Asbestos names climb as Senate avoids "nuclear option"; Calpine little changed despite buyback news

By Paul Deckelman and Sara Rosenberg

New York, May 24- Bonds and bank debt of asbestos-challenged companies were seen smartly higher on Tuesday on investor hopes that the Senate will be able to give due consideration to a proposed claims mechanism bill, now that the chamber's negotiators have reached a compromise heading off the use of the so-called "nuclear option" to settle the dispute over filibustering judicial nominations.

Elsewhere, news that Calpine Corp. will buy back some of its debt initially gave the San Jose, Calif.-based power generating company's bonds a bit of a boost, but by the end of the session, those bonds were seen pretty much unchanged.

One of the biggest gainers in both the junk bond and the bank debt market Tuesday was Owens Corning. The bankrupt Toledo, Ohio-based insulation maker's bank debt, for instance, was seen stronger Tuesday, although in quiet trading, as the market was relieved to hear that the Senate Judiciary panel is going to meet on Wednesday to continue working on the asbestos bill.

A trader quoted that bank debt at quoted at 114.25 bid, 116 offered, well up from previous levels around 113 bid, 114 offered.

The same sharp appreciation was seen in the Owens Corning junk bonds, traders in that market said.

A trader saw Owens Corning's 7½% notes due 2018 as having pushed up to 80 bid from prior levels around 73, while its 7% notes due 2009 moved up to 79 bid from 71.5 on Monday.

Another trader characterized asbestos bonds as "stronger on the day" - but he added that there had been "not a whole lot of trading" in the bonds, on a generally quiet day. "There were a lot of quotes floating around but not a lot of trading," he said.

He said that "all of the '05, the '08, the '09 bonds," were trading in an 80-82 bid context, while the company's 2018 bonds were around 81 bid, 82 offered.

He also saw bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s 7.45% notes due 2029 at 85.5 bid, 86.5 offered, while its 6.35% notes which were to have matured in 2003 were at 83.5 bid, 85.5 offered, both well up from Monday's levels in the high 70s.

At another desk, a trader saw the Owens Corning 7½% notes due 2018 as having risen to 81.125 bid, 82.125 offered, while its 7½% notes due 2005 and 7½% notes due 2008 were both at 81.375 bid, 82.375 offered, and its 7% notes due 2009 were at 79.75 bid, 80.75 offered, all well up from previous levels in the lower-to-mid 70s.

The trader also pegged Armstrong's 6.35s and 6½% notes due 2005 both at 83.75 bid, 84.75 offered, while its 9¾% notes due 2008 and 7.45s were around 85.5 bid, 86.5 offered, up from the upper 70s on Monday.

The Judiciary Committee has been considering a bill authored by its chairman, Sen. Arlen Specter, R.-Pa., that would take all of the asbestos-injury claims that have driven dozens of companies like Owens Corning and Armstrong bankrupt in recent years out of the courts and handle them through a $140 billion claims payment fund. The fund would be financed by the asbestos companies themselves and their insurers. The controversial bill has its detractors on both sides of the aisle, even among members of the Judiciary Committee.

There is no guarantee, of course, that the committee will be able to produce a bill ready to go to the Senate floor for a vote any time soon. Even without the distraction of the filibuster fight - which could have seen all other Senate business, including the asbestos, legislation brought to a halt - there still remain dozens of amendments to be gone through by the committee, and a lot of other business before the Senate, that may bump the asbestos bill to a back burner (see related story elsewhere in this issue).

Calpine rises on tender, falls back

Elsewhere, news that Calpine is offering to buy back some of its bonds initially lifted the company's notes, with its 8¾% notes due 2007, for instance, seen half a point better at 56, while its 8¼% notes coming due later this year were a point better at 95.

However, by the day's end, traders were saying whatever initial strength had been present, was gone.

"They're only going to buy a portion [of the outstanding amount of the bonds], so big deal," a trader said. "We'll see if that happens. It didn't do much for the bonds today. I think they were a little stronger, but not a whole hell of a lot."

He saw the Calpine 8½% notes due 2008 at 49.5 bid, 50.5 offered, "not much changed" from the 50 bid, 51 offered levels he had been seeing. "It wasn't any big deal . . . it was nothing. No one cares."

He said "the only thing good about this is it shows that they have some money, they want to buy some debt, but other than that, it wasn't any major mover for the bonds."

Calpine said that it pay up to $160 million to buy euro-denominated 8 3/8% senior notes due 2008 and sterling denominated 8 7/8% senior notes due 2011, as well as dollar-denominated 8½% senior notes due 2008. The euro- and pound-denominated notes were issued by Calpine's indirect, wholly owned subsidiary Calpine Canada Energy Finance II ULC, and the company will purchase as many of those notes as they can before then buying any of the dollar-denominated notes, which had been issued by Calpine's indirect, wholly owned subsidiary Calpine Canada Energy Finance ULC.

Another trader said that "they traded a lot - but there was not much change" in the price levels. At that desk, the 8½% '08 notes hung in around 50.25 bid, 50.75 offered.

Airlines higher

Among the embattled airlines, "they were a little stronger," a trader said, without much in the way of fresh news to explain the rise.

He saw Northwest Airlines' 10% notes due 2009 up half a point at 51 bid, 53 offered. However, he said, "the real action came at the end of the day," and mostly in Delta Air Lines Inc.'s benchmark 7.70% notes due 2005, up a point to 77 bid. The Atlanta-based air carrier's longer end, however, moved "not a hell of a lot."

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