Asbestos bonds, bank debt lower as insurers head for exits; Adelphia gains as Cablevision steps in

By Paul Deckelman and Sara Rosenberg

New York, April 5 - Bonds and bank debt of bankrupt companies facing asbestos liability issues were seen lower Tuesday, after The Wall Street Journal reported that some insurers who had been part of the effort to craft a $140 billion trust fund to pay asbestos-related medical claims are bailing out, frustrated by the lack of a viable bill.

Elsewhere, Adelphia Communications Corp. bonds were seen higher as rival cable operator Cablevision Systems Corp. was reported getting ready to submit an all-cash $16.5 billion bid for the bankrupt Greenwood Village, Colo.-based cable operator.

A market source saw Armstrong World Industries Inc.'s bonds, such as its 9¾% notes due 2008, down three points at 66 bid, although a trader at another shop said he had seen no real change in the bankrupt Lancaster, Pa.-based floorcovering maker's bonds, pegging them at 68 bid, 69 offered.

Meantime, traders were seeing bankrupt Toledo, Ohio-based insulation maker Owens Corning's bonds still hanging around the same 58-59 context to which those bonds had fallen last week after the judge overseeing the company's Chapter 11 restructuring set Owens Corning's asbestos liability at $7 billion, about $2 billion higher than previous expectations.

And they speculated whether the latest news on the asbestos claims fund legislation front might give those bonds another shove downward.

The Journal reported on Tuesday that more than a dozen insurers previously considered on board for the effort to craft the bailout fund have jumped ship, complaining that the fund would be too large and would not adequately limit their liability.

The paper said that the insurers informed Senate Judiciary Committee chairman Arlen Specter (R.-Pa.) in a letter Monday that the plan is "unfixable,"

Among the insurers heading for the exits are such giants as American International Group Inc., Chubb Corp., Liberty Mutual, Nationwide Financial Services Inc., Swiss Reinsurance America Corp. and Zurich Financial Services AG. A spokesman for Specter said that the insurers are not entirely representative of all insurance companies, and said the chairman would continue his efforts to put together a workable bill.

Despite the mutiny by some of the insurers, Specter's Republican colleague, Senate majority leader Bill Frist (R.-Tenn.) said he remains confident a bill setting up the claims fund will be on the Senate floor soon, despite the insurers' call that Congress should instead try to resolve the problem in the courts by establishing firm guidelines for legal claims.

"I am confident we will have a bill, a bipartisan bill, that centers on a trust fund, on the floor of the Senate in the not too distant future," Frist told reporters Tuesday.

The asbestos claims fund issue has been a contentious political football over the past few years. After a veritable flood of claims from people claiming medical problems due to past asbestos exposure drove companies such as Owens Corning, Armstrong, USG Corp. and Federal-Mogul Corp. into bankruptcy earlier in the decade, lawmakers struggled for several years to come up with a workable trust fund concept, but those efforts have so far been stymied by partisan infighting over the size of the proposed industry/insurer-paid fund, and whether claimants would still retain the right to opt out of the fund and pursue their claims through the courts.

Specter said late last year that he hoped to get an asbestos fund bill quickly passed - but the Journal opined Tuesday that the pullout by the insurance companies makes it less likely that Congress will approve legislation on the subject this year - leaving hundreds of companies, both already bankrupt or possibly threatened with claims-related insolvency, unsure how much money they will owe to settle all of those claims.

Asbestos-related bank debt meantime came in a little on Tuesday in response to the WSJ report, with the loans of Owens Corning and W.R. Grace & Co. both dipping by about half a point during the session, according to a trader.

"I think it was old news," the trader said about the Wall Street Journal story. "But I guess some people didn't think so."

Owens Corning was quoted at 106.5 bid, 107.5 offered and Grace, a Columbia, Md.-based provider of chemicals and materials, was quoted at 121 bid, 123 offered, by the end of the day, the trader said.

Adelphia bonds higher

Elsewhere, Adelphia's bonds were quoted better, as Cablevision was reported ready to join the battle for its assets. A successful purchase of Adelphia, the nation's fifth largest cabler, by Bethpage, N.Y.-based Cablevision, the dominant cable system operator in the important New York market, would create a powerful rival to such giants as Time Warner Cable and Comcast Corp., who teamed up to submit a bid to buy Adelphia.

Another bid came from Kohlberg Kravis Roberts & Co. and Providence Equity Partners. For a while it was rumored that Cablevision might join forces with the KKR group, but Tuesday's reports indicate that Cablevision is going it alone. Cablevision declined comment Tuesday on the stories.

But bond investors apparently believe the reports. They took Adelphia's 7¾% notes due 2009 up 1½ points and its 7 7/8% notes due 2009 up 21/2, both to 84.5, while its 10¼% notes due 2006 were seen two points better at 88.

Foamex rebounds slightly

Foamex International Inc. bonds, which fell sharply Monday after the Linwood, Pa.-based maker of foam rubber products for the automakers and other industrial uses reported a wider fourth-quarter loss, were a little higher Tuesday, continuing a late bounce in those bonds which had at least lifted them off their initial lows on Monday.

A trader saw Foamex's 9 7/8% subordinated notes due 2007 at 51 bid, 53 offered, up from levels around 47-48 on Monday, while its 10¾% senior notes due 2009 firmed to 87.5 bid, 89 offered, up from 86.75 bid, 87.5 offered.

He also "actually saw levels" on the company's 13½% subordinated notes scheduled to come due on Aug. 15 at 89 bid, 91 offered.

Another source saw the 131/2s up as much as five points on the session to around 90, and the 9 7/8s up three points to 53. But he saw the seniors up less than a point on the day to 87.625.

Tower, Collins bonds better

Also automotive, bankrupt Novi, Mich.-based auto frame maker RJ Tower Corp.'s 12% notes due 2013 were seen having traded up to 55 bid, 57 offered from 52 bid, 54 offered previously.

And Collins & Aikman Corp.'s bonds were seen unchanged to somewhat firmer, as the market digested the impact of the Troy, Mich.-based automotive components company's late Monday announcement that it had lined up $75 million of financing to improve its liquidity picture.

A trader saw the 10¾% senior notes due 2011 "pretty much within the same context" at bid levels between 82 and 83, though he saw the 12 7/8% subordinated notes due 2012 up a point at 48 bid, 49 offered.

A market source queried at midday saw the Collins bonds "up a little on the funding news."

He pegged the 103/4s half a point better at 83 bid, while its 12 7/8s were up as much as 1½ points to 48 bid.

Later in the session, that same desk was seeing the 103/4s up a full point to 83.5 bid, saw the 12 7/8s still at 48, and the 9¾% notes due 2010 up a quarter point at 106.25.

Another market source had the 12 7/8s initially up as much as 2½ points to around 50 bid, but said the bonds had backed off that high to end up 1½ at 49.

On a contrarian note, however, another trader estimated the 103/4s ending down a point at 82 bid, 83 offered, and the 12 7/8s off two points on the day at 45 bid, 46 offered, citing the impact of negative news about General Motors Corp. and Ford Motor Co. - Moody's Investors Service lowered GM's debt ratings to Baa3 - the last step before junk - and said it was also eyeing Ford for a downgrade.

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