Asbestos bonds dive on fears of D.C. debacle; Collins & Aikman post-filing rebound continues

By Paul Deckelman and Sara Rosenberg

New York, May 18 - Bonds of asbestos-challenged companies were sharply lower Wednesday as it appeared that the efforts of the Senate Judiciary Committee to craft a claims payment mechanism might be sidetracked as the full Senate gears up for what promises to be a bitter partisan battle over President Bush's judicial nominations, and Senate Democrats' controversial use of the filibuster to stymie them.

Elsewhere, Collins & Aikman Corp.'s bank debt and its Collins & Aikman Products Co. bonds continued to head northward Wednesday in the wake of the Troy, Mich.-based automotive interior components maker's Chapter 11 filing.

Other hard-hit automotive names were also better, amid a general junk bond rally - although Lawrenceville, N.J.-based battery maker Exide Corp.'s bonds failed in an effort to advance beyond where they had finished on Tuesday, apparently given no boost by a late-Tuesday conference call on which management outlined the company's covenant violation problems.

A trader in distressed bonds saw Owens Corning's notes fall to 65 bid, 67 offered from prior levels at 71 bid, 73 offered, while Armstrong World Industries Inc.'s bonds dropped to 70 bid, 72 offered from 74 bid, 76 offered. Federal-Mogul Corp.'s very distressed bonds lost two points to 20 bid, 21 offered.

At another desk, a trader saw the bankrupt Toledo, Ohio-based insulation maker Owens Corning's bonds three points lower at 66 bid, 67 offered, while the bankrupt Lancaster, Pa.-based floorcovering maker Armstrong's bonds, like its 6½% notes due 2005 were two points off the pace at 73 bid, 74 offered.

The trader observed that the bonds were lower because of what is - or perhaps more accurately, what is not - happening in Washington right now.

"This is turning into a real mess," he said of the situation down on Capitol Hill, where the Judiciary Committee has been working, on and off, since the new session began in January, to put together a $140 billion mechanism to pay the claims of those people who say they suffered medical problems as the result of past exposure to asbestos, when the material was widely used for fireproofing and other industrial applications.

The Judiciary Committee was to have met Wednesday to continue its work of wading through over 80 amendments members had offered to the draft bill drawn up by the panel's chairman, Sen. Arlen Specter, R.-Pa., and its ranking Democratic members, Sen. Patrick Leahy, D.-Vt. However, that session was scrubbed on Tuesday and rescheduled for Thursday.

In the meantime, though, the fight over filibustering of judicial candidates is threatening to sidetrack the asbestos bill and any other legislation that needs bipartisan support.

The Republicans, led by Senate Majority Leader Bill Frist, R.-Tenn., are threatening to use their majority to push through a rule change that would let them vote to cut off debate with a simple majority, rather than the 60 votes currently required for cloture. The Democrats, led by Minority Leader Harry Reid, D.-Nev., have threatened to retaliate by not allowing Senate committees, like the Judiciary Committee, to meet for more than two hours while the Senate is in session, a spokesman for Reid said, which would curtail consideration of the asbestos claims mechanism plan, as well as energy legislation.

The first trader meantime noted that the bonds of another asbestos-challenged company, bankrupt Chicago-based building materials maker USG Corp., continue to ride high, up around the 130 bid level, and have not been affected by the latest news about Washington turmoil. He said that unlike the bonds of Owens Corning, Armstrong or Federal-Mogul - the latter a Southfield, Mich.-based auto parts maker - the USGs "are trading at a premium for a reason, because they're gonna get paid. They're not like Armstrong or Owens. They don't care whether they get a bill passed or not, I don't believe."

However, when the USG bonds get paid is anyone's guess, as the company and its various creditor groups have yet to agree on a consensual approach to the reorganization in the nearly four-year old insolvency case, which was - like the Owens, Armstrong and Federal-Mogul cases, sparked by the flood of asbestos claim lawsuits against the company.

Collins & Aikman up again

Elsewhere, Collins & Aikman's bank debt and bonds continued their climb Wednesday, on top of the major gains notched Tuesday.

The bank debt moved up about half a point on the bid side to 91, with the offered side higher by about a point and a half at 93, according to a trader.

That paper had gained momentum after the company announced its Chapter 11 bankruptcy filing on Tuesday. It filed for bankruptcy protection in the U.S. Bankruptcy Court for the Eastern District of Michigan, pointing to mounting liquidity issues and the need for immediate cash to fund operations as the drivers behind the move.

Prior to the bankruptcy announcement the bank debt had been quoted at 88.5 bid, 90 offered.

The bonds, likewise, jumped after the filing news, with Collins & Aikman's 10¾% senior notes due 2011 pushing up into the lower 40s from pre-filing levels in the mid 30s, while its 12 7/8% subordinated notes due 2012 nearly doubled in price to bid levels around eight cents on the dollar from four cents before the filing. However, the bonds were trading flat, or without the accrued interest, with the loss of the interest at least partially offsetting the nominal price rise.

On Wednesday, the Collins senior bonds were seen having firmed another two points to around 43 bid, 45 offered, and trading flat, from 41 bid, 43 offered previously. New quotes on the junior bonds were not seen.

The Collins & Aikman bonds benefited from a general junk market upturn that also included most other automotive names. A trader saw Visteon Corp.'s 8¼% notes due 2010 up a point or so into the lower 70s, while another trader saw those bonds up four points on the day at 72 bid, 73 offered.

Exide misses auto rally

However, Exide Technologies - one of the junk market's big losers on Tuesday, after its disclosure of its likely breach of several financial covenants in its senior credit facility - failed to rally along with its auto-sector peers on Wednesday.

Its 10½% notes due 2013 had fallen some 10 points Tuesday into the low-to-mid 70s on the news.

The company had held a conference call after the market had closed on Tuesday, during which it outlined for investors and analysts how the anticipated breach had come about, and, more germane, what Exide intended to do about it (see related story elsewhere in this issue) - but neither bond investors, nor, especially, stock investors, seemed very much impressed.

A trader saw the company's bonds opening Wednesday around 74 bid, 75 offered, up perhaps a point from their close on Tuesday, but by the end of trading, he said, the bonds had come off those highs to finish at 72.5 bid, 73.5 offered.

Another trader also saw the Exide bonds up two or three points on the open, and "they got as high as 75, but then they dropped [back] down" to end at 72.5 bid, 73.5 offered.

Yet another trader saw the Exides "starting at 72 bid, 74 offered - and ending at 72 bid, 74 offered" after first having gotten as good as 76 and having fallen as low as 71 during the day.

Exide's Nasdaq-traded shares - which had plunged some $4.27 (38.30%) on Tuesday - dropped an additional $1.55 (22.53%) to $5.33, on volume of 17.4 million shares, more than 32 times the usual turnover. Over the past two sessions, the shares have lost more than half of their value.

Mirant loans rise but fail to hold gains

Outside of the autos, meanwhile, Mirant Corp.'s 2003 and 2004 bank debt was stronger earlier in the day, gaining half a point as levels reached 68.5 bid, 69.5 offered, according to a trader. However, by day's end the paper settled back down to 68 bid, 69 offered, closing out session unchanged.

The trader attributed the early day spike in the Atlanta-based energy company's paper to market technicals in which the bank loan market as a whole felt better with some more buyers coming in.

A bond trader saw Mirant's 7.4% notes due 2004 and 7.9% notes due 2009 up a point each at 73 bid, 75 offered. Its convertible notes were up about two points on the day, with the 2½% notes at 70 bid, 72 offered and its 5 ¾% notes at 71 bid, 73 offered.

Back among other bonds, a market source saw Charter Communications Inc. continuing its slide, down two to three points across the curve, although he saw the St. Louis-based cabler's '06 and '07 paper holding firm. So far this month, the company's bonds are off an average of seven to 10 points.

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