Owens Corning bonds continue to firm, though bank debt steadies

By Paul Deckelman and Sara Rosenberg

New York, Dec. 1 - Owens Corning's bonds continued to firm on Wednesday, apparently pushed up by investor optimism about the prospects for a resolution - once and for all - of the asbestos litigation crisis that sent the Toledo, Ohio-based insulation maker and dozens of other companies running for the shelter of Chapter 11.

In bank debt dealings, Owens Corning's paper, and that of W.R. Grace & Co., was seen having stabilized after a small run-up on Tuesday, according to a trader, with Owens still quoted around 88.5 bid, 90 offered and Grace still quoted around 116.25 bid, 117.5 offered.

Owens had jumped about two or three points and Grace had improved about half a point during Tuesday's session, as both companies' stocks were higher.

That was not the case on Wednesday, with Owens Corning's shares - which had jumped more than 20% on Tuesday - declining by 29 cents (5.99%) to $4.55. Volume was 7.7 million shares, about five times the norm. Columbia, Md.-based specialty chemicals manufacturer Grace's shares, however, were up 22 cents (1.62%) to $13.82.

But Owens Corning shares continued to firm, unfazed by the possibility that they may have risen too far, too fast; a trader in distressed bonds quoted the company's 7½% notes de 2005 as having risen to 80 bids, 82 offered from bid levels in the 76-78 area on Tuesday.

At another desk, the Owens Corning bonds were seen at 79.75, up a whopping 3¼ points on the day.

A market source there saw the bonds of another bankrupt asbestos-challenged company - Lancaster, Pa.-based floorcovering maker Armstrong World Industries - having firmed about 1½ points, to 69 bid, while those of bankrupt Southfield, Mich.-based auto parts maker Federal-Mogul Corp. were likewise up 1½ points, to 32.25.

The first trader meantime saw Armstrong hovering in a 69-70 bid context,and he saw Chicago-based building products maker USG Corp.'s bonds unchanged around 108.

The companies were all driven into bankruptcy over the past several years as a result of the flood of asbestos-claims filed by people alleging medical problems as a result of having been exposed to asbestos - either as employees involved in the making and packaging of asbestos-containing products, or as purchasers or end-users of the products. Asbestos was once widely used in a variety of industrial applications due to its fire-retardant properties until it was discovered in the 1970s that it was a carcinogen, particularly among people with long-term exposure.

That's where things stood until earlier this year, when Congress made an effort to put aside partisan wrangling and draft a workable bill that would set up a claims mechanism, to be funded by the asbestos companies themselves and their insurers.

The expressed good intentions of the party leaders aside, the Democrats and Republicans were unable to come to a definitive agreement for the claims-payment mechanism bill, due to disputes over how big the payoff fund would be and over whether plaintiffs who participate in the claims process should also retain the right to still go to court if they didn't like their award.

In the early fall, Senate Democratic leader Tom Daschle (D.-S.D.) and his GOP opposite number, Bill Frist (R.-Tenn.), finally managed to agree upon the size of the proposed claims-payment fund at $140 billion. But the other issues remained very much in dispute at the time of the Nov. 2 election - which saw the Republicans not only retain the White House and keep control of both houses of Congress, but actually tighten their grip on both the House and the Senate. Among their victories was the ouster of Daschele by John Thune (R.-S.D.).

Since election day, the stocks and bonds of the asbestos companies have moved skyward - even when, as in the case of Owens Corning - the company warned that shareholders would likely get nothing when the company reorganizes.

"Investors are clearly hoping the Republicans are able to get something done," given their greater control of both houses of Congress - and the object lesson about the perils of being perceived as an obstructionist that Daschle's defeat may pose to other Democrats who will still be there next year.

Also seen adding to the perception that there may be some light at the end of the asbestos tunnel was Tuesday's news that a bankruptcy judge had approved a final settlement between Halliburton Co.'s bankrupt subsidiaries such as Kellogg Brown & Root and their insurers, which should pave the way toward the Houston-based oil services and construction company being able to finally dispose of its long-running asbestos problems, by the establishment of a trust fund to pay future claims. The settlement will bring in more than $1.5 billion from scores of insurance carriers, with the money going to pay claimants seeking asbestos-related damages.

Delta gains

Elsewhere, bonds of air carriers such as Delta Air Lines Inc. were going up as world crude oil prices were heading the opposite way; light, sweet crude for January delivery - which had spiked above $55 a barrel in mid-October - fell on Wednesday $3.64 to $45.49 per barrel on the New York Mercantile Exchange-the lowest settlement price since Sept. 16.

The direction of crude prices is seen as a reliable indicator about the direction of jet fuel prices, now estimated to be around $1.50 a gallon for unhedged positions.

Delta - which has also recently been making steady progress in getting its pilots and other employees to agree to take big pay cuts to stave off bankruptcy, and which is trying to trim its $20 billion debt load - has been riding the crest of the latest fall in oil prices.

On Wednesday, the Atlanta-based carrier's bonds were seen better, its 8.30% notes due 2029 at 42.5 bid, up ¾ point; its 7.90% notes due 2009 were up half a point at 56.5; however, its 7.70% notes due 2005 were unchanged at 86.5.

On the other hand, a trader saw the 7.70s firming two points to 87.5 bid, 89.5 offered, although he saw the 8.30s unchanged at 42 bid, 43 offered.

The trader also saw Northwest Airlines Corp.'s 9 7/8% notes due 2007 up solidly at 88.5 bid, 89.5 offered from 87 bid, 88 offered. And he saw Continental Airlines Inc.'s 8% notes due 2005 rise to 95.25 bid, 96 offered from 94.5 bid, 95.5 on Tuesday.

Clearly, he said, "with oil off $3.64, that gave a nice spark to the airlines."

Back on the ground, bankrupt Troy, Mich.-based auto components maker Intermet Corp.'s 9¾% notes were seen having fallen to 26 bid, 28 offered from 29 bid, 31 offered. No fresh negative news was seen out on the company.

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