Asbestos names consolidate Tuesday gains; North Atlantic Trading up on exec switch

By Paul Deckelman and Sara Rosenberg

New York, April 13 - Bank debt and bonds of various bankrupt companies with big asbestos liability problems were seen pretty much hanging in around the same levels at which they had closed on Tuesday, as the respective markets attempted to digest the big gains seen Tuesday on news reports that Senate negotiators are getting close to agreement on a bill that would set up a $140 billion mechanism to pay medical claims people have filed against the companies and others, arising out of their exposure to asbestos, in some cases decades ago.

Elsewhere, tobacco products importer North Atlantic Trading Co. Inc.'s bonds were up, following the company's announcement of senior management changes.

Armstrong World Industries Inc.'s bank debt was seen by a trader as having opened lower by about two points after Tuesday's big run-up, but then the paper regained its ground ending the day unchanged to slightly weaker at levels of 77 bid, 78 offered.

"People are waiting to see what the next news flow from Washington is," the trader said in explanation of why the paper fell off in the morning. "And then later in the day, the auto workers' union came out saying that they support [Senate Judiciary Committee chairman Arlen] Specter's bill, so they rallied," the trader added.

On Tuesday, asbestos names as a whole rallied in the bank debt market on rumors that the Senate is getting closer to getting its act together and proceeding with the legislation, which has been the subject of partisan wrangling for literally years.

Toledo, Ohio-based insulation maker Owens Corning's debt had jumped up about 5½ points Tuesday to 114.5 bid, 115 offered.

The bank debt of Columbia, Md.-based chemicals maker W.R. Grace & Co. had jumped up about two points to 123.25 bid, 124.25 offered, while Chicago-based building products maker USG Corp. had jumped up about five points to 122 bid, 123 offered and the loans of Armstrong, a Lancaster, Pa.-based floorcovering maker, had jumped up about six points to around 75 bid, 78 offered, a different trader told Prospect News.

On Wednesday, Owens' bank debt was seen pretty much unchanged throughout the day at 113 bid, 114 offered, the first trader said, adding that he never saw it get as high as 114 bid, 115 offered during the previous session. Grace was pretty much unchanged throughout the day as well at 122 bid, 124 offered, and USG was pretty much unchanged throughout the day at 122 bid, 123 offered, the trader added.

Among bond investors, a trader in distressed securities said, Owens Corning and Armstrong "were off two or three points in the morning - but then they went right back up," to close at 78 bid, 79 offered.

Another trader - who had seen the bonds of the asbestos challenged companies end at somewhat lower levels after Tuesday's big run-up - said he saw Owens Corning's 2018 notes gain two points on the day to 77.25 bid, 78.25 offered, up from 75.25 bid, 77.25 offered on Tuesday.

Owens Corning and Armstrong bonds had been seen Tuesday pushing high into the 70s, up 10 to 12 points from prior levels in the 60s.

A source at another desk meantime saw the asbestos company bonds mixed on Wednesday after Tuesday's big advance. Owens Corning, he said, was actually down a point at 77 bid, although Armstrong was actually up 1½ points to 78.5.

He saw USG's bonds debt essentially unchanged, with its 8½% notes slated to come due later this year holding steady at 131 and its 9¼% notes, which were to have been redeemed in 2001, unmoved at 133 bid.

Federal-Mogul misses out on gains

However, one asbestos-challenged non-beneficiary of either Tuesday's big advance or Wednesday's solidifying trend was Southfield, Mich.-based auto parts maker Federal-Mogul Corp., whose bonds "seemed to be moving in the other direction," the source said, seeing those bonds down half a point at 28.5 bid.

The bankruptcy of Federal-Mogul, which at one time owned a company that used asbestos in brake linings but was then forced into Chapter 11 decades later by a deluge of lawsuits, was cited by the United Auto Workers union, which threw its support behind the efforts of Specter, R.-Pa., and the ranking Democrat on the Judiciary Committee, Sen. Patrick Leahy, D.-Vt., to cobble together a compromise bill.

The UAW's legislative director, Alan Reuther, sent a letter to all 100 senators endorsing the plan. He said that the previous method of dealing with asbestos-related health claims, through the courts, resulted in the bankruptcies of companies like Federal-Mogul, and the possible loss of thousands of UAW jobs. He also noted that the courts took way too long to decide the claims - often years - and the awards were uneven, varying from state to state, and said that too much of the monies that were awarded went into the pockets of lawyers rather than to the victims who had actually suffered from their asbestos exposure.

Under the plan Specter has drafted with input from Leahy, the claims process would be taken out of the courts, and claims would be paid from the $140 billion fund, which is to be financed by the asbestos companies themselves and their insurers. Unlike the courts, which have no limit on the damage awards they can hand out, payouts of the claims fund would top out at $1.1 million, and those awards would go only to victims of mesothelioma, a lethal cancer.

The nascent Specter plan was also endorsed by the Veterans of Foreign Wars and other veterans group, who noted that the current court-based system for handling claims completely freezes out present or former members of the military, who cannot by law sue the government for harmful asbestos exposure - it used to be widely used in the construction of Navy ships.

Specter meanwhile is talking with various Republican senators to line up their support for the bill.

North Atlantic better

Elsewhere, North Atlantic Trading's 9¼% senior notes due 2012 firmed to 76 bid from prior levels at 72 and its zero-coupon subordinated notes due 2014 were seen up two points at 17 bid after the New York-based tobacco company announced that Douglas Rosefsky has been promoted to chief executive officer from his prior position as chief financial officer.

Up until now, the CEO position was filled by Thomas Helms, who is also chairman of the board of both North Atlantic Trading Co. and its corporate parent, North Atlantic Holding Co. Inc. Helms, who is also the parent company's major stockholder, will remain as executive chairman and will concentrate on broad strategy for the company, while Rosefsky runs the tobacco importer's day-to-day operations.

Rosefsky is also a managing director of the well-known turnaround firm Alvarez & Marsal, which North Atlantic Trading and North Atlantic Holding Co. have retained as financial advisor.

Brian Harriss moves into Rosefsky's old CFO job after having filled various senior finance, planning and business development positions at consumer products companies including PepsiCo., Inc., Cadbury Schweppes plc and Reader's Digest, Inc.

Auto issuers lose again

Automotive names "continued to get hit," a trader said, noting a sharp decline in Dura Operating Corp.'s 9% subordinated notes due 2009, which sank to 74.25 bid, down four points on the day, while the Rochester Hills, Mich.-based steering systems maker's 8 5/8% notes due 2012 lost ¾ point to 89.75.

The trader saw bankrupt Troy, Mich.-based automotive metal stamping company Intermet Corp.'s 9¾% notes due 2009 a point lower at 55 bid, but saw "nothing" in bankrupt Novi, Mich.-based vehicle frame maker RJ Tower Corp.'s 12% notes due 2013, which have recently languished around 58 bid.

EaglePicher higher

EaglePicher Industries Inc.'s 9¾% notes due 2013, however, were seen having "traded up," a trader said, quoting them 70.5 bid, 70.75 offered at the end of the day, up from 68 bid previously and well up from recent lows around 66 bid, 68 offered.

"Rumors of buy-ins" on the bankrupt Phoenix-based diversified manufacturer's bonds, "brought the market higher," the trader said.

Portola Packaging Inc. reported results for the fiscal second quarter ended Feb. 28 - but while the San Jose, Calif.-based packaging maker touted an increase in sales for the period ($63.1 million compared to $54.2 million for the year-ago quarter), and EBITDA ($3.7 million, versus negative $1.1 million a year earlier), as well as a smaller operating loss ($500,000 versus $4.6 million a year ago) and a smaller net loss ($5.2 million versus $ 10.8 million a year earlier), its bonds "fell out of bed after the earnings," a trader said, quoting its 8¼% notes falling to a wide 66 bid, 69 offered from prior levels in the mid-70s.

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