Federal-Mogul up on numbers, Hill asbestos maneuvering; MCI out of Chapter 11

By Paul Deckelman and Sara Rosenberg

New York, April 20 - Federal-Mogul Corp.'s bank debt and bonds were being quoted higher on Tuesday after the bankrupt Southfield, Mich.-based automotive components supplier released first-quarter numbers. The company's bank and bond debt may have also benefited from renewed activity in Washington aimed at getting congressional approval for a proposed asbestos claims mechanism, although it remains far from certain that any bill will actually emerge.

Bonds of several other asbestos-challenged issuers were also being quoted higher Tuesday, apparently on that same speculation.

Elsewhere, MCI Corp. - The Telecommunications Company Formerly Known As WorldCom - finally emerged from Chapter 11 on Tuesday, bringing to a close the largest corporate bankruptcy in U.S. history. MCI's bonds continue to be quoted without coupons on a when-issued basis.

A bank-loan trader said Federal-Mogul's paper was up a quarter to a half point on Tuesday, following the release of the first quarter numbers. The trader pegged the bank debt at 91 bid, 92 offered.

A trader in distressed-company bonds meantime saw Federal-Mogul's bonds up a point at 26 bid, although at another desk, a market source saw those notes as having firmed slightly in early trading, only to give up those gains and retreat back to Monday's close at 25. A third trader, though, said the bonds were "a little better," up half a point at 26.

Federal-Mogul reported that its results for the quarter included net sales of $1.553 billion, up from $1.367 billion in the same period last year; gross margin of $297 million, versus $273 million last year, a net loss from continuing operations of $20 million, down from $37 million last year, and cash flow from operating activities of $119 million, solidly better than $27 million a year ago.

"We continue to focus on improving our operating performance through achieving greater efficiencies in our manufacturing operations, while providing our customers with industry leading service," said Chip McClure, chief executive officer and president, in a company news release. "We believe this focus, combined with our product leadership and technical capabilities, positions us well for the future."

Federal-Mogul, which supplies automotive components, sub-systems, modules and systems to carmakers and the aftermarket alike, sought Chapter 11 protection from its junk bond holders and other creditors - most notably asbestos litigation claimants - in October 2001, driven into bankruptcy by a deluge of asbestos liability suits as the successor company to T&N LLC, a U.K.-based maker of pistons and other automotive components that Federal-Mogul bought in 1998; the British company had formerly made building materials containing asbestos, leaving it open to claims of asbestos-related medical problems from former employees and end-users of its products.

Federal-Mogul was only one of a number of companies which were forced to seek court protection as the lawsuits seeking compensation multiplied; often the claims were against long-defunct subsidiaries which had employed asbestos for decades as a fire-retardant material in various industrial applications before the mineral was finally identified as a carcinogen back in the 1970s.

Other companies in different industries which found themselves in that same boat included Toledo, Ohio-based insulation maker Owens Corning and Lancaster, Pa.-based floor covering manufacturer Armstrong World Industries Inc.

Traders said that bonds of Owens Corning and Armstrong, like Federal-Mogul's notes were firmer on Tuesday, perhaps on the possibility that there might be some movement on the Washington gridlock holding up a comprehensive asbestos-liability plan.

A trader saw Owens Corning and Armstrong both a point better, at 41 bid and 52 bid, respectively. Another trader saw the Owens Corning notes at 41.5 bid, 42.5 offered, and saw Armstrong's notes having gone home quoted at 52.5 bid, with no offered level, versus their morning level at 52 bid, 53.5 offered.

An observer at another house actually saw Armstrong notes easing to 51 bid from 52.5 previously, with Owens Corning unchanged at 43.

Investors in such companies are carefully watching the action going on in Washington, where Senate Republicans and Democrats are sparring over a proposed settlement that would set up a $124 billion fund that would pay claims of people alleging asbestos-related medical problems. The money would come from insurers and defendant companies, and would seek to get the matter out of the courts. Companies have already paid out an estimated $70 billion on nearly three-quarters of a million claims.

The issue has been before Congress for several years now, with little progress made so far.

Senate Democrats deride the bill as an easy and cheap way for the asbestos-linked companies to wriggle off the legal hook, claiming that the $124 billion is way too little compared to the potential size of the liability problem; some lawmakers estimate that claims might total three times that amount. They also object to removing claimants' rights to sue the companies.

GOP lawmakers, on the other hand, generally back the bill, saying that it seeks to avoid years of messy, increasingly expensive court battles that have resulted in dozens of firms going bankrupt and awards to deserving claimants being held up for months or even years as jury verdicts are appealed. Senate GOP leader Bill Frist wants the Senate to vote later this week on reporting the bill out of committee and onto the floor for an up-or-down vote, but he needs 60 votes to end debate and force consideration of the bill by the 100-member body. Most observers believe Frist is unlikely to get that many votes in the closely divided, frequently bitterly partisan Senate, although they say a negotiated compromise is possible.

MCI exits

Elsewhere, MCI Inc. formally emerged from Chapter 11 Tuesday, 21 months after the telecommunications company - then known as WorldCom - sought protection from its creditors amid revelations that nearly $4 billion of costs had been improperly accounted for.

The revamped company, having shed $36 billion of debt and the old management team deemed responsible for the fiasco, has taken the name of MCI, its well-known long-distance subsidiary, in an effort to distance itself from its former incarnation and make a clean break of things.

MCI said it has started distributing securities and cash to its creditors, including the holders of its old WorldCom bonds, who are expected to get about 35.7 cents on the dollar in new MCI shares and bonds. Holders of the old bonds issued by the MCI subsidiary are expected to get about 80 cents on the dollar, the level at which those bonds had most recently been trading.

Traders said that as the close Tuesday, the new MCI bonds had not been issued and were only being quoted on a when-issued basis, with no coupons.

"People still don't know what they're going to get," said a trader in explaining the situation. He quoted the new MCI bonds at 100.5 bid, 101 offered for the when-issued three-year and five-year notes, and 102 bid, 104 offered for the when-issued 10-years.

Another trader quoted the three-year and five-year paper at 99.75 bid, 100.75 offered and the 10-years at 101.375 bid, 101.75 offered, all on a when-issued basis.

Adelphia gains

Hopes that Adelphia Communications might soon be following MCI out of bankruptcy continue to push the Greenwood Village, Colo.-based cable operator's bank debt and bonds higher, despite a lack of any particular fresh news on that score.

A bank-loan trader quoted Adelphia's paper up a half point, with its Old Century debt at 96.5 bid, 97,5 offered and its New Century debt quoted at 96 bid, 97 offered.

On the bond side of the ledger, a trader saw Adelphia's junior securities, such as its 6% convertible notes, as having advanced to 47 bid from 44 previously, although he saw the senior debt unmoved, with all of it at or above par.

Weirton Steel unchanged

The distressed-debt trader meantime saw "nothing today" in Weirton Steel Corp. bonds, quoting the bankrupt West Virginia steelmaker's 10% notes due 2008 at a wide 17 bid, 27 offered.

Weirton was in court in Wheeling on Tuesday, defending its choice of International Steel Group as its preferred buyer, even though the recently formed Cleveland-based steel conglomerate's final $237 million bid for Weirton's assets is well under a last-minute bid cobbled together by a bondholders' group; although the latter bid of $364 million is far larger, Weirton's management told the bankruptcy court overseeing the company's restructuring that it the board of directors chose the lower offer because they believe ISG can consummate the sale by the end of April, while there remain too many uncertainties about the bondholders' bid.

The bondholders group had objected to the bid by International Steel - formed over the last several years by financier Wilbur Ross, who bought the assets of Bethlehem Steel and other failed steelers at fire-sale prices - feeling it undervalues the company; in fact the final International Steel bid was less than Ross' initial $255 million offer. But management told the first day of the two-day hearing that they felt it represented the best deal they could get for Weirton, one of a number of American steel companies forced into Chapter 11 over the last few years as a result of declining markets, foreign competition and mounting employee pension costs.

Motor Coach Industries International Inc.'s bank debt was down about two points on the day, with quotes moving to 95 bid, 96 offered from 97 bid, 98 offered, according to a trader.

"I think there was a private bank call. It seems like the refinancing is breaking down," the trader explained.

Motor Coach is a Schaumburg, Ill. motor coach company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.