Owens Corning bonds up, bank debt down on court edict; Intermet keeps firming

By Paul Deckelman and Sara Rosenberg

New York, Oct. 5 - Owens Corning's bonds sizzled as its bank debt fizzled Tuesday, after the judge overseeing the Toledo, Ohio-based insulation and fiberglass maker's bankruptcy case ruled in favor of substantive consolidation - a step seen as good for the holders of the former, bad indeed for the holders of the latter.

In other distressed-debt activity, the bank debt and the bonds of Intermet Corp. were both seen higher Tuesday, continuing the firming trend that started last week following the Troy, Mich.-based automotive components maker's Chapter 11 filing.

And Mirant Corp. bonds were being quoted several points higher, traders said, despite an absence of fresh news out about the restructuring Atlanta-based power producer.

But the most interesting name of the day was Owens Corning - which sought protection from its creditors under a deluge of asbestos-claim lawsuits exactly four years ago. Its bank debt tumbled all the way to 69.5 bid, 71 offered from 76 bid, 78 offered in reaction to the court ruling, a bank loan trader said.

A trader in distressed bonds agreed, estimating the bank debt as having fallen to as low as around 70 bid from prior levels "in the 80s." At the same time, he said, the company's bonds, such as its 7½% notes due 2005, jumped to around 60 bid, well up from prior levels around 47 bid, 48 offered.

When the company initially filed for Chapter 11 status with the U.S. Bankruptcy Court in Wilmington, Del. on Oct. 5, 2000, it was thought that the case might be resolved within three years. But all kinds of problems popped up to drag the case out to the point where it is now beginning its fifth year under the bankruptcy umbrella, including the brouhaha earlier this year over whether the judge then hearing the case gave off the appearance of impropriety by having allegedly consulted with asbestos-claim plaintiff lawyers not involved in the Owens Corning case. The judge was removed from the case and from several other asbestos claim cases, and later retired from the federal bench to return to private law practice.

The latest controversy involves motions for substantive consolidation of the company's subsidiaries - a step seen as potentially dilutive to the claims of the bank debt holders and favorable to bondholders and other creditors. The judge ruled Tuesday in favor of the change (see related story elsewhere in this issue).

It's a confusing issue, according to the bank loan trader, but the bottom line is that lenders didn't like what the judge said and there is nervousness in the market that bank debt holders will not get as much for their claim as they would like, he explained.

"Clearly," said the distressed-bond trader in explaining the sharply narrowed gap between the bank debt and the bonds - now down to about 10 points from 29 points pre-news - "substantive consolidation means you treat all the subsidiaries together as one big entity. You don't distinguish between them, and if bank debt was at one level and bonds were at another level, this clearly says you treat them more alike.

"Are they going to be exactly pari passu? I don't know. But something is brewing."

While the Owens Corning bonds firmed on the news, the trader said that this was a company-specific development, and thus there were no carryover to help the bonds of other bankrupt asbestos -challenged issuers such as Armstrong World Industries, the Lancaster, Pa.-based floorcovering maker whose bonds have recently been anchored in the upper 50s, and Federal-Mogul Corp., the Southfield, Mich.-based automotive parts maker.

Intermet loans up again

Another automotive parts maker recently in play among investors in distressed bonds and bank debt has been Intermet Corp., whose debt and shares tumbled last month after the Troy, Mich.-based maker of automotive steering and suspension assemblies warned that slowing auto production would cause it to lose $19 million to $24 million in the third quarter, versus a year-earlier profit, and would cause it to be in breach of financial covenants in its bank loan agreement.

The stock lost most of its value and its bonds swooned down to the lower 30s from the mid 70s over the space of several sessions, and the company last week filed for Chapter 11 protection, citing a

drastic rise in raw-material costs in North America and Europe.

Since then, both its bonds and bank debt have been heading back upward, with the 9¾% notes due 2009 quoted Tuesday around 41 bid, 42 offered, up from bid levels the previous session around 39-40. Those bonds are now trading flat, or without their accrued interest, ever since the filing, announced last Thursday.

The company's bank debt has also been on the rise since the filing with the bankruptcy court for the Eastern District of Michigan, moving up Tuesday to 94.5 bid, 95.5 offered from around 93 bid, 95 offered on Monday, according to a trader.

360networks rises

Also on the bank debt scene, 360networks Corp.'s paper traded all the way up to 97 from 92 in Tuesday's market, according to a trader, who attributed the rally in the Vancouver-based network operator's debt to "a favorable court ruling in Canada that ruled in favor of the amalgamation order".

However, no public news about the specifics of the ruling was immediately available.

Mirant bonds rise

Back among the bond investors, a trader said that Mirant "jumped up this afternoon, though on no news."

He saw the company's corporate bonds, such as its 7.90% notes and its 2½% busted convertible notes both up 1½ points, to 65 bid, 66 offered and 64 bid, 65 offered, respectively, while the company's Mirant Americas Generating Inc. bonds were also up around the same amount, to 89 bid.

Abraxas bonds gain

And he saw Abraxas Petroleum Corp.'s 11½% notes due 2007 up about a point to 94 bid, 95 offered. Just a couple of weeks ago, he said, they had been in the high 80s but had steadily crept up since then.

He noted that the San Antonio, Tex.-based independent oil and gas producer's payment-in-kind notes have an interest payment due - in the form of additional notes - on Nov. 1, "so there's probably people figuring that out."

And the trader saw little or no activity in Delta Air Lines Inc. bonds Tuesday "despite the strength in oil," which saw crude zoom $1.18 a barrel to an all-time high close on the New York Mercantile Exchange of $51.09. The troubled Atlanta-based air carrier's bonds "are totally washed out," with the benchmark 7.70% notes due 2005 hanging in around the lower 40s and its 8.30% notes due 2029 about 20 points below that.

"The selling is done, basically," he said, adding as a caveat, however, "those are famous last words."

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