aaiPharma bonds jump on auction result; Foamex swoon continues; loan trading focuses on power names

By Paul Deckelman and Sara Rosenberg

New York, July 13 - aaiPharma Inc.'s bonds jumped Wednesday on the news that privately held Xanodyne Pharmaceuticals Inc. was declared the winning bidder in the court-approved auction held Monday for substantially all of the assets of the bankrupt Wilmington, N.C.-based drug maker's pharmaceuticals division.

Going in the opposite direction, Foamex LP's subordinated notes continued to erode dramatically in the wake of the troubled Linwood, Pa.-based foam rubber products manufacturer's warning that second-quarter results will be considerably weaker than originally anticipated.

In distressed bank loan trading, the power sector was the primary focus of the day, as energy names like Mirant Corp. and Calpine Corp. saw a noticeable weakening in levels, while project financing names like Boston Generating saw a sizable strengthening in levels.

A trader saw aaiPharma's 11½% notes due 2010 at 71 bid, 73 offered, which he estimated was at least 14 or 15 points over where those bonds had been trading pre-news.

At another desk, a market source saw the bonds close at 72, well up from previous levels in the 55 area.

Another trader, though, said that the company's bonds had actually been firming for "a couple of days," quoting them as having advanced to 63 bid on Tuesday from prior levels at 54 bid, 56 offered, perhaps on expectations that an announcement might be made Wednesday, and then having continued on upward in Wednesday's dealings to 72 bid, 74 offered post-news.

aaiPharma filed for Chapter 11 on May 10 after having struggled since early March 2004 with accounting problems stemming from improperly reported sales of two of its key products, the asthma medication Brethine and the painkiller Darvocet. The company was also beset by unusually brisk turnover among its senior executives.

It said that Xanodyne's $209.3 million cash bid - which is subject to approval by the court - was about $40 million higher than the company's original "stalking horse" offer which aaiPharma announced as part of its filing for Chapter 11.

The U.S. Bankruptcy Court for the District of Delaware is scheduled to hold a hearing at which the sale is expected to be formally approved on July 18 in Wilmington, Del.

Besides purchasing the division, Xanodyne also committed to buy up to $30 million of services from aaiPharma's development services division over the next three years, subject to certain conditions.

Foamex plunge goes on

Elsewhere, Foamex's subordinated bonds continued to melt down, with a trader calling its 13½% notes slated to mature on Aug. 15 "a complete blow up." He saw those bonds "getting crushed," falling to quoted levels around 46 bid, down a startling 45 points from the levels they held in the lower 90s at the end of June.

"The bonds are compressing" to levels near those of the company's 9 7/8% notes due 2007, which eased to around the 26.5 bid, 27.5 offered level from around 30 previously, although he acknowledged that "they still have a ways to go to catch up."

A market source at another desk estimated that the 131/2s had fallen more than four points on the day to 46 bid, while the 9 7/8s dropped six points to 24 bid.

However, another trader saw the 131/2s quoted at a very wide 30 bid, 45 offered, down from 45 bid, 50 offered on Tuesday, while the 9 7/8s retreated to 22 bid, 24 offered from 30 bid, 31 offered. The trader said that the 131/2s would likely fall still further to approximate levels around those of the 9 7/8s, since the two classes of bonds are pari passu in the event of a restructuring scenario, which appears increasingly likely.

Yet another trader saw the 9 7/8s quoted as low as 19 - which he called "a stupid bid" not to be taken seriously - before ending at 22 bid, 25 offered. The 131/2s, he said, fell to a wide 40 bid, 50 offered from opening levels around 46.

While all of that was going on in the company's junior bonds, traders saw Foamex's 10¾% notes due 2009 - which are secured, second-lien notes - a little lower, but really not much affected by the earnings warning and the collapse of the subordinated notes. Most quoted the bonds around an 82 bid, 84 offered context, down perhaps half a point on the session.

Several traders said that the 9 7/8s and the 131/2s were now trading flat, or without their accrued interest - equivalent to an additional loss of several points off the nominal price - while the 103/4s continued to trade with interest.

The Foamex subs swooned after the company cautioned late Monday that the second quarter would be "challenging," and warned that results would come in significantly below prior expectations, although it did not give any specific numbers.

The 131/2s have additionally been bedeviled by the fact that holders of the 10¾% senior notes due 2009 have reportedly petitioned the company not to pay those bonds off when they mature.

In its announcement after the close Monday, Foamex also said that it had retained investment banking firm Miller Buckfire & Co. to help evaluate strategic alternatives.

Mirant, Calpine loans dip

In the bank loan market, power generators Mirant Corp. and Calpine Corp. saw a noticeable weakening in their respective levels.

Bankrupt Atlanta-based Mirant saw its 2003 bank debt fall off by about a point to 84.5 bid, 85.5 offered, from 85.5 bid, 86.5 offered.

Its bonds were meanwhile seen down about half a point, a trader said, although he said that for all intents and purposes, they were pretty much unchanged. Mirant's 7.90% notes due 2009 were seen around 97 bid, while its 7.40% notes due 2004 were pegged around the 96.25 level.

Mirant's notes and bank debt had been firming sharply ever since the company's disclosure on July 1 that the U.S. Bankruptcy Court in Houston, which is overseeing Mirant's reorganization, had ordered the company and its advisor, Blackstone Group, to come up with a different method of estimating the company's enterprise value. Shareholders had argued - and the court agreed - that the previous method the company had used had badly underestimated the company's total value, with shareholders shut out of a potential return. However, over the past two sessions, it appears that that rally has run out of gas.

Calpine, meantime was also seen lower, with the San Jose, Calif.-based power company's second-lien bank debt off by about two points to 82 bid, 83.5 offered from around 84.5 bid, 85.5 offered, according to a trader.

A bond trader saw Calpine's 8¼% notes due later this year at 98.5 bid, 99.25 offered from prior levels at 99.75 bid, 100.75 offered, while its 8½% notes due 2011 lost 1½ points to 67 bid, 68 offered.

A source at another shop saw the bonds "down a couple of points," with the 81/2s two points down, at 66.5 bid, the 8¾% notes due 2007 off a pair at 77, and the 2007 floating-rate notes off a point at 83. Calpine's 8 5/8% notes due 2010 sank to 67 bid from 68.5 previously.

Calpine "was pretty much the name du jour," the first trader said. "There's a couple of lawsuits - Harbert [a major bondholder] is involved in two lawsuits against them, and you had the whole tender that didn't go the way they planned," when only $138 million of its 9 5/8% first priority senior secured notes due 2014 were tendered to the company, leaving the bulk of the issue - $646 million - still outstanding.

Project finance loans up

On the upside, project financing names like Boston Generating, saw a noticeable strengthening in their bank debt levels. That particular paper rose by about two to three points on the day, closing out the session at 135 bid, 136.5 offered, a trader said.

"It's probably just market technicals," he explained, adding that there was no specific news out during Wednesday's session that would have created this type of movement in the power sector.

Winn-Dixie better

A trader in distressed bonds meantime said that Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 firmed to 71 bid, 73 offered from prior levels at 68 bid, 70 offered. No fresh news was seen out Wednesday on the bankrupt Jacksonville, Fla.-based supermarket chain, now in the process of closing and trying to sell 326 of its 913 stores in the southeastern United States and the Bahamas.

Among bankrupt auto parts suppliers, Collins & Aikman Corp.'s 10¾% senior notes due 2011 gained half a point to 28.5 bid, 29.5 offered, while Tower Automotive Inc.'s 12% notes due 2013 and its convertible notes were each two points ahead, at 71 bid, 73 offered and 23 bid, 25 offered, respectively. Federal-Mogul Corp.'s bonds went up to 27 bid, 28 offered from 25.5 bid, 26.5 offered.

The latter company, a Southfield, Mich.-based auto parts manufacturer was at the same time the only one of the three widely followed companies with asbestos concerns to show movement Wednesday, although there seemed to be no positive news on the asbestos front coming out of Washington, where it now appears that legislation creating a $140 billion trust fund to pay off asbestos claims and get those cases out of the courts, is stalled. An aide to Senate Majority Leader Sen. Bill Frist, R.-Tenn., said that it was unlikely, that bill - passed some weeks back by the Senate Judiciary Committee - will get out to the full Senate for a floor vote any time this week or next.

Asbestos-challenged Owens Corning's bonds were seen unchanged at 74 bid, 76 offered, while Armstrong World Industries' bonds were steady at 78 bid, 80 offered.

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