USG bank debt up on earnings; Delta bonds fly lower

By Paul Deckelman and Sara Rosenberg

New York, July 27- USG Corp.'s bank debt was heard to have headed higher by about a point Tuesday after the Chicago-based building materials company reported strong quarterly earnings numbers.

Among bond investors, Delta Air Lines Inc. notes continued to retreat, although traders said they saw no fresh news out about the Atlanta-based air carrier.

USG's loan was quoted at 98 bid, par offered.

Its 8½% notes due 2005 were meanwhile seen unchanged at 111 bid.

For the second quarter, net sales were $1.1 billion, an increase of $231 million versus last year. Net earnings were $80 million, more than double last year's, and diluted earnings per share were $1.86, compared with 73 cents in the same period a year ago.

"Our financial performance demonstrates that USG has positioned its businesses well to capitalize on the strength of the new housing and residential remodeling markets," William C. Foote, the company's chairman, chief executive officer and president, said in its earnings release.

"Our strong sales and solid profit performance were somewhat hindered by continuing cost pressures, including higher raw material, energy and employee benefit costs, which were partially offset by increased manufacturing efficiencies and other cost reductions."

For the first six months of the year net sales were $2.2 billion versus net sales of $1.8 billion for the same period in 2003. Net earnings were $137 million, up from net earnings of $37 million for the same period a year ago, and diluted earnings per share were $3.18 versus 86 cents for the first six months of 2003.

"Overall, our outlook for the remainder of the year is favorable," Foote said in the release. "We expect the residential market to remain strong, though the exceptional levels of activity seen in the first half may moderate. While we expect rising costs to remain a challenge for the remainder of the year, we remain committed to our goal of profitable growth."

As of June 30, USG had $973 million of cash, cash equivalents, restricted cash and marketable securities on a consolidated basis, up from $925 million as of March 31 and $947 million as of Dec. 31, 2003.

USG meantime continues to reorganize under Chapter 11, for which it filed in June 2001, driven to seek bankruptcy protection by a deluge of asbestos-related lawsuits.

There were no developments in USG's case Tuesday, nor in the cases of other asbestos-challenged bond issuing companies such as Owens Corning, the Toledo, Ohio-based insulation maker; Armstrong World Holdings Inc., the Lancaster, Pa.-based floorcovering manufacturer; or Federal-Mogul Corp., the Southfield, Mich.-based auto parts producer. All are in bankruptcy while they attempt to work their way through a huge pile of asbestos claims. Owens-Corning's bonds have recently been seen in the 43-44 area, with Armstrong at around 61-63 and Fed-Mogul having recently firmed several points to around the 29 bid area following the release of positive earnings data.

While there were no developments Tuesday in the cases of those specific companies, or in stalled Capitol Hill efforts to come to some kind of consensus on an industry-and-insurance-funded asbestos claims mechanism, asbestos-watchers noted that a key, widely followed case moved a step closer to resolution, as a federal judge in Pittsburgh affirmed approval of Halliburton Co.'s $4.17 billion plan to settle asbestos- and silica-related health claims. U.S. District Judge Terrence F. McVerry affirmed an earlier order in the case issued by U.S. Bankruptcy Judge Judith Fitzgerald - who has also been overseeing USG's case.

Fitzgerald had earlier this month approved the Halliburton settlement plan, which would facilitate the eventual emergence from Chapter 11 of several of the Houston-based energy service company's subsidiaries, Kellogg Brown & Root and DII Industries. Assuming final approval by the courts, the plan - which envisions paying $2.775 billion in cash, plus an additional amount in stock to settle some 400,000 asbestos and 21,000 silica claims - could also be used as a pattern for other companies in the settlement of their asbestos-related cases.

Delta moves lower

Elsewhere, Delta Air Lines paper "is gradually grinding itself lower," a bond trader said. He quoted Delta's 7.70% notes due 2005 as having dipped to 63 bid, 65 offered, down two points on the session, while its 8.30% notes due 2029 lost nearly a point to close at 35.25 bid, 37.25 offered.

Traders said they did not have a ready explanation.

Air Canada higher

Also among the airlines, a trader saw Air Canada's 10¼% notes due 2011 pushing up to 27 bid from prior levels around 25.5.

Back on the ground, Solutia Inc.'s bonds were down three points at 61 bid, 63 offered, although a trader said he was not aware of any news moving the bankrupt St. Louis-based chemical company's notes.

Adelphia Century loans lower

Adelphia Communications Corp.'s Century bank debt was quoted lower by about a quarter of a point Tuesday morning but then "snapped back at the end of the day" to basically unchanged levels, according to a trader, who added that nothing really traded at those lower levels.

The Old Century paper was quoted at 96 bid, 97 offered by late day and the New Century paper was quoted at 95.75 bid, 96.5 offered by late day. On Monday, a different trader had seen the New Century paper quoted at 95.5 bid, 96.5 offered.

The nervousness surrounding Adelphia lately has really been a function of cable valuations coming in due to poor equity performance, market sources have said, rather than anything specific to the bankrupt Greenwood Village, Colo.-based cable company.

Adelphia's bonds were meantime "all over the place," a trader observed, quoting its 10 7/8% notes due 2010 as having eased slightly to 91.5 bid from 92, while its 10¼% notes due 2006 lost two points to close at 90 bid. However, Adelphia's 10¼% notes due 2011 firmed a bit to 93.625 bid from 93 previously.

Energy loans lower

One trend that was seen Tuesday was a weakening in energy names - including Calpine Generating Company LLC and Reliant Energy Inc. - as the entire market was down in general, according to a trader.

The second lien term loan of CalGen - a wholly owned subsidiary of San Jose, Calif.-based power company Calpine Corp. - was quoted lower by about three points at 86 bid, 87 offered and Houston electricity producer Reliant, which was previously trading north of par, was quoted lower by about a half a point to a point at 99.5 bid, par offered, the trader said.

"The market was down in general. High yield bonds started coming in and we followed them. In general it was really hard to get bids on stuff - but it got a little better at the end of the day,"

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