 after trading in the low 90s early last month. Another gainer was Equistar, which hit par as well after reaching 99 the week before and came from the mid 90s a week earlier. Within a 10-day time frame Hercules jumped from the 92-93 range two weeks ago to 99. "Do you think anything changed in the business in 10 days?" asked a buysider who called the recent chemical frenzy a "technical schizophrenia" on the part of loan fund managers who are responding to a lack of paper supply in the market.
A buysider noted she's been competing both with bond investors and loan fund managers to take advantage of better relative value on the bank debt.