Owens Corning bank debt sizzles, bonds fizzle; Tower seen stronger

By Paul Deckelman and Sara Rosenberg

New York, Feb. 8 - Owens Corning's bank debt was hot - and its bonds definitely were not - as bank loan investors apparently speculated Tuesday on a positive outcome of a court struggle that pits them against the company's bondholders and other creditors. The latter, meanwhile, may have been anticipating a negative outcome - or they may just be voting with their feet in the wake of new developments that suddenly look very unpromising for holders of any kind of asbestos-related debt.

Elsewhere, the bank debt and bonds of Tower Automotive Inc. were seen continuing their post-Chapter 11 rebound.

Owens Corning, though, clearly stole the spotlight on loan trading desks Tuesday as the paper jumped up another seven points or so, bringing total gains over the past two days to about 13 points.

The bankrupt Toledo, Ohio-based insulation maker's bank debt was quoted at 103 bid, 104 offered, well up from Monday's closing levels of 96 bid, 97.5 offered, a trader said. And the rally has been a two-day affair; when the market opened on Monday, its paper had been quoted at 90 bid, 92 offered.

The bank loan trader said that the rally began once the actual bankruptcy court hearing on the issue of substantive consolidation ended late Monday afternoon and, although no decision on the matter has been announced, the "reaction on the judge's part has been driving it up," the trader said.

The substantive consolidation issue has been a source of controversy among the different classes of creditors fighting over what kind of returns they will get on their claims when the company finally emerges from years of bankruptcy litigation.

Bank creditors claim priority for their stakes, which in Owens' case reflect loans taken out through different subsidiaries and guaranteed by the parent. Non-bank creditors, such as the bondholders, have sought to essentially collapse the different entities into one consolidated entity and figure out the claims from there.

The issue is a zero-sum game; a decision favorable to the interests of the bank debt holders diminishes the bond holders' hopes for a bigger return, and vice versa.

Not surprisingly, with the bank debt holders sensing victory in the court battle, the bondholders see things headed in the opposite direction and that helped to push the company's bonds, such as its 7% notes due 2009, "down significantly," a bond trader said, quoting those bonds as having fallen to 63 bid, 65 offered, from 66 bid, 68 offered earlier.

"They were pretty weak," he declared, with no little understatement.

At another shop, a bond trader saw the Owens bonds at 64 bid, 65 offered, down from 67 bid 68 offered late Monday.

As if the possibility of a loss on the substantive consolidation issue were not enough, the bond holders also evaluated two bits of decidedly negative news - first, another delay in Washington's efforts to craft a claims-payment mechanism that would take care of claims filed by people alleging medical problems linked to their exposure to asbestos while shielding the companies from a deluge of lawsuits, and second, the indictment of another asbestos-challenged firm, W.R. Grace & Co., and seven of its senior executives, in a case centered around Grace's operation of a Montana mine, and whether the company knowingly exposed miners and townspeople to airborne asbestos particles stirred up by its vermiculite mining operation.

In the Washington matter, Senate Republicans have asked for a one-week delay in the introduction of a bill that would create a $140 billion claims fund. The GOP wants to carefully study the provisions of the bill to be introduced by Sen. Arlen Specter (R.-Pa.), the chairman of the Senate Judiciary Committee - especially since the Democrats demanded, and got, a similar delay that allowed them to scrutinize Specter's legislation. Some GOP senators reportedly fear the bill does not go far enough in preventing potential "double dipping" by claimants who would be able to get a claims processed under the mechanism and from their insurance companies as well.

Besides Owens Corning, other asbestos-related debt was also lower, with bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries' bonds quoted at 69 bid, 71 offered, down from 73 bid, 75 offered on Monday. A trader saw no movement in the bonds of bankrupt Southfield, Mich.-based auto parts maker Federal-Mogul Corp., trading around 31, or in those of bankrupt Chicago-based building materials maker USG Corp.'s bonds, hovering north of 130.

Tower second lien loan up again

Also continuing its recent strengthening trend was Tower Automotive Inc.'s second-lien bank debt, as the paper moved up by about a quarter of a point to 104.5 bid, 105 offered, according to a trader.

Since the Novi, Mich.,-based maker of automotive assemblies filed for Chapter 11 last Wednesday, the second-lien paper has steadily inched its way higher, moving up from 102 bid, 103 offered pre-bankruptcy filing.

The catalyst behind the momentum is Silver Point Finance LLC's back-stop commitment to Tower for second-lien loans, under which Silver Point is offering to buy the loans of any second lien lenders that no longer wish to participate at par plus accrued interest. Silver Point will receive a $5.425 million structuring fee.

On the bond side, traders saw the company's RJ Tower Corp. 12% notes due 2013 trading as high as 64 bid from prior levels at 60.5 bid, 61.5 offered.

The Tower bonds - which have been trading flat (without accrued interest) since last week's Chapter 11 filing, were seen having risen in the midst of a general rally in the recently beleaguered automotive sector. A trader, for instance, said that Collins & Aikman Products Co.'s bonds - which had fallen on Monday in apparent sector sympathy with Tower's recent woes - were "up nicely" Tuesday "though I don't know exactly why."

He saw the Troy, Mich.-based automotive component company's 12 7/8% notes due 2012 having firmed to 81.5 bid, 82.5 offered, up from 79 bid, 80.5 offered on Monday, which in turn , down from 82 bid, 83 offered on Friday - Tuesday's activity essentially wiping out Monday's downturn. The company's 10¾% notes due 2011, which had fallen to 98.75 bid, 99.75 offered on Monday, were seen Tuesday having risen to 99.75 bid, 100.5 offered.

Delta bonds gain

A trader saw Delta Air Lines Inc.'s bonds better on the day by about two points, although there seemed to be no fresh news out about the Atlanta-based carrier, currently in the midst of a major belt-tightening effort.

He saw the benchmark 7.70% notes due 2005 at 89.5 bid, 91.5 offered, while its 10% notes due 2008 rose to 62.5 bid, 64.5 offered, its 7.90% notes due 2009 firmed to 53.5 bid, 55.5 offered, and its 8.30% notes due 2029 at 43 bid, 45 offered.

A trader saw weakness in Winn-Dixie Stores, although he had seen no fresh negative news appear about the Jacksonville, Fla.-based supermarket chain, which is struggling to keep larger rivals such as Wal-Mart Stores, from eating its lunch.

He quoted the company's 8 7/8% notes due 2008 as having fallen to 87.75 bid, 88.75 offered, from prior levels at 90 bid, 91 offered.

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