aaiPharma bounces around on bankruptcy news; asbestos debt lower on bill jitters

By Paul Deckelman and Sara Rosenberg

New York, March 9 - News that aaiPharma Inc. will sell its pharmaceuticals division and restructure through the bankruptcy courts sent the troubled Wilmington, N.C.-based drug maker's bonds on what one trader termed "a wild ride." However, several traders said they saw its 11% notes due 2010 end not far from where they began, in the mid-40s.

Owens Corning's bank debt was off about half a point during Monday's session, with traders describing investors as somewhat jittery ahead of scheduled Senate action on the planned $140 billion claims fund mechanism. However, those investors were also said to be eagerly anticipating the possible resolution of the asbestos legislation bottleneck this week.

aaiPharma's bonds were seen to have opened around 45 bid, 50 offered, a trader said, gotten up into the mid-50s, and then fallen back later in the day to 48 bid, 50 offered.

Another trader saw the bonds start out in the low-to-mid 40s, around 43, then push up to around 50, before going home at 46 bid, 48 offered following the news that the company has agreed to sell the pharmaceuticals unit for $170 million, contingent on its going into Chapter 11 reorganization.

The prospective buyer was not immediately named, although the company promised in a regulatory filing to provide other information later in the week.

A high-yield sell-side source aaiPharma was "five to 10 points higher" on news that the company was going to reorganize under court protection, "and they announced that asset sale."

Owens Corning down

Owens Corning's bank debt was quoted at 114 bid, 115 offered by late day Monday, according to a trader, off about half a point from prior levels.

A junk bond trader meanwhile saw the Toledo, Ohio-based insulation maker's bonds "looking a little easier," at 76 bid, 78 offered, and likewise saw the bonds of bankrupt Lancaster, Pa.-based floorcovering maker at 78 bid, 80 offered, "maybe down a point from last week.

"What was the bid side then is now the offer side," he added.

The asbestos debt came to life after nearly a week of little activity in anticipation of Senate action on the claims mechanism bill.

"Everything is happening this week. The judiciary committee is meeting Wednesday and then officially on Thursday to discuss the bill and considering amendments to it. Should be interesting. Watch that space," the bank loan trader said.

Towards the end of April, the chairman of the Judiciary Committee, Sen. Arlen Specter, R.-Pa., presented a claims fund bill that would set up a $140 billion claims payment mechanism. However, critics of the bill on the committee introduced more than 80 amendments.

Some Republicans believe the bill doesn't go far enough in preventing the filing of frivolous or even fraudulent claims of asbestos-related medical problems, and contains no real guarantee some of those claims won't wind up back in court, defeating the whole purpose of the bill, which is to take the asbestos claims out of the courts.

Insurers, who would pay part of the cost of the fund, are also wary about the claims fund arrangement, feeling they will get stuck. About a dozen of them went public with their displeasure some weeks ago.

On the other hand, some Democrats feel the bill is too restrictive as to what kinds of claims will be handled by the fund, believe the claims fund won't be able to pay large enough awards to claimants, and fear it could run out of money somewhere down the road, leaving the claimants who suffered medical problems due to asbestos exposure holding the bag. Trial lawyers, a key Democratic constituency, have also criticized the bill, which would essentially cut them out of the asbestos claims picture.

After the filing of the numerous amendments - over 80 of them - the committee members tore up Specter's timetable, which originally hoped for approval of the bill in late-April, and agreed to delay any vote until this Thursday.

New problems for the bill may still loom though, a prominent Senate Democrat said Monday. Sen. Ted Kennedy, D.-Mass., a member of the Judiciary Committee, warned that the measure faces a lack of support, even if it musters enough backing to be voted out of the committee and sent on to the Senate.

Kennedy said he doubted it could attract more Democrats when the panel resumes work on the legislation, terming the path to getting the bill approved "a rocky road ahead."

He told reporters that "it seems that the very overwhelming group of [Senate] Democrats would have serious reservations, and would support a number of amendments on it," he said. Some members of the Republican majority also have voiced concerns, he noted.

Distressed mostly quiet

Elsewhere, a trader in distressed securities said that many sectors were quiet; for instance, he saw little or no movement in the airlines, with Delta Air Lines Inc.'s bonds "looking unchanged."

He went on to opine that "it seems like the world is ruled by the auto sector," recently by far the most active segment of the junk world, especially with last week's downgrade to junk bond status of General Motors Corp.

He saw GM's own bonds "improving" during the session, with the benchmark 8 3/8% notes due 2033 including up to 76 bid, 78 offered, while the GMAC 8% notes due 2031 were also better at 83 bid, 84 offered, he said."

Among the troubled auto supplier sector names, the trader said, Collins & Aikman Products Co.'s 10¾% notes due 2011 "seemed a little lower" at 70.5 bid, 71.5 offered, "but it was no great shakes."

The Troy, Mich.-based auto component maker's subordinated 12 7/8% notes due 2012 were meanwhile continuing to languish at 28 bid, 30 offered, unchanged on the session.

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