Elan bonds thrash around on new MS drug problem; Muzak off on delayed 10-K; Mirant loans rally

By Paul Deckelman and Sara Rosenberg

New York, March 31 - Elan Corp. plc's bonds were gyrating around wildly at sharply lower levels Thursday, in line with a sharp slide in the Irish pharmaceutical company's stock, after Elan

confirmed that a third patient taking its now-suspended multiple sclerosis drug Tysabri had contracted a rare neurological disease.

Another big loser was Muzak Holdings LLC, which hit a decidedly sour note after the Fort Mill, S.C.-based provider of recorded music services indicated in a Securities and Exchange Commission filing that it must delay submitting its 10-K annual report due to its discovery of problems with certain accounting items.

In the bank loan market, Mirant Corp.'s 2003 and 2004 debt rallied by about 1½ points in active trading on better market sentiment and strength in energy stocks.

Elan's 7¼% notes due 2008 were seen by one trader as having plunged all the way down to 77 in intra-day trading, well below their close Wednesday at 93 bid, 94 offered. The bonds came off those lows, but still only managed to get back to around 84 bid, 85 offered, leaving them down nine points on the session.

The trader saw the company's other bond issue, the 7¾% notes due 2011, also down nine points on the day, dropping as low as 67 bid from Wednesday's finish at 86 bid, 87 offered and then managing to come only part of the way back, at 75 bid, 76 offered.

Another trader saw both issues of the bonds down nine to 10 points on the session, at 84 bid, 86 offered and 74.5 bid, 76 offered, respectively. Although the 2008 bonds were being quoted at various points during the day in the high 70s, "I'm not sure if anyone was actually successful in buying these things" at those levels, he said. "They were in the high 70s when I got in and then instantly, 81 bid, 82 bid, and then they finished out."

Elan's New York Stock Exchange-traded American depositary receipt shares plunged $3.74% (53.58%) Thursday, to $3.24, on very heavy volume of 157.9 million, almost ten times the usual turnover.

The shares and bonds took it on the chin after Elan acknowledged a third case of progressive multifocal leukoencephalopathy, or PML, a serious and usually fatal disease of the central nervous system, in a patient who had been taking Tysabir, which Elan developed jointly with Biogen Idec Inc. of Cambridge, Mass.

Last month, the companies were forced to acknowledge that one patient taking the drug had developed PML and had later died of it, and then a second case erupted. That's when Elan and Biogen voluntarily pulled the multiple sclerosis drug from the market, and suspended clinical tests aimed at finding other uses for the medication besides MS.

Suspension of the drug dealt a severe body blow to Elan, which had hoped that it would get the company back in the black after three years of red ink and corporate restructuring. At first, company officials were talking hopefully about the prospect that Tysabri might make a return to the market later in the year - especially since it was not entirely clear that the new drug was at fault, since both of the original two cases involved patients who were also taking another Biogen-developed drug, Avonex, which is also used to treat MS.

However, the third case involved a patient suffering from Crohn's disease - which is a gastrointestinal malady, rather than MS, which attacks the nervous system, who was not taking Avonex, but who did die back in December 2003 after taking eight doses of Tysabri over an 18-month period.

The companies said the cause of the patient's death was originally misdiagnosed.

Loss of the Avonex link now points the spotlight again at Tysabri, darkening its prospects for returning to the market any time soon.

Even so, said the second trader, "a lot of people speculate that whether the drug comes back or not - and this kind of makes it look more doubtful - there's asset coverage on these [2008] bonds.

"A lot of people speculate on these - whenever they dip, it seems like there are bids - at least there have been so far."

aaiPharma drops

Elan's troubles also spelled bad news for another problem-plagued pharmaceutical maker, Wilmington, N.C.-based aaiPharma Inc., whose bonds have been steadily deteriorating for over a year now, going down from levels around par in early 2004 to half that at present.

The slide picked up speed after aaiPharma's mid-March warning that it would likely not be able to make the April 15 coupon payment on its $175 million of outstanding 11% notes due 2010, and that it might even have to restructure under Chapter 11.

A trader saw those bonds drop to 49 bid, 51 offered Thursday, from 52 bid, 54 offered previously.

Muzak plunges

Elsewhere, a trader saw Muzak's bonds striking discordant notes, as the recorded music company's 10% senior notes due 2009 dropped to an offered level of 87, with no bid, from Wednesday's 90 bid, 92 offered, while its 9 7/8% subordinated notes due 2009 collapsed down to an offered level 48 with no bids, from 60 bid, 63 offered previously.

Muzak said in its SEC 12b-25 filing that it would be is unable to file its 10-K annual report for the period ended Dec. 31, 2004 by March 31, citing "significant delays in completing its financial statements," primarily due to Muzak's discovery of an accounts receivable and revenue cutoff issue dating back to 1999.

Muzak explained that the issue pertained to its 2004 year-end financial statements and pertained to revenue and accounts receivable cutoff procedures dating back to the time of the merger of Audio Communications Network and Muzak LP in March 1999.

As a result of the discovery, Muzak will restate its accounts receivable, inventory, accrued liabilities, and members' deficiency balances as of Dec. 31, 2003 in the 2004 10-K. Although the revisions "will not result in materially different earnings for the periods reported since 1999," the company will also restate its revenue and cost of revenues balances for the years ended Dec. 31, 2003 and Dec. 31, 2002 in its 2004 10-K filing.

Mirant loans gain

In the bank debt realm, Mirant's 2003 and 2004 paper moved up to 73.5 bid, 74.5 offered from 72 bid, 72.75 offered at the close on Wednesday, according to a trader.

"The market in general felt a touch better this morning. Since that's the most liquid name, if the market is up a touch that will move up," the trader said.

"Also, all the energy stocks were higher today," the trader added.

The bankrupt Atlanta-based energy company's 7.90% notes due 2009 were unchanged at 79 bid, while its Mirant Americas Generation 8½% notes due 2021 were a quarter point easier at 106.25.

Meantime, there was activity in the company's bankruptcy case, with its efforts to block expert testimony offered by its opponents denied by the judge overseeing the case, who set a valuation hearing for April 12.

Werner down

Back among the bonds, a trader saw Werner Holding's 10% notes due 2007 drop as low as 64 bid, 67 offered. Earlier in the week, the Greenville, Pa.-based metal ladder maker's bonds had been seen to have come in to around 70 bid from prior levels at 74 - the first time in many months that the bonds had been seen around the marketplace.

He said that he had been "talking to a pretty savvy person, who was indicating that all of the CCCs had run [up] in the past six months, that those are the ones that are just getting smacked around, even on no news.

"So - what goes up must come down."

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