Airline bonds remain aloft; Exide falls with stock slide; filibuster compromise may save asbestos bill

By Paul Deckelman

New York, May 23 - Airline bonds were seen up for a second consecutive session Monday, apparently pushed higher by continued softness in world crude oil prices - a key leading indicator of future airline fuel costs.

Also on the upside, Elan Corp. plc bonds were seen stronger, although no fresh news was immediately seen out on the Irish pharmaceuticals company, which has been wrestling with the fallout from two deaths reportedly linked to its main drug product.

Among the automotive names, Exide Technologies bonds were in retreat, even as the Lawrenceville, N.J.-based battery maker's shares were also taking a dive on the news that billionaire investor George Soros has cut his stake in the company.

And little movement was seen Monday in the bonds of companies with big asbestos liability issues, as the Senate appeared headed for a confrontation over the use of the filibuster to block judicial nominations - a fight seen as possibly derailing consideration of a bill to set up an asbestos-claims mechanism. However, it was reported late Monday night that moderate senators from both parties had reached a compromise on the filibuster issue, apparently avoiding a messy showdown and apparently leaving the way open for consideration of the asbestos bill.

Trading in the bank debt of distressed companies was meantime seen extremely quiet, with one distressed debt trader declaring "we didn't trade one piece of [distressed] bank debt today," and others echoing that sentiment.

Airlines higher

Back among the bonds, things weren't all that active either. But the airline bonds were seen better, with a trader quoting Northwest Airlines Corp.'s 8 7/8% notes due 2006 at 73.5 bid, 74.5 offered, up 1½ points on the session, and Delta Air Lines Inc.'s benchmark 7.70% notes scheduled to come due on Aug. 15 a point better at 76 bid, 78 offered, while he saw its 7.90% notes due 2009 half a point up at 33.5 bid, 34.5 offered.

He also saw Continental Airlines Corp.'s 8% notes due later this year at 97 bid, 98 offered, unchanged on the day.

Although there had been some speculation last week that the airline bonds were being pushed up on investor hopes of consolidation in the wake of the announced planned combination of US Airways Group and America West Airlines, the recent trend toward lower crude oil prices was seen as likely as much of a factor, if not more.

The trader agreed that "they were up on the oil price news," rather than any far-fetched consolidation scenarios - especially since some analysts have said that the US Air-America West combination will only make it harder on the bigger legacy carriers like Delta, Northwest and AMR Corp.'s American Airlines unit that are already fighting for share in a market that has too much capacity as it is.

Crude prices, after having spiked up to an all-time high at $58.28 per barrel on April 4, have since come down considerably, falling to around the $47 mark last week on news of high U.S. product inventory levels. In Monday's trading on the New York Mercantile Exchange, prices initially continued to retreat from Friday's close at $48.65, before reversing course to move up by 51 cents, to settle at $49.16 - still below the psychologically potent $50 per barrel mark.

The movement of crude prices is seen as a fairly accurate gauge of the direction in which future airline fuel costs will be going. Sharply higher fuel costs have dented the airlines' bottom lines to the tune of hundreds of millions of dollars so far this year, pushing US Air into bankruptcy for a second time and putting Delta on financial thin ice.

Another trader said he hadn't really seen much change in the airline issues - but a market source at yet another desk saw Northwest's 7 7/8% notes due 2008 at 50, up three points.

Elan rises

The second trader did see some movement in Elan's bonds, quoting them "up a little on the day," with the Dublin-based drugmaker's floating-rate notes due 2011 a point better at 82 bid, 84 offered, and its 7¼% notes due 2008 also up a point or so at 91.5 bid, 92.5 offered.

There was no fresh news out on Elan, whose bonds and shares were beaten down earlier this year after the company acknowledged that two users of its multiple sclerosis drug Tysabri, which Elan developed jointly with Biogen Idec Inc., had developed a rare nerve disease during a clinical trial and one had died, while a third patient using the drug had also died some time previously. That forced the companies to voluntarily pull the drug - Elan's major product - from the marketplace, while they try to determine what went wrong.

Exide lower

In the recently volatile automotive sphere, a trader saw Exide's 10½% due 2013 fall to 68.5 bid, 69.5 offered from prior levels around 72.5 bid, 73.5 offered.

The company's bonds had initially been beaten down last week into the upper 60s from the low 80s after it revealed that it would likely violate its credit facility covenants, but then they bounced at

least part of the way back, into the mid-70s, apparently reacting to its oversold condition and helped by the recent overall rally in the auto supplier names. By the end of last week, however, they had eased back to around the 72 level, setting the stage for Monday's slide back into the upper 60s.

The bonds fell in tandem with the company's Nasdaq-traded shares, which lost 57 cents (11.11%) to close at $4.56, on volume of 4.1 million, quadruple the normal turnover. The stock apparently got hit by Friday's revelations that billionaire financier George Soros had cut his holdings in the company to somewhat over 1.1 million shares, or 4.5% of the outstanding float. That's well down from a high of around 1.8 million shares, or 7.3% of the company, which his Soros Fund Management held in March, according to documents filed with the Securities and Exchange Commission.

Collins & Aikman lower

Also in the automotive sector, Collins & Aikman's bonds were seen down about a point, with a distressed-debt trader seeing the Troy, Mich.-based auto interior component maker's 10¾% senior notes due 2011 at 41 bid, 42 offered, while its 12 7/8% subordinated notes due 2012 were bid at six cents on the dollar and offered at seven cents. The fall of a point, he said, "is significant once you get down into the single digits."

Another trader saw the seniors at 41.5 bid, 42.5 offered and the juniors at 6.5 bid, 7.5 offered, down a point and half a point on the session, respectively.

Another auto name which seemed to be uselessly spinning its wheels on Monday was Dura Operating Corp., whose 9% notes due 2009 were seen down 1½ points at 65 bid.

Calpine declines

A trader saw Calpine Corp.'s bonds "a little lower," with the San Jose, Calif.-based power generating company's 8½% notes due 2008 retreating a point to 49 bid, 50 offered. However, another source saw Calpine's bonds a little firmer, with its 8¾% notes due 2007 up more than a point at 55 bid.

Asbestos names steady, watching Senate

The bonds of asbestos-challenged companies such as the bankrupt Toledo, Ohio-based insulation maker Owens Corning and the bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries, were seen little changed Monday, hovering around the same levels at which they had closed out the previous week - 72 bid, 74 offered for Owens, and around 75 bid, 77 offered for Armstrong.

However, a trader said Federal-Mogul Corp.'s bonds "seem a little better," quoting the bankrupt Southfield, Mich.-based auto parts maker's notes at 23 bid, 24 offered.

Investors who have been hoping that Congress might finally move to set up a claims-payment mechanism to deal with the flood of medical-damage cases filed against companies like Owens and Armstrong, were holding their collective breath and watching for any news from Washington, where the members of the Senate were squaring off Monday for a climactic battle over Republican efforts to change the cloture rules governing how to shut down a filibuster - this in connection with the Democrats' use of the venerable legislative tactic to stall action on President Bush's judicial nominees.

The fight over the judges, and the filibusters, was seen as possibly derailing efforts to draft an asbestos bill in the Senate, where such a bill has been slowly wending its way through the Judiciary Committee. On Monday, Senate Democratic leader Harry Reid, D.-Nev., threatening to bring the legislative body's business to a halt in retaliation should the GOP change the rules and break his party's judicial filibuster, declared "I think you can kiss asbestos good-bye."

However, late Monday, it was reported that a compromise had been reached, aimed at preventing the Republicans from ramming through the filibuster rule change and keeping the Democrats from continuing to tie up the judicial nominations and possibly gumming up other Senate business.

The Judiciary Committee's chairman, Sen. Arlen Specter, R.-Pa., said last week that the bill he authored setting up a $140 billion industry-financed claims fund that would take all the asbestos claims cases out of the courts, has "a fighting chance" to be approved by his committee and sent out to the Senate floor for a vote, even with the filibuster controversy, and with dozens of amendments to the bill still to be considered.

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