Asbestos names firmer as USG reaches claims deal; Tower Auto slides on strike threat

By Paul Deckelman

New York, Jan. 30 - Bonds of asbestos-challenged companies were seen better on Monday in the wake of USG Corp.'s announcement that the Chicago-based building materials company had reached an agreement with its personal injury asbestos claimants on setting up a nearly $4 billion trust fund that will pay all present and future claims of medical problems connected with use of asbestos in the company's products.

In the automotive sphere, Tower Automotive Inc.'s hourly workers have voted to give their unions the authority to strike if a federal bankruptcy judge voids their contract, as the restructuring Novi, Mich.-based vehicular frames manufacturer has asked.

Another automotive name on the downside was Remy International after the company's already low credit ratings were further downgraded by Moody's Investors Service.

The asbestos names "were up strongly" in the wake of the US settlement news, a trader said, calling the troubled sector "pretty wacky and very volatile."

He saw bankrupt Toledo, Ohio-based insulation maker Owens Corning Inc.'s 7% notes due 2018 at 91 bid, 92 offered, a gain of two points, while bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s 6½% notes that were to have come due in 2005 were up a point at 79 bid, 80 offered. He saw USG's 8½% notes that were to have come due in 2005 at 135.5 bid, 136 offered, up three points.

At another desk, though, a market source saw those bonds first starting out at 136 and then pushing up to 139 bid, while USG's 9¼% notes that were to have come due in 2001, were as much as four point better on the day at 142 bid.

He also saw the Armstrong bonds up 1¾ points at 80.5 bid, and Owens Corning's notes up a point to 91.5. Bankrupt Southfield, Mich.-based automotive parts maker Federal-Mogul Corp.'s notes were up ¾ point at 36.5 bid.

However, another trader saw the asbestos bonds move around a little but end essentially unchanged. He saw Owens Corning's 7% notes due 2018 start and end at 91 bid, 93 offered, after first trading as high intraday at 92 bid, 94 offered. He saw Armstrong's bonds likewise unchanged on the day, with its 9-handle coupon bonds at 83 bid, 85 offered and its 6-handle bonds at 79 bid, 80 offered.

As for USG, he acknowledged that both issues were being quoted solidly higher in the wake of the news, with the 81/2s at 138 bid, 142 offered, and the 91/4s at 142 bid, 146 offered. But he pointed out that "those are only quotes. Neither of them even trades any more."

Another trader agreed, saying USG's issues "already had their run up" and were unlikely to move higher. Likewise, he said, Owens and Armstrong had both firmed smartly over the past few weeks, with the Owens bonds moving up to around 90 bid and Armstrong around 80, both from the high 60s not so very long ago, so "there's not very far that they can go."

The catalyst for the movement was USG's announcement that it had reached agreement with the committee representing current personal injury asbestos claimants and the court-appointed representative for future claims on a $4 billion trust fund mechanism to pay those claims off, clearing the way for the company to emerge from bankruptcy this summer, a full five years after it entered Chapter 11 under a flood of asbestos medical claims lawsuits. USG also said that it will pay its bank debt and bondholder creditors in full, in cash, and with accrued interest (see related story elsewhere in this issue).

Tower drops on strike concern

In the auto arena, Tower Automotive's bonds were sharply lower on the news that workers at a number of its plants had authorized a strike in the struggle over whether the company can void their contracts.

Tower was "volatile," a trader said, describing how the company's 12% notes due 2013 swooned as low as 71 bid, 72 offered on the strike vote news from opening levels at 76 bid, 77 offered. However, he said, "they did regroup a little" in the afternoon to end at 72.5 bid, 73.5 offered, still down 3½ points on the session.

At another desk, a trader saw the Tower bonds drop to 72 bid, 74 offered from 76 bid, 78 offered. Tower's nearly worthless Pink Sheets-traded shares lost a penny - fully 10.45% of their value - and fell to 6 cents, on volume of 794,000, more than triple the norm.

More than 95% of the 3,000 hourly workers at eight factories in Michigan, Illinois and Indiana backed the strike authorization in votes over the weekend, according to the United Auto Workers union, the largest of the three labor groups representing Tower employees.

Results from a ninth plant in Ohio were not yet in by Monday night, but the union said it was clear that an overwhelming majority of the workers have given their OK for a strike.

The UAW, the United Steelworkers and the International Union of Electrical Workers-Communications Workers of America are battling the company over its attempt to have the judge hearing its bankruptcy case void the contracts. Tower - which failed to reach a consensual agreement with the unions on cutting wages and benefits - says such cuts are needed to allow it to continue to operate as a viable company. The judge set a Feb. 27 hearing in New York. The unions could strike at any time should the judge toss out the contracts.

Tower said Monday night that since its salaried and nonunion employees have already given $32 million in annual concessions, the unions must agree to similar sacrifices to allow the company's U.S. operations to be profitable and competitive.

Remy lower on ratings cut

Elsewhere among the auto names, a trader saw Remy's 9 3/8% notes due 2012 falling to 34 bid, 35 offered, down from their Friday close at 37 bid, 38 offered, after Moody's Investors Service said it lowered the rating on Remy's $125 million second-priority secured floating-rate notes due 2009 to Caa2 from Caa1 and $145 million 8 5/8% guaranteed senior unsecured notes due 2007 to Ca from Caa3.

Remy's Caa1 corporate family rating, Ca $150 million 9 3/8%guaranteed senior subordinated notes due 2012 and Ca $165 million 11% guaranteed senior subordinated notes due 2009 have been affirmed, with the outlook remaining negative.

Moody's cited Remy's completion of an additional $80 million term loan financing as part of an amendment to the company's senior secured credit facility. Moody's also expressed concerns about whether Remy can successfully implement planned cost reduction initiatives and slow its pace of cash consumption.

Most auto names higher

But Tower and Remy seemed to be the only really negatives in an auto sector that overall seemed stronger, amid news reports indicating that buyers have emerged in General Motors Corp.'s campaign to sell a 51% stake in its General Motors Acceptance Corp. financing unit.

A market source pegged the giant carmaker's bonds "up anywhere from 1½ to three points," with its benchmark 8 3/8% notes due 2033 at the low end of that improvement range, moving up to 74.5 bid, from 73 previously, while its 8¼% notes due 2023, its 7.20% notes due 2011 and its 7 1/8% notes due 2013 were all three points better, at bid levels of 73, 80 and 77.5, respectively.

At another desk, a trader saw the 8 3/8s up a point on the day at 73.5 bid, 74.5 offered, although he said they had come down from their day's peak levels. He also saw the GMAC 8% notes due 2031 up three points as the market opened, at 102.5 bid, 103 offered, but saw the bonds come off that peak level to finish up at 101 bid, 102 offered, still up two points on the day.

Yet another trader saw the 8s end at 102 bid, 103 offered, and pronounced that up three points on the day. He also saw GMAC's 6¾% notes due 2014 at 94 bid, 96 offered, up a point, and its 6 7/8% notes due 2011 at 95 bid, 97 offered, each up a point.

A source quoted GM's 7 1/8% notes two points better at 78, and GMAC's 6 7/8% notes due 2012 up 1½ points, around the 95 level.

Rumors of progress in GM's efforts to sell 51% ownership of GMAC had made the rounds of the junk bond and bank debt markets on Friday afternoon, pushing the bonds of both companies up, although that buzz was sketchy, with no firm names attached. But over the weekend, The Wall Street Journal and then other news outlets, began reporting that Citicorp and Cerberus Capital Management were teaming up to make a bid for a controlling stake in GMAC. In short order, there were also reports that another bank - Wachovia - and another private equity shop - Blackstone Group - would head a rival bidding group.

Ironically, some weeks back, a senior Citicorp executive had been quoted as saying the nation's largest bank wasn't interested in getting involved in the GMAC sale process. It should be noted that as of late Monday, there had been no official confirmation of the weekend stories by any of the parties involved - either the potential bidders or GM itself.

GM said back in October that it would sell a majority stake in GMAC, presumably to a deep-pocketed financial buyer, which would lift GMAC's now-junk level credit ratings back to investment grade, in line with the new majority owner's, allowing it to substantially cut its borrowing costs. Such a transaction would be expected to also put anywhere from $10 billion to $15 billion into GM's coffers; although GM ended 2005 with some $20 billion of cash on hand, it has been feeling the effects of sharply reduced sales and the ocean of red ink in which it has been wallowing.

However, since that optimistic beginning to the sale process, nothing has happened, other than several potential buyers, such as Bank of America, Wells Fargo & Co. - and Citigroup - publicly distancing themselves from the idea. On GM's fourth-quarter conference call following the release of its quarterly and year-end results Thursday, GM executives had nothing firm to report, other than to say that the company was still working on the sale.

But Friday's rumors and the weekend reports got people to thinking that the long-sought-for sale could take place after all.

GM's promising developments helped spur some of the other automotive sector names along. GM arch-rival Ford Motor Co.'s flagship 7.45% notes due 2031 were half a point better at 73 bid, 74 offered.

Dana up

Among the parts supplier names, "Dana [Corp.] paper was up nicely, the best-performing supplier," a trader said, adding that "it had been the worst performing supplier over the last two weeks," ever since the Toledo, Ohio-based auto components manufacturer reported a giant $1.27 billion fourth-quarter loss amid weakened demand for its systems from GM and Ford, and sharply higher raw materials costs.

Because of that prolonged slide, "I guess it had the best chance to rebound," he said, quoting its 6½% notes due 2009 at 76 bid, 77 offered and the 5.85% notes due 2015 at 68 bid, 69 offered, each up three points on the session.

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