UAL slides on April results; Magellan higher as Onex investment news sinks in

By Carlise Newman

Chicago, May 28 - Despite releasing news that it had met the monthly requirement of its debtor-in-possession financing, United Airlines Inc. parent UAL saw its debt fall back into single digits Wednesday, as the market chose to react instead to the $375 million net loss it had posted in April.

UAL said the loss was due to the lack of demand from the war in Iraq and the SARS virus. United said its loss from operations was $297 million in April, but that cash receipts have now returned to pre-war levels.

UAL's 9¾% notes due 2021 slipped back to 8 bid/11 offered, according to a distressed debt trader, after reaching levels of 10 bid/13 offered early in the week.

"It may not seem like much but two points is no small move for UAL," said the trader. "There was a lot of news out on them this afternoon after a few days of nothing, for once."

However, United said in a news release it met monthly requirements set by lenders who provided the DIP financing for its restructuring and is confident of meeting those requirements in May. It ended April with a cash balance of $1.7 billion, including $651 million in restricted cash.

United, which filed the largest bankruptcy in aviation history last December, reported a net loss of $1.3 billion in the first quarter.

Last week, United's bonds jumped to double digits for the first time in months after the company said it is weighing whether to emerge from bankruptcy months ahead of schedule. The world's second largest airline was on track to meet financial targets on bankruptcy loans for April and May, and was considering exiting Chapter 11 as early as the fourth quarter of this year or first quarter of 2004.

Meanwhile Magellan Health Services Inc.'s 9% senior subordinated notes due 2008 were higher Wednesday, rising to 35 bid/36 offered, about three points higher than Tuesday's levels of 32 bid/33 offered, a trader said. The company's bank debt was unchanged at 92 bid/93¾ offered.

"We saw them move when the news came out about Onex buying them. Normally this isn't a name to trade that much," said the trader.

The jump was due to news that Magellan has obtained a commitment for an equity investment of up to $150 million from Onex Corp. upon emerging from Chapter 11 (See story elsewhere in this issue).

The $150 million investment will replace a previous $50 million equity commitment from unsecured creditors, providing the reorganized company with a stronger balance sheet than it would have had under the prior commitment, Magellan said.

Under the commitment, Toronto private equity firm Onex will invest $100 million in the reorganized company in exchange for new equity representing 29.9% of the outstanding common equity of reorganized Magellan.

In addition, Onex will back stop by up to $50 million a rights offering to unsecured creditors or noteholders, who will be offered the equity by the company under the reorganization plan. The rights offering will cover 14.9% of the equity of the reorganized company.

The reorganization plan will be amended to allow holders of unsecured claims to receive cash rather than a portion of the shares of reorganized Magellan that they would otherwise be entitled to receive, up to $50 million for the class.

Among other details in the agreement, holders who elect the cash option will receive their share of up to $50 million in cash, which will reduce their distribution of Magellan common stock proportionally, based on an equity valuation of the reorganized Columbia, Md.-based managed care organization of $150 million. The cash payment will be funded by Onex and by general unsecured creditors and holders of note claims who participate in purchasing the shares.

Owens Corning's debt was reportedly active for a second day Wednesday, although heading in a different direction.

"They were higher. They took a little bit of a dive yesterday," said a trader. "All the asbestos stuff going on in Congress has put the pressure on the asbestos names."

As previously reported Owens Corning filed a second amended plan of reorganization Friday in which recovery for creditors is dependent on whether bank debt holders approve the plan. In addition, the company revealed it had an asbestos reserve of $5.8 billion to $24 billion.

Owens Corning's bonds were quoted at 41 bid/42 offered, according to a trader, from levels of 38 bid/39 offered. The company's bank debt was unchanged at 57.5 bid/58 7/8 offered.

Bondholders, with $1.3 billion in claims, and unsecured claims holders, with $375 million in claims, will receive a recovery ranging between 45.4% and 15.1%. Recovery will be in cash, new notes and stock.

Owens Corning asbestos personal injury class A claims holders were estimated to have claims from $3.56 billion to $16 billion with recovery from 47.9% to 15.9% respectively.

Fiberboard Corp. asbestos personal injury claimants were estimated to have claims between $2.3 billion and $7.9 billion, with recovery from 66.3% to 19.3% respectively.

If bank debt holders do not accept the plan, the estimated recovery for bank debt holders, bondholders, and unsecured claims holders ranges between 48.7% and 16.8%.

Toledo-based Owens Corning manufactures building materials systems and composite systems.

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