Owens Corning loans continue climb; Adelphia bonds fall

By Paul Deckelman and Sara Rosenberg

New York, Feb. 9 - Owens Corning's bank debt rallied another four points during Wednesday's session, bringing the total gain for the week to an astonishing 17 points, with the momentum still attributed to the substantive consolidation issue.

In bond trading, Adelphia Communications Corp.'s bonds were seen points lower across the board, although there was no fresh significant news seen out about the bankrupt Greenwood Village, Colo.-based cable operator.

Owens Corning's bank debt was quoted at 107 bid, 108 offered, up from Tuesday's closing levels of 103 bid, 104, according to one trader. A second trader placed the bank debt even higher, at 107.5 bid, 108.5 offered on Wednesday.

At market open on Monday, the bankrupt Toledo, Ohio- based building materials company's paper had been quoted at 90 bid, 92 offered.

The rally began once the actual court hearing on substantive consolidation ended late Monday afternoon, and although no decision on the issue has been announced, the "reaction on the judge's part has been driving it up," a bank debt trader previously explained.

The substantive consolidation issue has been a sore point in trying to work out an accommodation among the different classes of creditors fighting over what kind of returns they will get on their claims when the company finally emerges from years of asbestos-induced bankruptcy litigation.

Bank creditors claim priority for their stakes, which in Owens' case reflect loans taken out through different subsidiaries and guaranteed by the parent. Non-bank creditors, such as the bondholders, have sought to essentially collapse the different entities into one consolidated entity and figure out the claims from there.

The company's bonds, meanwhile, continued to struggle, since a win for the bank debt holders on the substantive consolidation issue is of necessity a setback for other creditors, including the bond holders.

Those bonds - which had recently traded as high as the upper 70s - have been falling steadily, languishing around 64 on Wednesday. They've been pushed down by a combination of factors, including the battle over substantive consolidation, as well as what seems to be a stalling of the momentum which had been seen earlier in the year in efforts on Capitol Hill to craft a mechanism for paying asbestos illness claims that would also stem the tide of future lawsuits of the kind that drove companies like Owens Corning into bankruptcy earlier in the decade.

Partisan wrangling over the size of the claims fund, its exact workings and whether plaintiffs would still retain the right to file suit anyway had stalled action on the issue earlier in the decade, including last year, when several rounds of talks between Republican leader Sen. Bill Frist of Tennessee and then-Senate Democratic chief Tom Daschle of South Dakota ended in a stalemate. The sweeping Republican electoral victory in November - which strengthened the GOP hold on both houses of Congress and included Daschle's defeat - sparked hopes that a new bill could be passed quickly when a new session of Congress convened last month.

Indeed, Senate Judiciary Committee chairman Sen. Arlen Specter of Pennsylvania had opened the year promising quick hearings on a bill he had drafted that would establish the $140 billion industry-funded claims mechanism, and had spoken hopefully of getting a bill passed and sent to the House of Representatives for consideration by the end of January - but that target date has come and gone, with voting on Specter's bill delayed, first by a Democratic desire to study the bill for a longer time, and now, by a similar Republican delay. Specter has now said he hopes to get a bill done this month - but some in the Republican majority are unhappy with provisions of his bill, which they feel does not contain enough safeguards against frivolous claims by people who have not yet actually manifested any asbestos-related symptoms, and against double-dipping - getting an award from the claims mechanism and filing an insurance claim as well.

Bonds of other bankrupt asbestos-challenged companies are easier these days as well, including Armstrong World Industries, the Lancaster, Pa.-based floorcovering maker; its bonds have fallen to 71.5 bid, down from 73 previously.

Adelphia bonds lower

Elsewhere, bonds of Adelphia Communications were seen lower Wednesday, although there was no fresh news out on the company, which is currently weighing bids it got from different would-be buyers for its $17 billion of assets in a bankruptcy auction that ended on Jan. 31.

Adelphia's 9 7/8% notes due 2005 fell to 84 bid from 87.5 previously, while its 7½% notes that were to come due in 2004 and its 7¾% notes due 2009 both closed at 83.5, down a point and two points, respectively. Its 10 7/8% notes due 2010 lost a point to finish at 87.5 bid, while its 11 7/8% notes due 2007 trading up in nosebleed territory, finished half a point lower on the day at 132.

Muzak drops to distressed levels

Muzak LLC's 9 7/8% subordinated notes due 2009 fell deeply into distressed territory, tumbling all the way to 57 bid from prior levels around 70.

A trader attributed the drop to news that one of the Fort Mill, S.C.-based recorded music company's independent directors had resigned.

On Tuesday the company reported in a filing with the Securities and Exchange Commission that David Unger had left the board.

Noting he was the only independent director, Unger said in a message that he had left because of what he felt were "the company's failure to report material facts involved with operations, lawsuits among other things as well as unwillingness by management and the majority shareholder to institute proper safeguards, including but not limited to the establishment of an independent audit committee.

"Consequently, I have no choice but to relinquish this role to avoid potential personal liability.

"I urge all parties concerned to take a more active role in the operations of the company and to start demanding more accountability from the management and the representatives of the majority shareholder."

Muzak said in the filing that it is not required to have an audit committee because its securities are not listed on a national exchange.

The directors meet with the external auditors as necessary but at least quarterly and have a formal presentation once a year, Muzak added.

"Further, the company believes that the board is fully apprised of all material business developments in a timely manner and that it discloses material issues in its filings with the Securities and Exchange Commission in accordance with securities laws and regulations," the company's response in the SEC filing said.

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