Foamex bonds falter on earnings warning; Mirant bank paper off highs

By Paul Deckelman and Sara Rosenberg

New York, July 12 - Foamex LP's battered bonds fell to new lows after the company cautioned that the second quarter would be "challenging," and warned that results would come in significantly below prior expectations, although it did not give any specific numbers.

In bank debt dealings, Mirant Corp.'s 2003 paper came in a little from its highs as it headed lower by about half a point, a signal, perhaps, that the sharp rise in the bankrupt Atlanta-based energy company's bank debt and its bonds over the past week of so may have finally run out of gas.

Foamex's 9 7/8% notes due 2007 collapsed down to 30 bid from prior levels around 42.5, and several traders said that those bonds were now trading flat, or without their accrued interest - equivalent to an additional loss of several points off the nominal price.

Traders also saw the company's 13½% notes scheduled to come due on Aug. 15 tumbling terribly. Those bonds - which were recently trading around 90 bid - have come down sharply over the last several sessions, with traders noting that holders of its 10¾% senior notes due 2009 have petitioned the company not to pay those bonds off when they mature.

The 131/2s had fallen to offered levels as low as 70 on Monday, with no bids, but on Tuesday, they slid down to 50 bid, 55 offered.

A trader said that "they really ought to be trading down at the same 30 level as the 9 7/8s, since if they go bankrupt, those bonds are pari passu with the '07s."

News of the anticipated poor results - and the fact that that Foamex also retained investment banking firm Miller Buckfire & Co. to help evaluate strategic alternatives - apparently did not have much impact on the 10¾% notes, which have still managed to hang on to most of their value. One trader saw them only having gone down to 82.75 bid from 84 previously, and another saw them at 82 bid, 84 offered, and still trading with their interest.

Foamex's Nasdaq-traded shares fell into penny-stock territory, swooning 32 cents (29.92%) to close at 74 cents, on volume of 845,000 shares, about nine times the usual activity level.

Auto names mostly quiet

Besides Foamex - a Linwood, Pa.-based maker of foam rubber products for the auto industry and other industrial customers - the battered automotive components supplier sector was fairly quiet, traders said, with one seeing Collins & Aikman Products Co.'s 10¾% senior notes due 2011 unchanged around 28 bid, while its 12 7/8% notes due 2012 were holding steady at around 4½ cents on the dollar.

Mirant loans dip

In bank debt trading, Mirant's loan paper was a half point lower to 85.5 bid, 86.5 offered, according to a trader.

On Monday, that paper had rallied to the 86 bid, 87 offered context from the 83.75 bid, 84.75 offered area in which it was quoted Friday.

The bank debt has been on the rise since the Atlanta-based energy company announced that it would have to change its method of evaluating its enterprise value.

Under the new method of evaluation, the company was told by the bankruptcy court to use a number of different standards in calculating a range of values, including the use of recent financial data.

The change in valuation methods was ordered after equity holders had complained that the previous methods severely underestimate the enterprise value of Mirant, maybe by as much as $1.74 billion, essentially preventing them from getting any kind of a recovery.

Bond traders said the company's 7.90% notes due 2009 were unchanged at 97.5 bid, while its 7.40% notes that were to have come due last year but which were not paid at that time, were a quarter of a point better, at 96.75.

Calpine bonds sink

Also on the energy producer front, Calpine Corp.'s bonds were seen in retreat, with a trader citing the San Jose, Calif.-based power generating company's announcement of the results of its previously announced tender offer for its 9 5/8% first priority senior secured notes due 2014, "and apparently, only $138 million of the notes were tendered (see related story elsewhere in this issue), not a lot of people tendered. So basically, they're not going to be able to refinance their first-lien debt, so they're going to actually have to tender for the second-lien notes, which pushed the subs down."

The trader saw the company's 8½% notes due 2008 at 69 bid, 70 offered, down 2½ points, while its 8½% notes due 2011 lost about two points to 66.5 bid, 68 offered. The trader also saw the 8¾% notes due 2007 at 79 bid, 81 offered, down 1½ points. It was "another active one today."

Another trader saw the 8½% notes due 2008 as having fallen four points on the day to get to 69 bid, 71 offered.

At another desk, a trader saw the Calpine 9 7/8% notes due 2011 down 1½ points at 78 bid.

Airline gains end

A trader saw little going on in the bonds of Northwest Airlines Corp. and Delta Air Lines, with the Northwest-led upturn of the recent few sessions having apparently run out of steam, as world crude prices - which had been in retreat the past few sessions, falling to below $59 per barrel last night - jumped back above $60. Light sweet crude for August delivery traded at $60.70 a barrel, an increase of $1.78 on the New York Mercantile Exchange.

A trader saw some movement in asbestos-related bonds, with Owens Corning's notes firming three points to 74 bid, 75 offered, while Armstrong World Industries was two points better, at 78 bid, 80 offered.

However, there was no firm news out of Washington, where legislation establishing a $140 billion claims fund to handle medical complaints was voted out of the Senate Judiciary Committee some weeks ago but remains mired in limbo despite committee chairman Sen. Arlen Specter, R.-Pa. saying he hopes to have a final bill voted on this month.

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