Cups maker holds up bond sale

Sweetheart calls cost of borrowing too high after Sept. 11 attacks

October 06, 2001|By BLOOMBERG NEWS

Sweetheart Cup Co., an Owings Mills-based maker of plastic and paper cups, canceled plans yesterday to sell $465 million in junk-rated notes and loans, saying that the cost of high-yield borrowing has increased too much since the Sept. 11 terrorist attacks.

Sweetheart Cup is the latest borrower with debt ratings below investment grade from Moody's Investors Service and Standard & Poor's to yank a planned bond sale since the attacks on the World Trade Center and the Pentagon, which prompted an investor flight to U.S. Treasuries and investment-grade bonds.

"The market's gotten expensive lately," said Hans Heinsen, Sweetheart's chief financial officer. "We have to get past some of the political and economic uncertainty" before Sweetheart Cup can think about returning to market with the issue.

The average premium junk-rated borrowers' offer over Treasuries rose to 9.63 percentage points on Sept. 28, the highest in at least four years, according to Merrill Lynch & Co. data. The spread over Treasuries was 7.875 percentage points Sept. 10.

Sweetheart's debt is rated "Caa1" by Moody's and "B-" by Standard & Poor's.

The company has canceled sales of $275 million of junk-rated senior notes and a $190 million revolving credit line, said Heinsen.

On Wednesday, Terra Industries Inc. subsidiary Terra Capital was the first company to issue a junk bond since the attack. Terra, an Iowa-based company that makes fertilizer, sold $200 million of 12.875 percent notes due in 2008 at a premium of 8.74 percentage points more than U.S. Treasuries.

Heinsen said a decline in secondary market trading volume in junk bonds since the attacks has also made it more difficult to gauge the market for new issues.

Sweetheart Cup won't suffer from the sale cancellation, Heinsen said. "We were redeeming some securities outstanding and merging with an affiliate. The securities' maturity is still far enough in the future that it doesn't make a difference," said Heinsen.

He also said that market conditions mean the company isn't missing out on an opportunity to refinance debt at a cheaper rate.

"We expected prior to Sept. 11 that we were in store for a lower coupon, but in today's market, it definitely went up," he said.

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