Asbestos bonds better on renewed Washington hopes; Mirant loans seen weaker

By Paul Deckelman and Sara Rosenberg

New York, April 14 - Bonds of bankrupt asbestos-challenged companies like Owens Corning and Armstrong World Industries Inc. were again quoted solidly higher on Thursday, with distressed junk market players attributing the gains to renewed confidence an asbestos claims-fund bill will soon be coming out of Washington.

Bonds of troubled automotive-sector issuers continued to skid lower, dragged down by both the sector's own negative dynamics, and by the generally heavy, negative tone seen in the junk market on Thursday.

That environment of heaviness was also prevalent in the market for distressed bank loans, with Mirant Corp.'s 2003 and 2004 bank debt seen off by about a point on Thursday as a result.

A bond trader quoted Owens Corning's notes "up significantly," at 80.5 bid, 81.5 offered, a gain of about three points on the session, while another trader said that the bankrupt Toledo, Ohio-based insulation maker "was about the only thing in the market all day that was up," amid the generalized junk market downturn.

He saw the Owens Corning 7½% notes due 2018 "up maybe three or four points" to 79.5 bid, 80.5 offered.

A trader in distressed notes said that Owens "was right back on top," its bonds having firmed to 80 bid, 82 offered, from Wednesday's levels around 77 bid, 79 offered.

He also saw the bonds of bankrupt Lancaster, Pa.-based floorcovering maker Armstrong "about the same levels" as the Owens Corning bonds.

The first trader attributed the gains to "the same old crap - it's all Washington that has been propping up these bonds. That's the only thing."

Earlier in the week, the Armstrong bonds and the Owens Corning bonds had both zoomed about 10 to 12 points on the session, after the chairman of the Senate Judiciary Committee, Sen. Arlen Specter, R.-Pa., and the ranking Democrat on that panel, Sen. Patrick Leahy, D.-Vt., and several other senators as well, all expressed optimism that a deal might be near on the legislation Specter has been drafting to set up a $140 billion industry-funded claims mechanism, which would take claims of persons who said they had suffered medical problems as a result of past exposure to asbestos out of the courts and ensure that their claims would be paid off quickly, according to set guidelines.

Efforts to craft such a bill over the past few years have failed in partisan wrangling over the size of the fund, who would pay for it, and whether plaintiffs could still pursue suits through the courts. The proliferation of court cases sent both Owens and Armstrong into bankruptcy, along with dozens of other companies, earlier in the decade.

No new developments were actually seen Thursday, with Specter still reportedly trying to drum up Republican support for his bill.

The judge in the Owens Corning case meantime ruled Wednesday that a previous decision setting the amount of the company's potential asbestos liability at $7 billion would be allowed to stand.

Credit Suisse First Boston, the agent for Owens Corning's pre-bankruptcy bank lenders had unsuccessfully requested that the figure be cut because it had included estimates for punitive damages (see related story elsewhere in this issue).

While the Owens Corning and Armstrong bonds were seen higher, a trader said the bonds of some of the other asbestos-challenged bankrupt companies, including Chicago-based building products maker USG Corp. and Southfield, Mich.-based auto parts maker Federal-Mogul Corp. were little changed, with USG's two series of bonds seen remaining around 132-134, and Federal-Mogul's bonds continuing to languish in the 20s.

Auto plunge goes on

Bonds of automotive supplier companies other than Federal-Mogul - who don't have the latter's asbestos problems, but who do have all of the industry's current other woes - were seen continuing to fall on Thursday, although no fresh negative news was seen out on the battered sector, which has been taking its cues from recent expressions of weakness at major automakers General Motors Corp. and Ford Motor Co., both major customers of the supplier sector companies.

Collins & Aikman Products Co.'s 10¾% senior notes due 2011 were quoted by a trader down a point to 78 bid, 79 offered, while its subordinated 12 7/8% notes due 2012 were also seen down a point at 43 bid, 45 offered.

However, at another desk, a market source - who had the Collins & Aikman bonds closing at higher levels on Wednesday - estimated the fall to 43 for the Troy, Mich.-based automotive components maker's bonds to have been as much as three points on the day.

Yet another trader saw the Collins 12 7/8s as low as 42 bid, 44 offered, "off a couple points," and the 103/4s at 78.25 bid, 79.25 offered.

The first trader also saw the 12% notes due 2013 of bankrupt Novi, Mich.-based automotive frame maker RJ Tower Corp. down two points to 54 bid, 56 offered, and saw the 9¾% notes due 2013 of bankrupt Phoenix-based automotive components maker Eagle-Picher Industries Inc. as having dropped back to 67 bid, 69 offered from prior bid levels around 70.

Salton steady

Salton Inc.'s 12¼% notes due 2008 were seen little changed at 62 bid, 64 offered, and its 10¾% notes due 2005 were likewise unchanged 75 bid, 76 offered. There was no word late Thursday as to whether the troubled Lake Forest, Ill.-based maker of the "George Foreman" electric grills and other small appliances would make the scheduled $9.1 million interest payment due Friday on the 2008 bonds.

A trader said there was no movement because the market "had already figured that they would not, and had priced that in" when the bonds fell to their current levels.

Mirant loans lower

In bank debt dealings, the Mirant '03 and '04 paper was seen down a point at levels of 75 bid, 76 offered, according to a trader who attributed the weakening to market heaviness.

Recently news has surfaced that Mirant's reorganization could see a hiccup as Deutsche Bank Securities Inc. said that it plans on voting against the reorganization proposal; as the largest unsecured creditor of Mirant Americas, Inc., it has the ability to stop the plan from going through.

In particular, Deutsche criticized the proposed substantive consolidation for the Atlanta-based energy company. According to Deutsche's calculation, without substantive consolidation, creditors of Mirant Americas will receive 100% recovery compared to 60% with consolidation.

Mirant Americas Generation, LLC's official committee of unsecured creditors objected to the plan on similar grounds.

Meanwhile Mirant's 2.5% convertibles came in about 1.5 points to 76.5 bid, 77.5 offered on brewing trouble in its bankruptcy case. In addition to creditors like Deutsche planning to block Mirant's proposed plan of reorganization, shareholders have complained about the proposed reorganization plan.

Bear wins Trimaran auction

In other news, Bear Stearns was said to be the winner of a $350 million loan portfolio auctioned off by Trimaran on Thursday that contained some distressed as well as some par names, according to sources.

The portfolio was traded around 100.5, sources said.

"It probably had like three distressed names - Nellson Nutraceutical was one of them," one source added.

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