Asbestos bonds easier as Hill fight rages; Calpine makes DIP changes

By Paul Deckelman and Sara Rosenberg

New York, Feb. 9 - Bonds of asbestos-challenged companies were seen lower Thursday as the bill that would establish a $140 billion industry- and insurance-funded trust fund mechanism to deal with medical asbestos claims came under assault on Capitol Hill, even though supporters eventually beat back the challenge.

In the bank debt market, Calpine Corp. made some changes to its two-year debtor-in-possession financing facility, moving funds around from the second-lien term loan to the first-lien term loan and changing second-lien pricing, according to a market source.

Dura Automotive Systems Inc.'s bonds - particularly its 9% subordinated notes due 2009 - were seen solidly higher, as the Rochester Hills, Mich.-based automotive components manufacturer reported better fourth-quarter net income - though lackluster operating numbers - and announced plans for a massive operational restructuring, that will take place over the next two years. A late-session announcement from Standard & Poor's lowering its debt ratings a notch apparently had little or no impact.

A trader in distressed notes said that the bonds of bankrupt Toledo, Ohio-based insulation maker Owens Corning were "down a couple of points" at 88 bid, 90 offered, while bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc. was likewise lower at 75 bid, 77 offered.

He cited "the same old news coming out of Washington," as opponents of the claims fund bill engaged in parliamentary maneuvers to try to scuttle it. That meant more delay in getting final consideration for the asbestos bill, which began kicking around the Senate more than a year ago; while the Senate Judiciary Committee passed the measure last May, it's been on the back burner ever since then. The bonds apparently fell on market fears of continued delay - or even having to go back to Square One altogether - should the current bill fall by the wayside.

In Thursday's action, opponents of the claims fund concept tried to spike the bill and instead proposed that the Senate revise the medical guidelines for bringing claims before the courts. That idea was overwhelmingly beaten back on a bipartisan vote. However, the bill's foes continue to snipe away at it, warning that the taxpayers might be left holding the bag should the $140 billion stipulated in the bill not prove to be enough to pay all present and future claims and the fund runs out of money.

Supporters of the bill say it's the only way to fairly ensure that sick claimants have their compensation requests handled quickly, while getting those cases out of the courts. A veritable flood of asbestos related lawsuits within the past 10 years drove a number of companies, including Owens Corning and Armstrong, to seek bankruptcy protection.

Calpine ups first lien piece

In the bank loan market, Calpine's first-lien term loan was expanded, so it is now sized at $400 million, up from an original size of $350 million, a market source said, adding that price talk on the tranche remained unchanged at Libor plus 225 basis points.

On the flip side, the second-lien term loan is now sized at $600 million, down from an original size of $650 million, the source said.

Furthermore, pricing on the second-lien term loan was reverse flexed to Libor plus 400 basis points from original price talk at launch of Libor plus 450 basis points, the source added.

The bankrupt San Jose, Calif.-based power generating company's $2 billion secured debtor-in-possession financing facility also contains a $1 billion revolver, which was left unchanged in terms of size and pricing - currently set at Libor plus 225 basis points. The revolver carries a 75 basis point commitment fee that drops to 50 basis points if usage is greater than 65%.

Deutsche Bank and Credit Suisse are joint lead arrangers and joint bookrunners on the deal.

Tembec resumes downward path

Elsewhere, struggling Canadian forest products company Tembec Industries Inc.'s bonds seem to have had their bounce from oversold low levels; after having firmed all week on market reaction to last week's weakness, plus some financing buzz and some sector consolidation speculation coming out of an industry conference earlier in the week in Montreal, those bonds were seen heading back downward on Thursday.

"Sellers came out," a trader said, "although it was no great shakes,"

He saw Tembec's 8 5/8% notes due 2009 at 50 bid, down from 52.5 bid, 53.5 offered on Wednesday. Its 8½% notes due 2011 were at 48 bid, down from 50 bid, 51 offered, while its 7¾% notes due 2012 eased to 47 bid, down from 48 bid, 49 offered earlier.

Movie Gallery lower

The trader also saw Movie Gallery Inc.'s 11% notes due 2012 having slipped to 66 bid, 67 offered from prior levels around 69 bid.

The bonds are lower in tandem with a sharp retreat over several days by the Dothan, Ala.-based Number-Two U.S. video rental chain's shares. That slide came on news that the company plans to meet with lenders to amend its credit facilities and reaffirmed its forecast for fourth-quarter losses.

Delphi lower

In the troubled automotive sphere, a trader saw bankrupt Troy, Mich.-based automotive components maker Delphi Corp.'s 6.55% notes due 2006 down a point at 54 bid, 54.75 offered, while its 7 1/8% notes due 2029 were at 55 bid, 55.75 offered, also a point lower. Money-losing Toledo, Ohio-based components maker Dana Corp.'s 5.85% notes due 2015 were seen unchanged at 67.5 bid, 68.5 offered.

Dura stronger after earnings

The major mover in the sector, however, was Dura, whose bonds were seen better as the company posted higher fourth-quarter net earnings and outlined a broad restructuring of its operations.

A trader saw its Dura Operating Corp. 9% subordinated notes due 2009 having moved up to 52 bid, 54 offered from prior levels around 49, while its 8 5/8% senior notes due 2012 also firmed, to 82 bid, 83 offered, from Wednesday's closing levels around 80 bid.

Another trader - who saw the bonds even better - commented that they "were definitely really hopping," with the 9s having pushed as high as 54.5 bid, 55 offered, "up a couple of points," after having hit a 50 bid earlier in the morning.

He said that the senior notes also felt better at 82.5 bid, 83.5 offered, after having traded into an 82 bid earlier.

Dura's Nasdaq-traded shares were up 39 cents (17.03%) to finish at $2.68. Volume of 1.3 million shares was 10 times the norm.

Dura said its net income grew to $10.3 million (54 cents per share) versus year-earlier net income of $1.9 million (10 cents per share), even as revenues declined to $564.4 million in the quarter ended Dec. 31, from $582.8 million a year earlier. However, on a continuing operations basis - which excludes facility consolidation charges, a gain on retirement of debt and the favorable settlement of certain environmental matters - earnings fell to $900,000 (five cents per share) from $4.8 million (26 cents per share) a year earlier.

Dura said that over the next two years, it will undertake and complete what it termed a "significant" restructuring of its worldwide operations. The plan will impact over half of Dura's global operations, either through moving production of selected systems to other facilities, or even outright facility closures. It expects to have the realignment completed by the end of 2007. The company also said that its purchasing organization will "aggressively" cut costs throughout its supply chain, which it said would result in a "significant" reduction of annual purchasing costs.

On a conference call with analysts following the release of the figures, Dura executives said they expected the operational restructuring and the overhaul of the purchasing procedures all to be done by the end of 2007, which would position the company economically to refinance the over $500 million of 9% bond debt before its scheduled maturity in May 2009.

Late in the session, S&P downgraded Dura's ratings, lowering its corporate credit rating one notch to B- from B previously. S&P cited the company's poor near-term earnings and cash flow prospects.

"Dura's operating results have been under pressure because of the very challenging environment facing automotive suppliers, who have to contend with cyclical demand, tough competition, volatile raw material costs and a concentrated customer base that has substantial purchasing power," S&P said in downgrading the company's debt.

"These earnings pressures will continue in 2006, since the company's organic growth is weak and it faces continued difficult industry conditions, including the high costs of raw materials, production and market share uncertainty, and the possibility of labor strife," S&P continued.

While the ratings agency acknowledged that the restructuring initiatives the company outlined are vital to its long-term competitiveness and should produce meaningful tangible benefits, it warned that "the execution risks are great, as Dura must maintain quality and delivery standards while also reconfiguring its manufacturing footprint, realigning its workforce, and continuing to aggressively pursue new business opportunities."

GM down

Also in the automotive sphere, traders saw General Motors Corp.'s bonds, and those of the carmaker's General Motors Acceptance Corp. financial unit, lower. One saw GM's benchmark 8 3/8% notes due 2033 down ¾ point at 72 bid, 72.5 offered, while GMAC's 8% notes due 2033 were down 1¼ points to 96 bid, 96.5 offered.

Another trader said that there had been very brisk trade in the GMAC bonds, "up in the millions" in volume, but at the end of the day, he said, they stayed within a narrow range around 96. "It was a lot of blah," he said.

Ford Motor Co.'s 7.45% notes due 2031 were seen down ¾ point at 72 bid, 72.5 offered, while its Ford Motor Credit Co. financing arm's 7% notes due 2013 were half a point lower at 89.75 bid, 90.25 offered.

Exide steady after earnings

Exide Technologies's 10½% notes due 2013 were seen holding in a narrow range around 75 bid, 76 offered, with a trader characterizing it as "not much activity going on in that one."

The company said that in the 2006 fiscal third quarter ended Dec. 31, it sharply reduced its net loss to $27.7 million ($1.11 per share) from $439 million ($17.56 per share) a year-ago, although the big earlier loss was mostly attributable to a $399 million non-cash goodwill impairment charge and a tax valuation charge of $35.4 million. The latest quarterly loss included $6.5 million in restructuring costs and $1.3 million in bankruptcy-related costs.

The Alpharetta, Ga.-based manufacturer of automobile batteries and other energy-storage systems attributed the better results to price increases on its products and separate surcharges to offset higher costs of lead - a key ingredient in wet-cell batteries - as well as cost cuts from a restructuring the company announced in 2005.

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