Owens Corning debt, bonds up on plan filing; Kaiser bonds better

By Paul Deckelman and Sara Rosenberg

New York, Jan. 3 - Owens Corning's bank debt jumped Tuesday as the bankrupt Toledo, Ohio-based insulation manufacturer filed its plan of reorganization over the weekend, according to traders in that market.

The company's bonds initially fell on the news - but were said to have recovered from their early weakness and ended on a higher note.

Bond traders also saw Kaiser Aluminum Corp.'s senior bonds having improved, and its junior subordinated bonds, which trade in the single-digits, as well.

Calpine Corp. bonds meantime continued to move up, propelled by technical factors connected with the credit default swaps market, traders said, rather than on any fundamental news about the bankrupt San Jose, Calif.-based power generating company.

Owens Corning's bank debt was heard to have zoomed as much as 6½ points in Tuesday's trading, with one trader quoting the paper having closed out the session at 146.5 bid, 147.5 offered.

The company's revised reorganization plan, filed on the last day of 2005, gives debt-holders two alternatives, if they approve the reorganization, they would be entitled to 150% of their claim in cash, while a "no" vote would give the debt holders cash and cash-pay senior notes, with the amount to be set by the bankruptcy court.

A bond trader said that Owens' bonds "opened up very sloppy this [Tuesday] morning," with its 7½% notes due 2018 plunging from last week's levels of 76.5 bid, 77.5 offered to an opening price Tuesday of 71 bid, 72 offered.

"But I guess people had the time to go through it [the plan] a little more, because they came back up and actually finished" higher at 77.5 bid, 78.5 offered. It was "a wild ride on that bond," he said.

Owens Corning "traded down, and then back up," agreed another trader, who quoted the 71/2s as having dropped to 73 bid, 75 offered from prior levels around 77 bid, 79 offered, but then coming back to 78 bid, 80 offered.

He said that particular issue was the only one he had seen, but surmised that Owens' 7% notes due 2009 were likewise up a similar point, to 75 bid, 77 offered.

Fellow bankrupt asbestos-challenged manufacturer Armstrong World Industries' bonds were little moved by the gains in Owens-Corning, with a trader seeing the restructuring Lancaster, Pa.-based floorcovering maker's 6.35% notes that were to have come due in 2003 staying in the 71.5 bid, 72.5 offered.

Another trader said Armstrong "did nothing," with the 6-handle bonds hanging in at a 72-74 context and the 9-handles at 73 bid, 75 offered.

Kaiser higher

Kaiser Aluminum's bonds 10 7/8% notes due 2006 were seen having pushed up to 102.5 bid from prior levels around par, while its subordinated 12¾% notes that were to have come due in 2003 improved to 7 bid from previous levels around 4.5, a market source said. He also saw its 9 7/8% notes that were to have matured in 2002 unchanged at 100.5.

Another trader pegged the 9 7/8s and the 10 7/8s both at 99 bid, 101 offered, up from 93.5 bid, 94.5 offered before a recent court ruling seen friendly to the senior bondholders, allegedly at the expense of the junior holders.

But he also saw the subordinated 12¾ notes at 7 bid, 8 offered, about double where they had recently been.

HealthSouth loans higher

Back among the bank debt market participants, HealthSouth Corp.'s unsecured term loan gained about three quarters of a point Tuesday, primarily driven by improved performance in the company's bonds, which was sparked by the expectation that current financials will be filed shortly, according to a trader.

The anticipation of a near-term filing was created by the company's announcement during its 2005 annual meeting of stockholders held last week that it expects to be in a position to file its 2005 form 10-K in a timely manner in the first quarter of 2006 and intends to hold its 2006 annual meeting of stockholders during the second quarter of 2006.

There is also a whisper out in the market that the company may attempt some sort of a global refinancing after the financials are completed, which would push the call-protected bank debt to premium levels.

However, this refinancing is still "only a whisper" and does not even qualify as a rumor yet, the trader said, adding that the refi noise probably had little to do with Tuesday's bank debt performance.

The term loan currently carries call protection of 102, which will later on drop to 101 and then par, and is priced at Libor plus 500 basis points.

The Birmingham, Ala.-based outpatient surgery, diagnostic imaging and rehabilitative healthcare services clinic operator's bank debt closed out the session quoted at 101 bid, 101.75 offered, up from opening levels of 100.25 bid, 100.75 offered.

EaglePicher closes on new DIP

Elsewhere, EaglePicher Inc. closed on its $345 million senior secured debtor-in-possession financing facility that is convertible into an exit financing facility upon court approval of a plan of reorganization, according to a company news release.

The facility consists of a $70 million 'first-out' revolver with an interest rate of Libor plus 250 basis points, a $160 million 'second-out' term loan with an interest rate of Libor plus 450 basis points, a $65 million second-lien term loan with an interest rate of Libor plus 900 basis points and a $50 million third-lien term loan.

During syndication, the revolver was upsized from $40 million as a $30 million synthetic letter-of-credit facility was removed altogether from the loan structure; the 'second-out' term loan was upsized from $150 million and pricing on the tranche was flexed up from Libor plus 400 basis points; and the second-lien term loan was downsized from $75 million and pricing on the tranche was flexed up from Libor plus 750 basis points.

Goldman Sachs acted as the sole lead bank on the deal.

The Phoenix-based diversified manufacturer used the new-deal proceeds to repay in full the company's existing bank debt and current DIP financing.

Babcock & Wilcox anticipates tweaks

Also in bank loan primary activity, Babcock & Wilcox Co. is expecting to reverse flex pricing on its six-year pre-funded letter-of-credit facility, while at the same time increasing the size of the tranche, as it is four times oversubscribed, according to a market source.

The letter-of-credit facility is anticipated to be upsized to $200 million from $150 million and pricing is expected to drop to Libor plus 275 basis points from original price talk of Libor plus 300 basis points, the source said.

However, a few commercial banks are finishing up their work on the deal this week and the syndicate needs to allow these banks to finish before it goes out with final revised pricing and tranche sizes, the source explained.

The company's $250 million five-year revolver and $250 million six-year delayed-draw term loan are expected to remain unchanged in terms of size and pricing, which is currently set at Libor plus 300 basis points, the source added.

The revolver contains a 50 basis point commitment fee.

Allocations on the deal are anticipated to go out next week, once all banks have finished up work on the facility and final structure has been announced.

Credit Suisse First Boston is leading the $650 million exit financing credit facility (B1/B+), and JPMorgan, Wachovia and Scotia have signed on as agents.

Babcock & Wilcox is the Barberton, Ohio-based subsidiary of McDermott International that designs, supplies and services power generation systems and equipment.

Dura bonds lower

The bonds of Dura Automotive Systems Inc. were seen lower, although a trader said that he had seen "no news" about the Rochester, Minn.-based automotive systems manufacturer. He saw its Dura Operating Corp.'s 9% notes due 2009 down two points at 54.5 bid, 55.5 offered.

A market source saw those bonds ending at 55.5 bid, down from 57 on Friday, while Dura's 8 5/8% notes due 2012 backtracked to 81.875 bid from 82.75.

At another shop, a market source quoted the Dura 9s down a full 2½ points on the session at 56 bid.

Also automotive, a trader saw components maker Remy International's 8 5/8% notes due 2007 at 77 bid, 78 offered, up a point from Friday, citing its new term loan and amended bank debt agreement.

Delphi Corp.'s 6½% notes due 3009 were seen a point better at 51.5 bid.

Calpine rise goes on

Calpine Corp. bonds continued their recent firming trend, with one market-watcher having the company's 10½% notes due 2006 at 46 bid, well up from 43.5 at the end of last week, and its 7 5/8% notes, also due 2006, at 45 bid, up from 43. He saw the company's secured bonds maybe a quarter-point better, with its 9 5/8% notes due 2014 at 102.25 and its 8½% notes due 2010 at 82.

He saw its longer-tenored subordinated bonds pretty much unchanged on the day, with the 8 5/8% notes due 2010 steady at 31 bid, its 8½% notes due 2008 status quo at 38 and its 8½% notes due 2011 likewise unmoved at 31 - but noted how the latter issue has moved all the way up to its current levels from levels around 22 bid on Dec. 19, the day before the troubled San Jose, Calif.-based power generating company - as expected - sought Chapter 11 protection from its bondholders and other creditors.

A trader in distressed notes saw the relatively short maturity unsecured bonds, such as the two 2006 issues, the 7 7/8% notes due 2008 and the 7¾% notes due 2009 all trading in a 44-46 context, while the 8½% notes due 2008 were at 37 bid, 39 offered and the 8 5/8s of '10 and the 81/2s of '11 around 30-32.

"The reason for the rise is purely technical," he declared, probably connected with transactions in the credit default swaps market. Since many more protection contracts are written than there are bonds outstanding, many of them bought by derivatives speculators not currently holding the bonds, that creates a market for those bonds to cover such contracts, pushing their price higher than they normally would be.

The trader said there must be some CDS contracts out that require delivery of the shorter-maturity bonds to pay off, otherwise, he said, "there's no reason for the '09s and below to be 13 points or so ahead of the 81/2s of '11, since the bonds are all supposed to be pari passu since the company is in bankruptcy."

Another trader, who saw Calpine's 10½% '06 notes having pushed up to 44.5 bid, 45.5 offered from prior levels at 43 bid, 44, and noting the steady rise of those bonds and most other Calpine issues since the bankruptcy filing, agreed that "there wasn't anything news-related [moving the bonds] - it was more like this CDS stuff.

"There really hasn't been any news that would catapult these bonds to be at levels significantly higher than they were in the distressed scenario before they filed for bankruptcy, so I think it's more a technical issue than a fundamental issue," he said, adding that "I think it's mimicking what happened with Delphi," whose bonds shot up following the Troy, Mich.-based automotive electronics manufacturer's October bankruptcy due to the impact of the CDS market, with contract holders scrambling to acquire the bonds in order to settle their contracts.

Stephen G. Moyer, the head of research for Imperial Capital LLC in Beverly Hills, Calif., agreed that "with Delphi there was certainly a lot of consternation about how to settle all that. There were vastly more CDS contracts written than bonds outstanding." He noted that "similar issues are impacting Calpine right now."

Because CDS market spreads on issues perceived to be troubled typically widen out substantially - raising the price of protection - as things look bleaker, making the spreads a useful parallel gauge alongside falling bond pricesof the risk that bondholders take as a company's fortunes deteriorate.

But junk marketeers saw that booming market cease to be merely an indicator and actually became a big factor skewing bond trading following the Delphi Chapter 11 filing, which triggered a 30-day period within which people who had bought single-name protection contracts had to tender the bonds to the sellers of the contracts in order to receive the promised par value.

This prompted a short squeeze which at one point drove the value of Delphi bonds as high as 70, about double where they had been at the time of the filing. They came back down to about 63 after a group of underwriters set a cash settlement price for the contracts at that level - and then they nosedived down to the low-mid-50s once the 30-day settlement period had passed and there was no further need to buy Delphi bonds, removing the prop which had kept the bonds' price artificially high.

Having seen this happen with Delphi and seeing it going on again with Calpine, Moyer said that "there's going to be a lot of tension" ahead in the high-yield market on how to deal with this phenomenon, "given that we've had a systemic change in the market that hasn't been tested through a heavy default cycle" yet.

One example of the type of problems the market may encounter from the proliferating CDS market was seen when Calpine filed late in the day on Dec. 20 - several hours after many previously purchased CDS contracts on Calpine had actually expired, meaning some investors and speculators came close to recovering their investment, but would actually seem to be left empty-handed.

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