Asbestos bank debt, bonds seen higher as panel OKs bill; Delta bonds fly in tandem with stock

By Paul Deckelman and Sara Rosenberg

New York, May 26- Bank debt and bonds of companies facing asbestos liability problems were on the upside Thursday, as the Senate Judiciary Committee completed its consideration of a long-awaited bill that would set up a $140 billion payment mechanism for handling claims of asbestos-induced medical problems.

Delta Air Lines Inc. bonds were seen solidly higher, moving up smartly in tandem with a sharp rise in the troubled Atlanta-based airline operator's New York Stock Exchange-traded shares - even though oil prices, seen as a generally reliable barometer of the future directional trends in jet fuel prices, were up on the day.

And Calpine Corp. bonds and bank debt were higher for a second consecutive session in the wake of the San Jose, Calif.-based power generating company's Wednesday announcement that it will accelerate its debt-buyback efforts and try to sell more assets.

A bank debt trader saw Owens Corning's paper up a little bit, closing out the session at 115 bid, 116 offered, compared to previous levels around 114.5 bid, 116 offered, on news that the Judiciary Committee had approved the legislation that would create the claims payment mechanism. While there was some trading in the paper, it was "not insanely active on the news," the trader added

In the junk bond markets, a trader saw the bankrupt Toledo, Ohio-based insulation maker's notes gaining just a quarter-point to 83.25, but saw bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s bonds having moved up to 89.25 bid, from 86 previously.

Another trader, however, saw Armstrong "pretty much the same," at around 86 bid, which he said represented a gain of perhaps a point on the day, but he said Owens "was on a ride" like a roller-coaster, starting out around 80 and then "at one point up three or four points, to the mid-80s, before ending up two points," at 82 bid, 83 offered.

He saw "not much difference" in the bonds of bankrupt Southfield, Mich.-based auto parts concern Federal-Mogul Corp., pegging them around 23.5, although another market source saw those bonds higher, around 25.375.

The first trader also saw bankrupt Chicago-based building materials maker USG Corp.'s "maybe a little higher, not a lot," at 132 bid, 134 offered.

"It doesn't really move, it's so high already," another source said of USG.

Those four companies were among dozens forced into Chapter 11 under a flood of asbestos-related lawsuits earlier in the decade. Those suits would be converted into claims that would be taken out of the courts and handled by the claims fund being set up, assuming the bill is passed. It now goes onto the full Senate, although there remains considerable opposition to the controversial measure (see separate story elsewhere in this issue).

Delta moves up

Elsewhere, Delta Air Line's bonds were seen heading skyward, in tandem with its shares - even though the airline industry's fundamentals remain problematic, and Delta itself remains on very shaky ground, liquidity-wise.

Delta "closed higher," a trader said. "It took off late in the afternoon, after being quiet all day."

He saw the company's flagship 7.70% notes due 2005 "probably up four points" at 82 bid, 83 offered, while its 8.30% notes due 2029 were two points better at 26 bid, 27 offered.

A trader in distressed notes agreed that Delta's bonds "were up a lot today," seeing the 7.70s at 81 bid, 83 offered, the 8.30s at 27 bid, 29 offered, and the 7.90% notes due 2009 at 36 bid, "all up at least a point or two."

Delta's shares meantime jumped 52 cents (15.52%) to $3.87 on volume of 5.6 million shares, more than the usual 3.5 million.

Delta rose even though world oil prices were also up, with light sweet crude for July delivery rising three cents to settle at $51.01 on the New York Mercantile Exchange, on a decline in U.S. crude inventories heading into the summer driving season. Crude prices had recently been as low as around $47 a barrel, driving a rally in airline stocks and bonds, but have crept up above the psychologically potent $50 market over the past two sessions.

Even so, Delta's shares led an airline sector rally, and its bonds did likewise.

A trader speculated that the bonds might be up on market rumors - so far unsubstantiated - that cash-strapped Delta might be on the verge of lining up $300 million in new second-lien financing, possibly to be provided by General Electric Capital, which along with American Express Co., provided about $1 billion of new funding for the airline last year.

"GE and American Express lent the company the billion last year, and this would be like GE lending some of the collateral from the previous deal. They're extrapolating from last year - GE coming back just like last year to save them, and adding $300 million of liquidity. For them, that would be huge."

Delta "already had a loan open with them and used that up, and it looks like they're tapping a second-lien deal with them for another $300 million." At least, he said, "that's the rumor."

However, a well-informed bank debt market source was highly skeptical the sudden financing buzz, saying that from where he sat, he could see nothing going on in the way of any kind of GE financing right now, and he indicated that they would be the ones to be involved in this if anyone was.

Other airlines higher except Northwest

The traders saw most other airline paper at least somewhat better, with AMR Corp.'s 9% notes due 2012 a point better at 77.5 bid.

However, the first trader saw Northwest Airlines Corp.'s 8 7/8% notes due 2006 "come under negative pressure this morning" on news that the Eagan, Minn.-based carrier had reached an impasse in its labor talks with the union representing the airline's mechanics, and have asked a federal mediator to release them from further negotiations. The mechanics have till June 8 to respond to the airline's request.

Northwest's notes were seen down about two points on the day at 71.75 bid, 72.75 offered.

Calpine firms further

Back on the ground, Calpie Corp.'s second-lien bank debt was up a touch on Thursday, and its bonds were also better, on Wednesday's news that the company is accelerating its debt paydown strategy by targeting a reduction of more than $3 billion by the end of 2005 as opposed to by the end of 2006 as was previously planned.

The bank debt started out the day at 74 bid, 76 offered, compared to Wednesday's closing levels of 73.5 bid, 75.5 offered, according to a trader. On Wednesday, the bank debt had moved up by at least two points on the company announcement.

Bond traders meantime said that Calpine's 8½% notes due 2010 were half a point better at 70 bid, while its 8¾% notes due 2013 firmed by ¾ of a point to 69.25. The big winner, however, was the company's 8½% notes due 2011, which jumped three points to 56.5 bid, a market source said. Another source saw Calpine's 7 7/8% notes due 2008 two points better at 55 bid, while the Calpine Canada 8½% notes due 2008 were up nearly three points on the session at 57.5 bid.

In its presentation at its annual investors' meeting Wednesday, Calpine went on to say that it is aiming to sell certain power and gas assets to reduce debt, lower annual interest cost and increase cash flow. In addition to previously announced potential asset sales, the company is targeting the sale of up to eight plants.

And, Calpine is looking to decrease operating and maintenance costs and lower fuel costs to improve the operating performance of power plants, significantly boosting operating cash flow and liquidity.

Mirant better

Also in the power generation sphere, a distressed-debt trader saw Mirant Corp.'s 2½% busted convertible notes two points better at 75, while the bankrupt Atlanta-based company's defaulted 7.40% junk bonds due 2004 were at 75.5, up about 1½ points.

Meridian loans drop

Out of the automotive sector, Meridian Automotive Systems Inc.'s pre-Chapter 11 bank debt slid lower Thursday as news that the company's debtor-in-possession financing facility was pulled from the market was heard all around.

The first-lien bank debt quoted at 87 bid, 90 offered and the second-lien bank debt was quoted around 64, according to a trader.

Earlier this week, the first-lien paper was quoted at 98 bid, par offered and the second-lien was quoted around 74 but the two tranches fell off considerably in Wednesday's session on negative buzz to 92 bid, 95 offered on the first and 65 bid, 70 offered on the second, the trader added.

The DIP, which launched about two weeks ago, consisted of a $175 million revolving tranche A with an interest rate of Libor plus 250 basis points and a $200 million term loan B with an interest rate of Libor plus 350 basis points.

Maturity was going to be the earliest of 18 months from the date of filing, 45 days after the entry of the interim DIP if the final DIP order has not been made, confirmation of a plan of reorganization or the acceleration of the loans in accordance with the DIP agreement.

And, proceeds were going to be used to repay the company's first-lien debt.

But according to various market sources, the $375 million DIP was pulled, although to what extent is still unknown as some had heard that lead bank JPMorgan cancelled its DIP commitment for the company in its entirety while others heard that the deal was postponed for now since syndication seemed to be falling apart.

"The company missed numbers and have a reputation for doing that so guys were very unhappy and that deal fell apart," one source added.

Calls to the Dearborn, Mich.-based supplier of front- and rear-end modules, lighting, console modules, instrument panels and other interior systems about this matter were not returned prior to press time.

In that same autosphere, Collins & Aikman Products Co.'s 10¾% senior notes due 2011 were seen unchanged at 40.5 bid, 41 offered, while the bankrupt Troy, Mich.-based automotive interior components supplier's 12 7/8% subordinated notes due 2012 continued to languish down around five cents on the dollar.

In an unusual development for a pre-holiday week, activity was seen as brisk on the final full trading session ahead of the three-day Memorial Day holiday weekend, which will see the debt markets in an early close (2 p.m. ET) on Friday, followed by a full closure of the U.S. financial markets on Monday.

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