Asbestos bonds dive on Senate bill problems; Solutia junior bonds lower after plan news

By Paul Deckelman and Sara Rosenberg

New York, Feb. 15 - Bonds of asbestos-challenged companies like Owens Corning and Armstrong World Industries Inc. swooned Wednesday on the news of the latest Washington political maneuvering, which has blocked - at least for now and maybe even for the remainder of the current congressional term - passage of a controversial bill that would establish a national trust fund mechanism for paying asbestos-related medical claims.

Solutia Inc.'s subordinated bonds were seen down several points in apparent investor dismay with the plan of reorganization which the bankrupt St. Louis-based specialty chemical manufacturer unveiled on Tuesday.

In the automotive sector, most names were seen higher on the session - but not bankrupt Novi, Mich.-based vehicular frames maker Tower Automotive Inc., whose RJ Tower Corp. bonds were seen down at least two points on the session.

Traders in the bank debt market meantime reported little activity in the loan paper of distressed companies.

A trader saw the Solutia junior bonds, like its 6.72% notes due 2037, as having fallen to 72 bid, 74 offered from prior levels at 76 bid, 78 offered.

At another desk, those bonds were seen down 2¼ points on the session at 74 bid.

The first trader noted that Wednesday was the second straight session that the Solutia juniors were in retreat; he said that on Tuesday those bonds had nosedived to Wednesday's 76 bid, 78 offered opening level from 82 bid, 83 offered at Tuesday's opening. At one point Tuesday, he said, the bonds had fallen as low as 74 bid.

The company's senior notes, on the other hand, like its 11¼% notes due 2009, were essentially unchanged. One trader saw them at 97 bid, 99 offered, while another had them at 96.75, which he called up ¼ on the day.

The retreat in the subordinated bonds followed the filing Tuesday of Solutia's plan of reorganization and the accompanying disclosure statement with the U.S. Bankruptcy Court for the Southern District of New York. The plan, which was supported by the Solutia's unsecured creditors' committee, its retirees' committee and Solutia's former corporate parent, Monsanto Co., provides that Solutia will get some relief from the legacy liabilities it was required to assume when it was spun off from Monsanto in 1997. Those legacy liabilities include retiree medical, retiree life insurance and disability benefits for employees who retired or became disabled prior to the Solutia spin-off, and some environmental remediation costs.

The plan further provides for $250 million of new investment in the reorganized company through a rights offering to certain unsecured creditors, who will be given the opportunity to purchase 22.7% of the common stock in the reorganized company. Monsanto will backstop the entire $250 million.

Owens Corning, Armstrong plunge

But while the fall in Solutia's subordinated bonds was bad, junk bond traders said that by far the biggest losers on the session were the bonds of bankrupt Toledo, Ohio-based insulation maker Owens Corning and bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries, reacting to the unexpected setback in the Senate to the proposed $140 billion asbestos trust fund claims mechanism.

Owens Corning was "down a lot," a market source said, pegging the company's 7 1/8% notes due 2018 at 82 bid, well down from 90 on Tuesday, before the adverse Senate vote.

He also saw Armstrong's 9¾% notes due 2008 six points lower on the day at 67.

A trader at another shop saw the asbestos names "down five to eight points" on the news, with Owens Corning's 7½% notes that were to have come due last year at 81.5 bid, 82.5 offered, down from 90 bid, 91 offered previously, while Armstrong's 6½% notes, also due last year, dropped to 65.5 bid, 66.5 offered, from prior levels in the lower 70s.

Another trader saw all of Owens' bonds at 81 bid, 82 offered, down from 88 bid, 90 offered, while Armstrong's were at 66 bid, 67 offered, off from 73 bid, 75 offered.

"Anyone who's been banking on Congress to do the appropriate thing is [expletive] crazy," he declared. "When have you ever known a congressman or senator to do the appropriate thing?" he asked, rhetorically.

The Senate on Tuesday night had failed to overcome a parliamentary move that was blocking consideration of the bill, which would set up a $140 billion industry- and insurance-funded national trust fund to handle asbestos claims.

Although the bill is still technically alive and Senate Majority leader Bill Frist of Tennessee has indicated that he might try for another vote on the parliamentary maneuver, some critics and supporters alike in Washington said that for all intents and purposes, the bill had been killed for this session.

Opponents of the bill - an unlikely coalition ranging from liberal Democrats who believe the trust-fund setup will shortchange potential future claimants to conservative Republicans who see the taxpayers possibly left holding the bag should the fund run out of money - had invoked a Senate rule requiring a "supermajority" of at least 60 votes to overcome budgetary objections to bills. The asbestos trust fund bill fell just short, at 59-40, with one senator, Democrat Daniel Inouye of Hawaii, absent due to a family illness. Frist changed his own "yes" vote to a "no" as a parliamentary tactic to allow him to bring the bill back up for another vote. The bill's primary sponsor, Republican Sen. Arlen Specter of Pennsylvania, the chairman of the Senate Judiciary Committee, which last year narrowly approved the bill, said that Inouye had told him he would vote to overcome the parliamentary roadblock stopping the bill if another vote were to be held. Specter held out the prospect that the bill could be brought up for another vote.

The budgetary objection had been lodged by Republican Sen. John Ensign of Nevada - a conservative who found himself in an uneasy alliance with some labor unions and liberal groups and with trial lawyers, a key Democratic constituency, in opposing the bill and trying to kill it. The latter group objected because the bill - if enacted - would take consideration of medical asbestos claims out of the courts, which now have jurisdiction, and put it into the trust fund. The attorneys said that the fund would drastically limit potential payouts to claimants (many attorneys currently handle asbestos cases on a contingency basis, for little or no money up front, in return for collecting a sizable portion of any judgment or settlement).

Other critics of the bill said that many people exposed to asbestos in the past might not yet manifest symptoms of medical problems, but should be able to sue and collect should such problems arise in the future. They said the $140 billion would likely be inadequate to cover all present claims plus future claims. It is estimated that 600,000 lawsuits are pending and as many as 75,000 new cases are filed annually.

Among the Republicans like Ensign who defied their party's Senate leadership as well as the White House, there was sentiment that should the trust fund run short at some future point the government would end up having to make up the difference with taxpayer money.

Supporters of the bill, including Specter and his Democratic colleague, Sen. Patrick Leahy of Vermont, the ranking Democrat on the Judiciary Committee, had contended that taxpayers would not be held liable and that all of the money for the fund would come from companies with asbestos liability exposure and their insurers.

Supporters said that the trust fund set-up would lead to quicker settlement of claims than the courts, allowing people made sick by asbestos to get their money when it might still be able to do them some good, and by capping legal fees would direct more of the payout money to the affected individuals and less to the lawyers. They said that claimants would be able to be compensated even if the company liable was in bankruptcy or even out of business.

They also said that with each affected company kicking in a certain amount to the fund, based on the number of asbestos cases currently pending against it and projections of likely future cases, companies would have some sense of certainty about the maximum size of their liability, and would be able to plan accordingly and thus straighten out their finances.

Over 80 companies have been forced into bankruptcy over the past few years by cascading asbestos claims, including Owens Corning, Armstrong, USG and Federal-Mogul, as well as such other companies as Columbia, Md.-based chemical manufacturer W.R. Grace & Co.

Many other companies, such as Toledo, Ohio-based packaging maker Owens-Illinois Inc. - which was one of Owens Corning's joint venture corporate parents until the 1950s - Philadelphia-based container company Crown Holdings Inc. and Atlanta-based forest products company Georgia-Pacific Corp., did not go bankrupt, but did incur sizable asbestos liabilities and have had to collectively set aside many hundreds of millions of dollars as provisions against current and future claims.

USG steady

But while the bonds of Armstrong and Owens swooned on Tuesday night's news out of Capitol Hill, other asbestos-challenged companies' bonds seemed to stand firm, since they apparently are nowhere nearly as dependent as Owens and Amstrong on passage of the claims fund bill.

The second trader, for instance, saw "no impact at all" on the bonds of bankrupt Chicago-based building materials manufacturer USG Corp, quoting its 8½% notes that were due last year at 144 bid and its 9¼% notes that were due in 2001 at 147 bid.

USG, he said, "announced their own plan, several weeks ago, assuming that there would be no bill coming out of Congress. They had no faith at all in Congress,"

A trader at another shop likewise saw the bonds of Owens-Illinois little changed, with its 7½% notes due 2010 at 101 bid, off perhaps ¼ point, while its 8.10 notes due 2007 were down 3/8 point. Owens-Illinois also recently announced plans to set up its own trust fund to settle all remaining asbestos medical claims.

Crown Cork's 7½% long-term bonds due 2096 were half a point lower at 81.75 offered. Georgia-Pacific's 7.7% notes due 2015 were 5/8 point better at 98.125.

Among the auto names, Tower's 12% notes due 2013 fell as low as 67 bid, 68 offered from Tuesday's close at 70 bid, 72 offered. However, those bonds were seen having bounced off that intraday low, to finish at 68 bid, 69 offered.

The trader said that he had not seen any news out on the company that might explain that fall; however, published reports Wednesday said that Tower has asked the bankruptcy court overseeing its reorganization to reject the lease on its global headquarters in Novi, Mich. - although a company spokesman was quoted as saying that Tower has "no plans at all" to move its headquarters.

The rejection of the $6,596.54 monthly lease would become effective Feb. 28, unless an objection is filed.

The day before, the U.S. Bankruptcy Court for the Southern District of New York is slated to hold a hearing at the Manhattan courthouse on whether Tower can also junk several labor contracts with its various unions. The United Auto Workers union and other Tower labor groups have already voted to strike at nine plants around the Midwest if that motion is approved.

Also Wednesday, Tower reported an operating loss of $27.86 million for December on revenues of $119.16 million.

Delphi rises despite union troubles

Meanwhile bankrupt Troy, Mich.-based auto components maker Delphi might soon be facing its own showdown with its unions; Delphi has set this coming Friday as a deadline by which the unions must accede to its requests for a new contract incorporating big cuts in current wage and benefit levels, or else the embattled company will ask its bankruptcy judge to spike the labor deals. Delphi's unions have indicated they might strike in such an event.

Despite the looming threat of a possible labor confrontation, Delphi's bonds were seen better on Wednesday, after having fallen to 50 bid, 52 offered Tuesday, a trader saw them going home at 53 bid, 55 offered Wednesday.

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