Loral bonds up on creditor accord; Federal-Mogul better on results

By Paul Deckelman and Sara Rosenberg

New York, July 22- Loral Space & Communications Ltd.'s bonds were seen gaining altitude Thursday as the New York -based communications satellite company said that it had reached an agreement with its creditors on the broad outline of its proposed reorganization plan.

In the bank-debt arena, bankrupt Southfield, Mich.-based auto parts maker Federal-Mogul Corp.'s paper was seen to have gained strength following the release of favorable earnings data. And earnings numbers saved the day for fellow asbestos-challenged bankrupt W.R. Grace & Co., helping the company's debt bounce off lows it hit earlier in the session on bearish asbestos-related news.

Loral's bonds "moved up big-time," a trader said, quoting the company's 9½% notes due 2006 as having pushed up to 38 bid from recent levels as low as 32, and pegging the 10% notes due 2006 issued by the company's Loral Orion Inc. subsidiary at 78.25 bid, up three to four points from there they had been.

At another desk, the parent company's 9½% notes were being quoted at 37 bid, although this was actually up just two points on the session, while Loral Orion's subordinated 11¼% notes due 2007 and zero-coupon notes due 2007 were seen up as much as four points to around the 40 bid level. The 10% Loral Orions, generally much more widely traded, were seen little changed on the session around 78 bid. The 10s had been seen firming over the past several sessions, with traders noting the possibility that dissident shareholders might be able to prove their contention that the company's valuation is greater than management has estimated.

A trader who saw the junior paper hovering in the upper 30s and the senior notes in the upper 70s, said that Loral "might be a little better," and said that there had been "a bit more activity" in them Thursday following news of the creditor agreement, but cautioned that "this was already in the works for a while" and the news of an accord was not wholly unexpected.

Loral said Thursday that it had reached an agreement with the official committee of unsecured creditors in its Chapter 11 reorganization on the principal terms of its plan of reorganization. The company said that the agreement would facilitate the early filing of a consensual plan for Loral and a projected exit from Chapter 11 by the end of the year.

Loral said that the proposed consensual plan of reorganization provides for all pre-petition institutional debt to be exchanged for substantially all of the equity of the reorganized company. All other pre-petition general unsecured creditors will be offered a choice of either a discounted cash payment or a payout over time. However, the plan provides no recovery or participation for holders of Loral's existing common or preferred stock.

Some dissident stockholders went to court earlier this month to demand that they be given a voice in the drafting of the reorganization plan and contending in filings that the company improperly undervalued its assets in order to leave them frozen out.

The equity group, calling itself the Loral Stockholders Protective Committee, is led by shareholders Tony Christ and Jeffrey Swarts and claims to hold about 3.5% of the company's shares. It said in court papers filed with the U.S. Bankruptcy Court in New York that that Loral's market value should be at least $19 a share.

The group said it hired a patent expert who claimed Loral's patents and trademarks alone are worth more than $500 million, while the company said the value of such intellectual property is not known.

The group also claimed Loral undervalued its orbital satellite slots, proprietary satellite designs and other assets in an effort to leave out common stockholders.

The dissident holders plan to argue in a July 27 court hearing that they should be accorded "official" status, which would let them hire legal and financial advisors at company expense to press their claims.

If it is worried about the threat that the shareholders' group poses to its arrangements, Loral is not letting on. It said in a statement Thursday that it is "highly confident, given the support from the official creditors' committee, that the plan will receive the required favorable vote from creditors and confirmation by the court."

Federal-Mogul revolver better

Elsewhere, Federal-Mogul's revolver moved higher by half a point to trade in the 93.25 bid, 93.75 offered context, a trader said, following the release of its earnings results.

Federal-Mogul's bonds were quoted unchanged at 28 bid following the earnings news, although at one desk a market source saw the bonds around 26.5 bid, off slightly.

For the three months ended June 30, the auto parts company reported net sales of $1.577 billion, an increase of 10%, or $149 million, over last year. The company also had income from continuing operations before income taxes of $11 million after recognition of an asset impairment charge of $20 million, compared with $19 million last year, and cash flow from operations of $162 million.

"We are encouraged by our ability to consistently generate positive cash flows from our operating activities and continue to focus our efforts on sustaining this trend as the company progresses its cost reduction and restructuring activities," G. Michael Lynch, the company's executive vice president and chief financial officer, said in the official company earnings release.

For the six months ended June 30, Federal-Mogul reported net sales of $3.13 billion, up $334 million compared with last year. Income from continuing operations before taxes increased by about $10 million from the same period in 2003, and cash flow from operations of $281 million exceeded $194 million last year.

Federal-Mogul is currently restructuring under Chapter 11, driven there by a flood of asbestos claims litigation.

W.R. Grace dips, bounces

A company in a similar plight is Columbia, Md.-based specialty chemicals maker W.R. Grace, whose bank debt fell off by about a point to 91 bid at the start of the day on asbestos-related news, a trader said. But the paper then bounced back up to 92 bid, 93 offered following the release of good second-quarter numbers, and ended the day little changed.

News surfaced Thursday that the government's Centers for Disease Control and Prevention is reporting that deaths from asbestos are going to keep rising. The number of Americans who died of asbestosis, which is caused by inhalation of asbestos particles, jumped to 1,493 in 2000 from 77 in 1968, the CDC said.

Grace cited the rising number of asbestos claims filed against the company as the major reason for its April 2. 2001 Chapter 11 filing with the U.S. Bankruptcy Court in Wilmington, Del.

While the bearish asbestos news initially pushed the bonds down, they bounced after Grace reported later in the day that second-quarter sales totaled $572.4 million, compared with $503.4 million in the year-earlier quarter, an increase of 13.7%. Net income was $21.3 million (32 cents per share), well up from $6.5 million (10 cents per share) in the second quarter of 2003.

"This is the fourth consecutive quarter with strong performance from our businesses," said Paul J. Norris, chairman and chief executive officer, in a company news release.

"Each business segment contributed sales and profit increases, capitalizing on stronger economic activity worldwide and delivering on our strategic growth and productivity initiatives."

For the first six months of 2004, Grace reported sales of $1.09 billion, a 15% increase over 2003, and net income was $37.1 million (56 cents per share), compared with net income of $4.2 million (six cents per share) through June 2003.

Year-to-date cash flow provided by operating activities was $85.8 million for 2004, compared with $35.7 million for the comparable period of 2003. As of June 30, the company had available liquidity in the form of $371.7 million in cash, $96.6 million net cash value of life insurance and $215.2 million unused credit under its debtor-in-possession facility.

Airlines mostly little changed

In other news, there was said to be an auction for Northwest Airlines Corp.'s revolver on Thursday at 5 p.m. ET, according to a trader. The outcome of the auction was unavailable prior to press time.

Eagan, Minn.-based Northwest's 7 7/8% notes due 2008 were seen a point better at 71.5 bid.

Also among the air carriers, Delta Air Lines Inc.'s bonds - which had shot up strongly in early Wednesday dealings after the Atlanta-based air carrier's pilot's union sharply increased the size of the wage concession it was offering management, only to surrender most of those early gains after the troubled company said that the offer wasn't enough - were "not much changed from those closing levels in Thursday's dealings, " a trader said, quoting its 7.70% notes due 2005 at 65 bid, 67 offered, while its 8.30% bonds due 2029 remained at 38 bid, 40 offered.

And he likewise saw "not much change" in UAL Corp.'s bonds, even on confirmation Thursday that bankrupt United Air Lines has secured new bankruptcy financing totaling $1 billion.

The new package totals $1 billion - the $500 million remaining from the Elk Grove Village, Ill.-based carrier's current financing, plus an additional $500 million.

Financial institutions involved in the package include United's existing bankruptcy lenders - J.P. Morgan Chase & Co., Citigroup Inc. and CIT Group Inc. - as well as General Electric Co.'s Commercial Finance.

The interim financing is expected to be officially disclosed Friday in conjunction with the airline's monthly bankruptcy court hearing in Chicago. UAL would have untill June 30, 2005, to repay the money.

And a trader saw Air Canada's 10¼% notes due 2011 dipping to 25.5 bid from prior levels at 28.

One possible explanation offered was a Canadian court giving the bankrupt Montreal -based airline's fiercest rival, discount carrier West Jet Airlines, the okay to countersue Air Canada in a case revolving around Air Canada's claims that West Jet had stolen proprietary information off an internal Air Canada website. Air Canada is suing Calgary-based West Jet and former West Jet vice president Mark Hill, for C$220 million - up sharply from the C$5 million it was originally seeking.

In its counter-suit, filed in Ontario Superior Court, WestJet alleges Air Canada sent private investigators to Hill's home and trespassed on his private property to take company documents that had been shredded and placed in a municipal recycling container. Each company denies the espionage claims that its rival has put forward.

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