The biggest holder of Bucyrus-Erie Co. bonds yesterday dismissed a restructuring agreement that the company reached with a small percentage of bondholders.
"It appears that Bucyrus-Erie is trying to create the illusion of an agreement with the hope that others will go along," said F. John Stark 3d, senior vice president and general counsel with PPM America Inc.
"Jackson National Life, which owns almost three times the amount of bonds as the other bondholders together, certainly will not," he said.
PPM America serves as adviser to the largest holder of Bucyrus-Erie bonds, Jackson National Life insurance Co. Stark made his statement in a release issued by PPM America's lawyers.
The agreement in principle was reached with a committee of Bucyrus-Erie bondholders holding a total of $23.85 million of the bonds of Bucyrus-Erie and its parent, B-E Holdings Inc., the release says. The Milwaukee-based company makes surface mining equipment.
Those holders represent only 13.95% of the combined enterprise's bond debt.
The agreement also covers the company's secured creditors, which hold $35 million of claims through two funds controlled by Greycliff Partners, a New York Investment firm managed by two former Goldman, Sachs & Co. partners, the release says.
Goldman Sachs is Bucyrus-Erie's biggest stockholder.
The agreement would give Goldman Sachs significant benefits from the restructuring even though it is only a stockholder, the release says.
"It is not legally possible for a stockholder to retain a stake in a restructured enterprise over the objection of any significant group of creditors," Stark said. "The agreement in principle accordingly would violate the law."
David Goelzer, vice president and general counsel at Bucyrus-Erie, rejected Stark's assertion that the agreement was an illusion.
"I just don't agree with that," Goelzer said, "It's baloney. We have an agreement."
Stark was invited to join and even lead the bondholders committee but declined, Goelzer said in a telephone interview yesterday.
"It seems to me that Mr. Stark is trying to put a negative spin on what is a very positive development." he said.
But J. Andrew Rahl Jr., an attorney with the law firm Anderson Kill Olick & Oshinsky, which represents PPM America, countered, "PPM is the group. It's completely backwards."
Goelzer said Jackson National holds all $60 million of Bucyrus-Erie's privately placed 15% resettable notes due 1996. Bucyrus-Erie also has $75 million of 10% notes, which currently carry a coupon of 16%, outstanding from a 1989 exchange offer. Its parent, B-E Holdings Inc., has about $36 million of 12.5% debentures due 2002 outstanding.
PPM also said it may add Bucyrus-Erie's name to the suit it filed on behalf of Jackson National against Goldman, Sachs & Co. and other parties. The suit alleges that Goldman ran the company into the ground to generate transaction fees. Goldman Sachs led the company's 1988 leveraged buyout and got a 49.9% stake for $1 million.
Jackson National Life Insurance Co. in June file a lawsuit charging that, ever since the buyout, Goldman Sachs "manipulated the market from behind the scenes" in order to profit at the expense of Bucyrus-Erie creditors. Yesterday's agreement in principle would free Goldman Sachs and Greycliff, along with others, from all liability for the lawsuit.
Bucyrus-Erie and its officials were not named in the lawsuit, but Jackson plans to amend its lawsuit to add them as defendants in the next few weeks.
Jackson and PPM had hoped to leave the company and its management out of the suit, but announcement of the agreement appears to leave them no choice.
"We believe that Bucyrus-Erie has attempted to create the appearance of an agreement with its creditors in an effort to insulate Goldman Sachs and Greycliff from liability for putting the company in its present precarious financial condition," the release says.
Goelzer said it would be in Jackson's best interest to drop the litigation and complete the restructuring plan, which would be done through a prepackaged Chapter 11, as quickly as possible. Though the company has not yet been named, Bucyrus-Erie's lawyers have advised him the suit lacks merit.
"Jackson is the largest creditor and would be the largest stockholder," Goelzer said. "This plan is in the best interest of the company and everyone of its constituents," he said.
But Rahl said that while PPM recognizes "the value of a quick consensual restructuring," the plan as presented is inadequate and creditors could do much better.
Trader Leaves Goldman
Goldman Sachs' senior high-yield trader has left for Smith Barney Shearson, where he will head trading and sales in the high-yield securities group.
"The fact that Jim Zelter has joined our firm is a clear signal of our serious commitment to the high- yield sector of the marketplace," said Robert F. Greenhill, Smith Barney Shearson's chairman and chief executive officer, in a release.
In the past several months, Smith Barney Shearson, has added "several key people" to its high-yield effort, including E.J. Pipkin, formerly of Donaldson, Lufkin & Jenrette Securities Corp.
Steven D. Black, who heads Smith Barney Shearson's capital markets, said the firm also recently added Kevin Delaney, a former number one salesman for PaineWebber Inc. Smith Barney has also hired two high-yield research professionals, but Black declined to disclose their names.
"We have beefed up our high-yield group," Black said," It's taken place over the last two months or month and a half."
Smith Barney Shearson is a wholly owned subsidiary of Primerica Corp., a diversified financial services business with asset of $27 billion.
In other news, Marriott Corp. yesterday said its board of directors has decided the conditions for the company's planned special dividend have been met, and the distribution will proceed as scheduled. Marriott will begin distribution of the dividend on Oct. 8 to shareholders of record on Sept. 30.
Terms of the special dividend call for shareholders to receive one share of Marriott International Inc., a lodging and services management company, for each Marriott Corp. share they hold. Marriott Corp. will be rechristened Host Marriott Corp. It will own hotels and retirement communities, and operate airport and tollroad concessions. The board's decision followed an Internal Revenue Service ruling received Tuesday that the special dividend would be tax-free.
In secondary trading, spreads on high-grade issues tightened slightly in quiet trading as the Treasury market weakened.
High-yield issues ended a quiet session with prices 1/4 point higher. Activity is likely to be thin for the rest of the week as many participants attend a BT Securities Corp. high-yield conference in Arizona.
Potomac Electric Power Co. issued a three-part first mortgage bond offering totaling $175 million through competitive bidding.
The first tranche consisted of $50 million of 5.625% bonds due 2003. The noncallable bonds were priced at 99.226 to yield 5.728%, or 42 basis points over comparable Treasuries. A group lead by Goldman Sachs won the bidding to underwrite this portion.
The second piece consisted of $50 million of 5.875% bonds due 2008. The noncallable bonds were priced at 98.968 to yield 68 basis points more than 10-year Treasuries. A group led by Morgan Stanley & Co. won the bidding.
The third piece consisted of $75 million of 6.875% bonds due 2024. Noncallable for 10 years, the bonds were priced at 99.32 to yield 80 basis points over the old 30-year Treasury bond. Moody's rates the offering Al, while Standard & Poor's rates it A-plus. Lehman Brothers won the bidding.
OSI Specialties Inc. issued $125 million of 9 1/4% senior subordinated notes due Oct. 1, 2003 at par. The bonds are callable after five years at 104.625%. Moody's rates the offering B1, while Standard & Poor's rates it BB-minus. Donaldson, Lufkin & Jenrette Securites Corp. was lead manager.