Asbestos bonds, bank debt, gyrate crazily; Calpine clobbered - again

By Paul Deckelman and Sara Rosenberg

New York, April 28 - The bonds and bank debt of asbestos-challenged companies were seen swinging wildly Thursday on legislation concerns. While those bonds and bank loans were up in initial trading, by the end of the day they were lower after it became apparent that the Senate Judiciary Committee would fail to vote Thursday on a bill to take asbestos-related medical claims out of the courts and set up a $140 billion claims payment mechanism.

Another name which ended lower, on both the bond and the bank debt sides - as well as equities - was Calpine Corp., which was once again fending off market rumors that the San Jose, Calif.-based power generating company was headed for bankruptcy.

Asbestos bonds, a trader in distressed notes said, "were on a wild ride - they went up, and then they went down."

Owens Corning's notes - which had firmed to levels around 82 bid on Wednesday, given a boost by the possibility that the Judiciary Committee might finally vote Thursday on the long-awaited claims measure - he quoted as having opened trading at that same 82 level. Then, the bankrupt Toledo, Ohio-based insulation maker's bonds got as good as 84 bid, 85 offered during the morning, before coming down from that peak and then continuing to slide to a closing price at 76 bid, 78 offered.

He saw the "same story, different name," for the bonds of bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc. Those bonds, he said, finished Wednesday's session in the low-to-mid 80s, where they opened Thursday, got up to 87 bid, 89 offered, and then ended "down a few points," at 84 bid, 85 offered.

"Everything started to move hot and heavy, and then it settled back down."

He saw bankrupt Chicago-based building products maker USG Corp.'s bonds, though, pretty much hanging in at their recent levels above 130. "USG might be down a couple of points, but there are still buyers in the low 130s - 133, 131. It appears there's more moving around in Owens and Armstrong."

Another trader saw the Owens bonds, like its 7½% notes due 2018, in "the low 80s, and then they fell into the high 70s. That's the level they're going to be hanging around at, until the [Judiciary Committee] vote takes place."

"There was a big rally in the morning, in anticipation of something getting done," yet another trader said, "but by the end of the day, it had tailed off when there were no progress."

He saw the Owens bonds firm up to 85.5 bid, 86.5 offered from opening levels around 82, but then slide to 77.5 bid, 78.5 offered on "no agreement." He also saw Armstrong's bonds, like its 6.35% notes, go from a high of 86 bid, 87 offered, to a closing low at 79 bid, 80 offered.

In bank debt trading, Owens traded as high as 116.5 and as low as 113.5 during the session, before closing out the day at 113 bid, 114.5 offered, according to a trader.

Armstrong's loan paper, meanwhile, traded anywhere between 76 and 84 during market hours, another trader said.

The chairman of the Judiciary Committee, Sen. Arlen Specter, R-Pa., who is also the primary author of the claims fund bill, had said Wednesday that he hoped to have the bill voted upon by the panel and sent to the full Senate for consideration by Thursday.

But those hopes were dashed when critics of the bill on the committee introduced more than 80 amendments. Some Republicans believe the bill doesn't go far enough in preventing the filing of frivolous or fraudulent claims of asbestos-related medical problems, and contains no real guarantee some of those claims won't wind up back in court - the very thing the claims fund mechanism is supposed to discourage. Insurers, who would pay part of the cost of the fund, are also wary about the claims fund arrangement, feeling they will get stuck.

On the other side of the aisle, some Democrats feel the bill is too restrictive as to what kinds of claims will be handled by the fund, believe the claims fund won't be able to pay large enough awards to claimants, and fear it could run out of money somewhere down the road, leaving the claimants who suffered medical problems due to asbestos exposure holding the bag. Trial lawyers - a key Democratic constituency - have also criticized the bill, which would essentially cut them out of the asbestos-claims picture.

Some senators also objected to Specter's setting Thursday as a deadline by which the bill would be considered by the committee, all the amendments debated and the bill sent up to the full Senate.

After the filing of the numerous amendments, the committee members tore up Specter's timetable, and agreed to delay any vote until May 12.

Calpine heads lower again

Elsewhere, Calpine continued to get beaten up, despite company efforts to counter what a spokeswoman called the "persistent false rumors in the market" that the company was on the verge of defaulting on its obligations, or even filing for bankruptcy.

It was the second straight session in which Calpine's bonds were losing four five, six points, across the board.

A trader said Calpine was "on a wild ride, down virtually all day." He saw the company's 8½% notes due 2008 end at 43 bid, 45 offered, after having started the day in the higher 40s.

"It was the same kind of speculation" that's been bedeviling the company's shares and bonds for most of the past week or so. While he saw the 8¼% notes due 2005 at 85 bid, 86 offered, and its 8½% notes due 2011 at 44 bid, 45 offered, "all off three, four, five points," he did see those bonds "up a point or two from their [earlier] lows.

"Once you get hold of a bond like this, dealers are going to push it around and take it up and down to make money off it," another trader said. He quoted the 8½% notes due 2011 offered at 44 in the afternoon, with no bids seen at his shop, versus earlier levels at 47.5 bid, 48.5 offered.

Yet another trader opined that "Calpine got mowed."

He quoted the company's 8½% notes due 2011 as having fallen as low as 40 bid, 42 offered, from their opening levels around 48 bid, 50 offered. By the end of the day, he said, the bonds had crept back up a little, to finish at 42 bid, 44 offered.

Meanwhile, the short end "also got murdered," with Calpine's 8¼% notes coming due later this year down several points to 83 bid, 85 offered.

Calpine's notes have been on a one-way escalator heading toward the basement since last Friday, except for a small breather on Tuesday which had fooled some players into thinking the worst was over. They resumed sliding Wednesday and kept right on doing so on Thursday

Calpine's second-lien bank debt was meantime very active at lower levels on Thursday, also propelled by those same bankruptcy rumors.

The paper was quoted at 71.5 bid, 73 offered at the end of the session, compared to Wednesday's closing levels of 72 bid, 74 offered, according to a trader. However, the same trader noted that the paper had actually gotten as low as 69 or 69.5 earlier in the session.

Prior to last Friday's first round of bankruptcy buzz, the power generator's second-lien debt had been quoted at 80 bid, 82 offered.

Besides the bonds and the bank debt, Calpine also saw a swoon in its shares of 33 cents (18.54%) to $1.45. NYSE volume was 46 million shares, more than five times the usual turnover.

Elsewhere, there was a big auction in Mach Gen, a project energy finance name, on Thursday with JPMorgan emerging as the victor, according to sources.

The Mach Gen paper traded around 108, according to one trader, and just above 108, according to a second trader.

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