Owens Corning bank paper continues to ease; Pegasus bonds down again

By Paul Deckelman and Sara Rosenberg

New York, June 9 - Owens Corning Inc.'s bank debt was a bit lower on Wednesday, with the Toledo, Ohio-based insulation maker's paper quoted at 76 bid, 77 offered, a trader said, versus previous levels of 76.5 bid, 77.5 offered.

The company's bonds, meanwhile were seen remaining in the 43-44 bid context to which they had recently moved on investor optimism that matter might soon be resolved - even though an agreement announced earlier in the week by the company pegs the anticipated recovery at around 38.5 cents on the dollar.

Owens Corning's bank debt has dropped about a point and a half since Monday, when the U.S. trustee filed a document with the federal bankruptcy court in Wilmington, Del. saying that the process of Owens Corning's reorganization should be investigated by an examiner so as to determine whether there was anything improper occurred.

A motion to appoint an examiner had already been put forward by Credit Suisse First Boston and others holding pre-Chapter 11 bank debt. They contend that the judge formerly hearing the case, Alfred Wolin, and his advisors, favored the asbestos claimants' attorneys, and charged that the company had developed a plan reflecting that bias.

Wolin was subsequently removed from hearing the company's case and those of several other asbestos-linked companies, over the objections of the companies themselves and their asbestos claimants, and last week announced his retirement from the bench, despite moves to restore him.

Among the issues the trustee wants the examiner to investigate are the basis for the $16 billion valuation of Owens Corning's asbestos liability; the conduct of the asbestos claimants' lawyers; and whether conduct has occurred that should be referred to the U.S. attorney's office for investigation.

Owens Corning objected to the appointment of an examiner, saying that after the pre-petition bank debt holders saw they would not get a 100% recovery they did everything they could to impede the reorganization plan.

Also on Monday, the company announced that an agreement in principle has been reached with asbestos creditors and the official representatives of pre-petition bondholders and trade creditors.

The only group not supporting the plan is holders of pre-petition bank debt.

The agreement provides that all holders of bonds, bank debt and senior trade debt will receive a recovery equal to 38.5% of their claims upon the company's successful emergence from Chapter 11. The recoveries of all creditors are based on certain agreed and assumed values and will be comprised of cash, debt and equity.

Owens Corning entered Chapter 11 on Oct. 5, 2000.

Other asbestos bonds mixed

Bonds of other asbestos-related companies were meanwhile seen mixed on Wednesday, with Lancaster, Pa.-based floorcovering maker Armstrong World Industries' 7.45% notes due 2029 dipping to 55.5 bid, off a point, and the company's other bonds down a point to 56.

Southfield, Mich.-based auto parts maker Federal Mogul Corp.'s bonds were hovering around the 26 bid level, unchanged, while Chicago-based sheetrock producer USG Corp.'s 8½% notes due 2005 were two points better at 106 bid, and its defaulted 9¼% notes due 2001 up a point at 102.

Pegasus bonds lose again

Elsewhere, Pegasus Satellite Communications Inc.'s bonds were "just getting weaker and weaker," a trader said, quoting the bankrupt Bala Cynwyd, Pa.-based satellite TV programming distributor's senior notes, such as its 12 3/8% notes due 2006, going home at 46 bid, 48 offered, down from 51 bid, 53 offered on Tuesday and 56 bid, 58 offered on Monday.

He noted that the judge handing the company's case is scheduled to rule at 3 p.m. ET Thursday on whether to grant a stay of DirecTV's case against the company.

"If they get a stay, it would be good for PGTV - but it would only be temporary," he said. "And if they don't get their stay - well, then it's Katie, bar the door, and the bonds will probably go lower."

Leap debt up again

Also in the communications area, Leap Wireless International Inc.'s bank debt once again jumped to higher level Wednesday, with the paper quoted at 120 bid, 122 offered, according to a trader. On Tuesday the paper was quoted at 116 bid, 117 offered. The debt closed last week at around 110.

"That is way too high," the trader said regarding Leap's leap. "MetroPCS is going public and there's talk that it will trade 12 to 13 times EBITDA. That's a high evaluation but Leap is already trading 8½ to nine times EBITDA."

Since starting the rally at the beginning of the week most people have been citing new valuations as the primary driver behind the charge.

The belief is that there is great equity value behind the San Diego -based telecom provider's name.

And since bank debt holders will receive debt and equity in consideration for their positions as part of the Chapter 11 reorganization plan, the more equity value people attribute to the company, the better the bank debt trades.

Salton continues rise

A trader said that Salton Inc.'s bonds "just keep movin' up" from recent lows, although they remain well below the near-par levels they held before the Lake Forest, Ill.-based small appliance maker's report of a wider quarterly loss some weeks ago.

Still, he said, "they're on a moonshot ride," with Salton's 10¾% senior notes up a point on the day to 79.5 bid, 81.5 offered, and its subordinated 12¼% notes also a point better at 69.5 bid, 71.5 offered.

"They've bounced back smartly" from their recent lows he said, that saw the juniors trading around 60 bid and the seniors about 10 points above that, at 70.

Stock investors think so as well; despite a lack of fresh news Wednesday, Salton's New York Stock Exchange-traded shares jumped 65 cents (11.50%) to $6.30 Wednesday, though on lighter than usual volume.

HealthSouth up more

HealthSouth Corp. bonds continued to firm, in the wake of the news that the Birmingham, Ala.-based provider of outpatient medical services had come to a meeting of the minds with dissident bondholders, to gain their consent for default waivers the company must have if it is to avoid debt acceleration and continue what it hopes will be a consensual out-of-court restructuring.

HealthSouth's 6 7/8% notes due 2005 were being quoted at 100.5 bid, up from 98 previously, while its 7 3/8% notes due 2006 were seen three points better at par. Its 8 1/8% notes due 2008 went to 98.25 bid from 97.5 offered, while its 7% notes due 2008 moved up to 97 bid from 96.5. A source saw its 10¾% notes due 2008 having jumped all the way to 101.25 bid from 97 previously, but said that the company's 7 5/8% notes due 2012 had dipped to 96 bid from 97.5, while its 8 3/8% notes due 2011 were unchanged at 97.

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