W.R. Grace bank debt eases from highs; Delta bonds back off as well

By Paul Deckelman and Sara Rosenberg

New York, Nov. 16 - W.R. Grace & Co.'s bank debt was heard by loan market participants to have come in a bit off its previous highs on Tuesday - not on any substantial news about the bankrupt Columbia, Md.-based chemical company, but just on settling in after its recent strong gains.

Also a little lower Tuesday were the bonds of Delta Air Lines Inc., which had been gaining altitude over the past several sessions in response to the troubled Atlanta-based air carrier having successfully cajoled and pressured its unionized pilots into agreeing to $1 billion of annual pay cuts over the next five years.

Grace's loans eased slightly to 114 bid, 115 offered, from 114.5 bid, 115.5 offered on Monday, according to a bank debt trader, who said the paper was just settling down after a pretty big run-up.

That debt had rallied on Monday, moving up from last week's closing levels down around 109 bid, 110 offered, after news of that the company had filed its plan of reorganization and disclosure statement with the U.S. Bankruptcy Court in Wilmington, Del. over the weekend.

The filing deadline for the reorganization plan had originally been scheduled for Oct. 14, but that was extended to Nov. 15 to allow the company to continue negotiations with creditors, equity holders and asbestos claimants on a consensual plan - something that was not achieved before the deadline.

Under the reorganization plan filed by Grace - which went into Chapter 11 in April 2001 under a flood of asbestos-related lawsuits by people claiming their health had been damaged by the company's products - a trust would be established for all pending and future asbestos-related claims, all allowed administrative or priority non-asbestos claims would be paid totally in cash, while all allowed general unsecured claims would be paid in 85% in cash and 15% in Grace common stock.

Financing for these non-asbestos related claims would come from $150 million of cash on hand, $115 million from Fresenius Medical Care Holdings Inc. paid in settlement of asbestos and other Grace-related claims, $800 million in new debt and $143 million in value of Grace common stock.

The plan needs to be approved by eligible creditors and the bankruptcy court, but the disclosure statement needs to be approved first. Grace has requested a hearing on the disclosure statement for Dec. 20.

Bids for asbestos bonds

Elsewhere on the asbestos front, a trader in distressed bonds said that the notes of such companies as Owens Corning, Armstrong World Industries, Federal-Mogul Corp. and USG Corp. were "all bid for" - but he saw little movement from recent levels.

He saw bankrupt Chicago-based building materials maker USG's 8½% notes due 2005 and 9¼% notes that were to have come due in 2001 both unchanged at 127 bid, while bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries' 6.35% notes that were to come in 2003, its 6½% notes due 2005 and 7.45% notes due 2029 at 71 bid, 72 offered.

The trader also saw the bankrupt Toledo, Ohio-based insulation maker Owens Corning's 7% notes due 2009, its 7.7% notes due 2008 and 7½% notes due 2018 holding steady at 64 bid, while bankrupt Southfield, Mich.-based auto parts supplier Federal-Mogul Corp.'s 7½% notes due 2009 and 7¾% notes due 2006 remained around the 30.5 bid, 31.5 offered level.

Those companies, like Grace, were driven into Chapter 11 by thousands of claims for asbestos-related medical problems, arising out of their use of the once widely-employed fire-retardant material in products they - or companies they subsequently bought - had made decades ago, before it was widely recognized as a carcinogen.

Those asbestos-related issues have all recently moved up sharply, following the Republican electoral victories earlier this month, since the rout of the Democrats - including minority leader Tom Daschle of South Dakota - is seen by some observers as having the potential to possibly break the Capitol Hill logjam on passing a bill to set up an industry-funded claims-paying mechanism - which would also put a top limit on the companies' damages and end the proliferation of lawsuits that have driven dozens of companies into Chapter 11.

Delta eases

Elsewhere, a trader saw Delta Air Lines' benchmark 7.70% notes due 2005 drop back a point, to 86 bid, 88 offered from 87 bid, 89 offered on Monday, and he estimated that the carrier's other bonds were also all down about a point "across the board."

Another trader likewise saw the 7.70s retreat, to 85.5 bid, 86.5 offered, from 86.75 bid, 87.75 offered on Monday. He pegged the Delta 7.90% notes due 2009 as dipping to 55 bid, 56 offered from 56 bid, 58 offered, while its 8.30% notes due 2029 were also down a point at 42 bid, 43 offered.

The Delta bonds had recently shot up sharply on expectations - later realized - that the pilots would heed the company's demands for a $1 billion annual pay cut, which will reduce what's in the captains' pay envelopes by 32.5%, starting Dec. 1 and continuing the next five years. The pact also makes the pilots pay part of the costs of their health plans and gives the company productivity-enhancing work-rule changes, in exchange for granting them stock options to buy up to 15% of the company.

Those bonds had previously been at levels that had ranged from the low 20s for the 8.30s to the mid 40s for the 7.70s, all effectively doubling as the company made progress on getting the pay cut, getting other concessions from other groups of non-unionized employees and from its vendors, lining up new financing and getting the approval of at least some of the holders of its $20 billion of debt for measures aimed at chipping away at that mountain of obligations.

RCN lower

Among other distressed issues, RCN Corp. bonds were seen a bit lower, after the bankrupt Princeton, N.J.-based telecommunications company reported that it lost $75.4 million in the third quarter, on sales of $121 million.

RCN's 9.8% notes due 2008 were at 51 bid, its 10% notes due 2007 were at 50 bid, and its 10 1/8% notes due 2010 were at 52 bid, all down about half a point on the day.

A trader saw Fleming Co.'s notes - which on Monday had moved up a point to 22 bids, 24 offered - as having improved another two points on the session to 24 bid, 26 offered. However, he saw no fresh news out about the bankrupt Dallas-based wholesale grocery supplier.

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