Adelphia bonds up; Calpine gains on plant-sale plan; asbestos loans firmer

By Paul Deckelman and Sara Rosenberg

New York, April 4 - Adelphia Communications Corp.'s bonds were seen better on Tuesday - even as the bankrupt Greenwood Village, Colo.-based cable operator's shares took a nosedive amid continued inter-creditor disputes.

Calpine Corp.'s bonds were seen mostly higher - but for once people could point to some concrete news as a possible catalyst, as the bankrupt California utility operator announced plans to sell about one-fifth of its power plants, close offices in some cities and cut back its workforce in hopes of generating $100 million of annual savings.

Traders in the bank loan market meantime said that asbestos-challenged names felt a little better, though on no particular sector news, with Owens Corning paper relatively active and W.R. Grace & Co. seeing some flow as well.

Bankrupt Toledo, Ohio-based insulation manufacturer Owens Corning's bank debt closed out the day quoted at 153 bid, 153.75 offered, up about a point over the week, while the bank debt of bankrupt Columbia, Md.-based chemical producer Grace closed out the day feeling stronger at 142 bid, 143 offered, the trader said.

A trader in distressed bonds saw Owens Corning's notes up a point on the session at 82 bid, 83 offered, while the bonds of bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc. were likewise up a point, at 71 bid, 72 offered.

While no news directly affecting either company was seen, a market source suggested that the whole asbestos sector felt a little better in the wake of Swiss construction giant ABB's announcement that it had finalized a $1.43 billion settlement of the U.S. asbestos liabilities of its Combustion Engineering unit. A U.S. court had approved the proposed settlement back on Feb 28, with claimants allowed to submit objections within a 30-day window. That period came and went, with no objections heard by the March 31 deadline, meaning the settlement will go into effect.

The ABB settlement will set up a trust fund to handle all future claims. The company had already paid out $900 million to satisfy claims filed by former Combustion Engineering employees and others who said they were harmed by contact with asbestos, which the company used in the production of boilers for several decades, up until the 1960s, when asbestos' carcinogenic hazards became known. ABB bought Combustion Engineering in 1990 and was soon enmeshed in hundreds of millions of dollars of asbestos-related litigation, which almost pushed the Swiss company over the line and into bankruptcy in 2002.

The settlement essentially caps ABB's asbestos liabilities, letting the company now move on knowing that it will not have to pay anything above that. Its privately negotiated settlement with its asbestos claimants is similar to agreements reached by such companies as McDermott International and Halliburton Co. Bankrupt Chicago-based building products manufacturer USG Corp. in late January also announced a similar settlement plan, valuing its asbestos liabilities at $4 billion maximum

Other companies, including Armstrong, Owens Corning and W.R. Grace, have meantime adopted a wait-and-see stance, hoping that Congress moves on a proposed $140 billion privately funded, though federally administered claims mechanism. The bill that would establish that trust fund is currently mired in the Senate, stymied in mid-February when opponents used procedural maneuvers to bottle it up.

Adelphia notes gain

Elsewhere, Adelphia's bonds were seen better, with a trader quoting the company's 8¾% notes due 2007 as having jumped to 102 bid from prior levels in the high 90s, while its 10¼% notes due 2006 were seen a point better at 59.

A market source at another desk, however, pegged its 9 7/8% notes due 2007 as being down a point at 59.

Adelphia's nearly worthless penny stock shares lost a cent, or 20% of their value, to close at four cents.

Adelphia - which is in the process of selling essentially all of its assets to cable giants Time Warner Inc. and Comcast Corp., is trying to stamp out any problems that could throw a monkeywrench in the works. On Monday, it asked the U.S. Bankruptcy Court for the Southern District of New York for approval to file a plan of reorganization that includes a potential settlement of various inter-creditor disputes, such as those between its own noteholders and the bondholders of Adelphia's Arahova Communications Corp. subsidiary. Those creditors have been feuding for several years now over issues that could affect the amount of their respective distributions.

The confirmation hearing on Adelphia's proposed plan had been scheduled to take place around the middle of this month, but with more than 50 objections to confirmation of the plan recorded, that's been put off. In the meantime, Adelphia also announced that Thursday's scheduled deadline for creditors to vote on the plan was extended to May 14, or to May 10 for those whose securities are held through an intermediary.

Movie Gallery lower

In other names, a trader saw Movie Gallery Inc.'s 11% notes due 2012 at 46 bid, 47 offered, which he called down two points on the session, although some other traders had seen those bonds at 47 bid, 49 offered on Monday - which they called a two-point loss - after a Wall Street Journal article renewed investor concerns about the problem-plagued Dothan, Ala.-based home video rental and sales chain operator's ability to comply with its credit facility covenants - which were loosened for the duration of this year by its bankers - once the tougher requirements are restored at the start of 2007.

Calpine up on sale news

Elsewhere, Calpine's bonds were seen mostly higher, as the answer to the nagging question "why have its bonds been steadily rising over the past several weeks?" seems to have emerged Tuesday.

The bankrupt San Jose, Calif.-based power generating company said that it will sell 20 of its power plants - about one fifth of its total fleet - and take other measures to streamline itself in order to restructure as a leaner, more efficient company centered around its most profitable operations.

Calpine envisions savings of some $100 million annually from the measures announced Tuesday.

A trader saw the company's 8½% notes due 2008 "up a couple" of points at 60 bid, 62 offered, although he saw its 7¾% notes due 2009 little changed at 61 bid, 63 offered, and its 8½% notes due 2011 still at 38 bid, 40 offered.

Another trader saw the 8½% notes due 2008 at 60 bid, 61 offered, unchanged, while Calpine's secured 8½% notes due 2010 were up ¾ point at 92.5 bid, 93.5 offered. Its 8¾% notes due 2007 were a point better on the day at 62, apparently helped by the asset-sale news.

Traders and other market sources have been watching Calpine with interest for some weeks now, noting a steady rise in its notes - a "grinding upward" as one called it - even with a lack of any announced news up until now, leading them to speculate that something big was in the works, with investors in the know - or even just those making a lucky educated guess - pushing the bonds upward.

Calpine's 8¼% notes due 2011, for instance, have been rising steadily since early March, closing on Monday at 41.625 - well up from the 32.25 level they had held a month earlier. However, those bonds were seen having retreated to 38.5 on Tuesday, perhaps validating the old financial market dictum "buy on the rumor, sell on the news."

Calpine's 7 7/8% notes due 2008 had moved up to levels around 60.5 by Tuesday - up 15 points from where they had been in early March.

And its 7¾% notes due 2015, which had traded at lows around 15 in early March, had nearly doubled in price by the beginning of this month.

When Calpine, groaning under the weight of some $22 billion of debt, sought protection from its junk bond holders and other creditors in a Dec. 20 filing with the U.S. Bankruptcy Court for the Southern District of New York, it said it owned 92 power plants and had interests in five more under construction.

The 20 plants that the company said that it will sell have been designated as non-core and non-strategic. Some are currently in operation, others are still being built. Calpine said that they are no longer considered to be core operations due to a combination of factors, including financial performance, market prospects and strategic fit. It will be seeking to sell the majority of these assets by the end of the year, leaving the company with a fleet of 70-odd gas-fired and geothermal plants in what it considers to be its "key" North American markets, particularly in such Sun Belt states as Texas and its home base of California.

Besides the plant sales, Calpine is also closing three offices, in Atlanta, Boston and in Dublin, Calif., near Oakland. Day-to-day business operations will be primarily consolidated into Calpine's corporate headquarters in San Jose, as well as its offices in Houston and in Folsom, Calif., near Sacramento. As the company sells plants and completes construction activities, it will eventually reduce its workforce by 775 employees. The majority of the job cuts will take place by the end of the year, although about 100 employees will be immediately affected.

The latest cuts come on top of cost-cutting actions announced on Feb. 1, when the company said that it would be reducing activities and curtailing expenditures in certain non-core areas and business units, resulting in the elimination of some 300 positions. Calpine estimated at that time that it would garner around $50 million in annual savings.

Robert P. May, Calpine's chief executive officer, said Tuesday that the new initiatives, combined with the measures in February, will produce total savings of over $150 million annually.

Delta steady despite strike threat

Delta Air Lines Inc. bonds were seen mostly unchanged, continuing to languish in the 25 bid, 26 offered area, even as the company moved one step closer to a potentially ruinous strike Tuesday, with the announcement that its approximately 6,000 pilots had overwhelmingly voted to give their union leaders the authority to call a strike should the bankrupt Atlanta-based Number-Three U.S. airline carrier attempt to throw out their contract and impose stiff givebacks upon them.

Over 95% members of the Delta local of the Air Line Pilots Association, International voted to authorize a strike in that event.

Delta had squeezed about $1 billion of wage and benefit concessions, including a 32.5% pay cut, work-rule changes and productivity improvements from the captains late in 2004, which helped the struggling airline avoid bankruptcy at that time. But Delta's situation worsened last year, largely due to sharply escalating fuel costs and an inability to fully pass those costs onto its passengers in the highly competitive airline industry, where traditional mainline carriers like Delta, with their large unionized work forces and heavy pension obligations locked in under contracts negotiated in better days, faced a rising challenge from upstart low-fare carriers with lower cost structures, such as JetBlue Airways.

Delta, sought Chapter 11 protection from its junk bond holders and other creditors on September 14 - filing on the same day and even before the same court, the U.S. Bankruptcy Court for the Southern District of New York, as one of its main rivals, Eagan, Minn.-based Number-Four carrier Northwest Airlines Corp.

Soon after the filing, Delta came back to the pilots - considered as a group to be among the best-paid captains in the airline industry - to seek another $300 million of concessions as part of a $3 billion package of givebacks from its approximately 52,000 employees and revenue enhancements Delta says it needs to keep operating. The union and Delta agreed in December to an interim 14% hourly wage reduction and other concessions to run through March1 while the two sides negotiated a permanent deal. Those interim givebacks would total $143 million if enacted for the full year.

The pilots have refused to make longer-range concessions above that interim level, while the company has stuck to its $300 million givebacks demand. Last month, a three-member federal arbitration panel heard testimony over several weeks from Delta executives and financial advisors, pilots' union officials and airline industry experts. It will decide by mid-month whether Delta legally has the right to reject the pilots' contract.

ALPA has warned that any attempt by Delta to void its contract and impose salary and benefit cuts or tougher work rules unilaterally would be met with a walkout, which the union contends is allowed by federal labor law. Delta has countered that such a labor action would be illegal - and would likely result in the demise of the venerable airline, which has been flying since 1928.

A trader saw Northwest's bonds at 43 bid, 45 offered, down a point on the day.

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