Asbestos bonds get burned; Refco rise comes to halt; technicals boost Delphi

By Paul Deckelman

New York, Oct. 31 - Bonds of bankrupt companies with asbestos liability issues were seen in retreat on Monday - possibly due to the massive new distraction that came before the Senate Monday in the person of federal judge Samuel Alito, now nominated to take a seat on the U.S. Supreme Court.

Elsewhere in distressed debt-land, Refco Inc.'s bonds were seen backing away from some of the gains notched last week, when the bankrupt New York-based financial company's notes shot up as a number of prospective buyers for its valuable futures unit or, possibly, other parts of the stricken company, emerged.

On the upside, bonds of bankrupt Troy, Mich.-based automotive electronics manufacturer Delphi Corp. were seen a good two to three points higher, possibly given a boost by the company's hopes of trimming its bloated labor costs, or possibly just on technical factors related to credit default swaps.

The asbestos issues were seen down several points at more than one desk. A trader in distressed bonds estimated about a two-point fall across the board, with bankrupt Toledo, Ohio-based insulation maker Owens Corning's 7½% notes due 2018 dipping to 75 bid, 77 offered, while those of Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc. - also in Chapter 11 - were likewise down a deuce, Armstrong's 9-handle coupon bonds at 70 bid, 72 offered and its 6-handle bonds at 68 bid, 70 offered.

Another trader also saw Owens' bonds at 75 bid, 77 offered, down from 76.5 bid, 77.5 offered on Friday, and said that Armstrong had moved down to 69 bid, 70 offered from Friday's 72 bid, 73 offered.

Yet another trader saw the Owens 71/2s down some 2½ points at 75-77, while Armstrong's 6½% notes that were to have come due this year were two points lower at 69 bid, 70 offered.

He saw a simple explanation for the drop - the Alito nomination, which at first glance promises to be a long and messy fight, quite unlike the recent nomination of chief justice John Roberts.

A number of Democratic senators have already indicated that they regard the conservative New Jersey judge to be "out of the mainstream," or even "an extremist" due to his past rulings on abortion laws and other issues - which promises a protracted battle first in the Senate Judiciary Committee and then, assuming the nomination makes it out of committee, before the full Senate. Meanwhile, the bill setting up a $140 billion asbestos claims fund mechanism, which was reported out of the Judiciary Committee in May, continues to languish, and the Senate's new preoccupation with judicial nominations - an issue which has roiled that body for much of this past year - may push it even further onto the back burner, so the theory goes.

That fund, which would be financed by companies having asbestos liability issues and their insurers, would, in theory, take all of the asbestos-related medical problem claims now before the courts and would quickly pay sick claimants without protracted litigation. It's aimed at ending the flood of court cases that have driven numerous companies like Armstrong, Owens Corning, and others such as Federal-Mogul Corp., USG Corp. and W.R. Grace & Co. into bankruptcy over the past few years.

"The new Supreme Court nominee is by no means a done deal," the trader declared, and the anticipated battle royal over Alito's nomination "won't get this [the asbestos bill] moving any quicker."

Delphi higher

Elsewhere, the same trader was of the opinion that the rise in Delphi's bonds was "purely technical," rather than fundamental, having to do with positioning by speculators in credit default swap contracts, rather than any real developments in the company's situation.

Delphi's bonds were markedly better, with its issues all quoted in the 69 bid, 69.5 offered area, up from prior levels around 66 bid, 67 offered, a market source said.

A trader at another shop quoted the bonds "up a couple" of points at 69 bid, 71 offered, versus 66 bid, 68 offered previously.

Besides the technical factors, some of the gain may have been attributable to Delphi chief executive officer Steve Miller's optimistic take on the company's labor situation. Miller said Friday that he remains confident Delphi and the United Auto Workers union can reach a deal on labor givebacks without a strike, despite union anger over Delphi's proposal to cut some workers' pay by more than 60%.

Delphi, spun off several years ago from General Motors Corp., had complained pre-filing that the heavy labor costs it had inherited - the kind of pay structures that carmakers like GM could pay, rather than parts companies like Delphi - would force it into restructuring if help from GM and the UAW were not forthcoming - and it wasn't.

Also in auto names, a trader saw Collins & Aikman's 10¾% notes due 2011 unchanged at 48 bid, 49 offered.

Refco sinks

Refco's bonds "were going back down," a trader said, after having surged last week on news that multiple buyers were attracted to the bankrupt New York based financial services company's valuable futures unit and/or other parts of the troubled company. Final bids are due in to the bankruptcy court by Friday.

He pegged the company's 9% notes due 2012 as having dropped two points to 69 bid, 71 offered, although another trader only had the bonds down a point at 70 bid, 71 offered.

Some of the gloss may have been taken off of Refco by news reports that global investor Jim Rogers is suing the company for the return of some $342 million, charging that money Rogers wired to the futures broker was moved without his consent from a government-regulated account at Refco LLC to a non-U.S. regulated offshore entity, Refco Capital Markets - even while Refco was assuring him, wrongfully, he alleges, that the money was safely tucked away in protected segregated accounts and not mingled with management's money. Had Rogers' funds been left in the regulated unit, they would have been be unaffected by the company's Oct. 17 Chapter 11 filing.

Rogers is one of a number of large investors crying foul at the way an increasingly desperate Refco began shifting money around from unit to unit in early October after the company's finances took a hit - in terms of investor withdrawals of their money - following the initial revelations that ousted CEO Phillip Bennett had apparently concealed a big loan to an entity he controlled by burying that item deep in the balance sheet. Bennett was later removed from his position and has since been indicted for securities fraud.

No trades after Curative misses coupon

Beyond Refco, a trader noted that Curative Health announced that it will not make the scheduled Nov. 1 payment on its 10¾% notes due 2011. The Hauppauge, N.Y.-based medical services company instead invoked the standard the 30-day grace period while it open talks with the noteholders and other creditors and examines its options.

Those bonds were trading at 67 bid, 68 offered before the news hit the tape - but did not trade at all after that, the trader said.

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