Charter bonds active on otherwise inactive day; Northwest mixed as strike approaches one-week mark

By Paul Deckelman

New York, Aug. 26 - Charter Communications Inc.'s bonds continued to be the stand-out name Friday in the distressed-debt area, trader said, moving around actively for a third straight session in the wake of the massive debt-for-debt exchange offer that the St. Louis-based cable system operator announced on Wednesday.

Apart from Charter, traders saw the bonds of Northwest Airlines Corp. mixed, as the Eagan, Minn.-based Number-Four U.S. airline carrier continued to muddle through a strike by nearly 4,500 mechanics, aircraft cleaners and facilities custodians, which was in its seventh day.

Trading in distressed-company bank debt meantime was seen virtually non-existent, market participants said.

"The market was very dead," a bond trader said, "with just not much going on. Things pretty much shut down after 12 [p.m. ET]."

He saw Charter's bonds as being about the sole feature of the market, opening unchanged to a little better. It was the third straight session the bonds were moving upward, after its shorter issues being exchanged for, due in 2008 and 2009, had firmed smartly in the immediate aftermath of the news on Wednesday, and its 2011 and 2012 bonds had risen more modestly, and then all the issues being exchanged for had gained perhaps another point or so on Thursday.

The biggest gainer, he said, were the 8% notes due 2012, which had been at 99.5 bid, 100.5 offered before the news of the exchange offer, and then had pretty much gone nowhere after that - until Friday.

"No one saw them [right afterward]," he said. "I didn't see them out there for a day or two, but then someone made a market in them this morning," and the bonds pushed as high as 101.75 bid, before coming off that peak to finish at 101.375 bid, 102.375 offered, "up a couple of points."

Lesser gains were seen by the holders of the 10% notes due 2009, which gained maybe a quarter-point over its opening levels, ending at 85.5 bid, 86 offered. The trader saw Charter's 13½% notes due 2011 and its floating-rate notes due 2010 both pretty much unchanged, at 79 bid, 80.25 offered and 99 bid, 101 offered, respectively.

However, he said, the heaviest trading of the session - though without any price movement - came in two other issues, which had shown gains earlier in the week. The 8 5/8% notes due 2009 closed at 82.5 bid, 83.5 offered, while its 11 1/8% notes due 2011 ended at 78 bid, 78.5 offered.

"They were active in the morning, but then, everybody kinda left around 12," he said.

A trader at another desk saw Charter's 9.92% notes due 2011, as one of only three bonds seen moving around at his shop (along with two issues from the Canadian forest products company Tembec Industries Inc.). He saw those 9.92s rising to 77 bid from 75.5 previously.

Charter - staggering under a debt load estimated at some $19 billion - announced Wednesday that it plans to exchange new bonds for about $8.4 billion of its existing notes slated to mature in 2008 and 2009 and in 2011 and 2012, thus extending their maturity and cutting its total debt burden by as much as $1.5 billion.

Northwest mixed

Northwest's bonds were a mixed bag, a trader said, quoting the airline's 8 7/8% notes due 2006 at 64 bid, up from 62 previously, while its 10% notes due 2009 were seen down two points at 46.5 bid.

Another trader, however, saw those '06s falling a point on the day to 63 bid, 64 offered from prior levels at 65.

Yet another trader pronounced the bonds to be essentially unchanged from Thursday's levels, with its 6 5/8% notes due 2023 holding steady at 48.25 bid, 49.25 offered, while the 8 7/8s were "maybe half a point higher" at 64.5 bid, 65.5 offered.

Northwest went on the offensive on Friday, seeking to counter claims by the striking Airline Mechanics Fraternal Association that the strike has produced a massive fall-off in on-time performance, a growing backlog of needed maintenance work, and a growing number of planes grounded and flights cancelled, despite the company's elaborate contingency plan. That plan involves using replacement mechanics, certified supervisors and third-party contractors to meet the company's needs.

Northwest's executive vice president for operations, Andrew Roberts, said Friday that Northwest is operating effectively and is confident that it can keep doing so. Among other things, the Northwest executive said that the airline Northwest was completing 98.2% of its scheduled flights, well up from last Friday, when the airline was able to complete only 91% of its flight schedule. Published reports also said that the company is seriously considering the idea of firing any strikers who don't return to work and giving their jobs to the replacement mechanics it has hired. However, the reports said, no decision has been made yet on such a step - which could backfire by alienating Northwest's other unions, who have so far refused to give AMFA any real support.

Asbestos names quiet

Back on the ground, traders said, there was little or no movement in the bonds of asbestos-challenged companies, even in the wake of a report by the Congressional Budget Office that questioned whether the $140 billion claims fund proposed to resolve the asbestos claims crisis - which has sent dozens of companies into bankruptcy - will be large enough to meet all of the claims of asbestos-related medical problems that will be filed within the next 50 years. The report could erode support for the bill in the Senate, which is expected to vote on the proposal when it returns from its summer recess next month.

A trader saw Owens Corning's 2018 bonds at 84.5 bid, 85.5 offered Friday, unchanged on the day, although another trader saw the bankrupt Toledo, Ohio-based insulation maker's 2005 bonds down 1½ points at 84.5 bid, 86.5 offered.

The second trader also saw bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries' bonds unchanged at 83.5 bid.

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