Asbestos bonds firmer ahead of bill debate; Calpine bank debt lower

By Paul Deckelman and Sara Rosenberg

New York, Feb. 3 - Bonds of asbestos-challenged companies like Owens Corning and Armstrong World Industries Inc. were seen firmer Friday as investors looked ahead to Monday when the Senate finally begins debate on a bill setting up a national trust fund to settle asbestos-related medical claims.

Elsewhere, InSight Health Services Holding Corp.'s bonds took a nosedive on investor fears that the Lake Forest, Calif.-based provider of diagnostic services will get slammed by cuts in the Medicare reimbursement rates taking effect this year and next.

In the bank debt market, Calpine Corp.'s second-lien bank loan paper came in a little bit on Friday as the whole market in general started to feel heavy around mid-day with trading activity apparently at a minimum, according to a trader.

He saw the bankrupt San Jose, Calif.,-based power company's second-lien debt closing out the session quoted at 89.5 bid, 90.5 offered, down from Thursday's closing level of 90.5 bid, 91.5 offered.

A trader in distressed notes meantime saw Calpine's unsecured bonds "mostly trading either 41 bid 43 offered or 27 bid, 29 offered." In the former category are such issues as the 10½% notes due 2006, while the latter group includes such bonds as the 8½% notes due 2011.

As for its secured bond debt, "all of that stuff trades at a premium," he said, with its 9 5/8% notes due 2014 seen trading at around 105.5.

Traders said that the asbestos-related bonds were seen better, with bankrupt Toledo, Ohio-based insulation maker Owens Corning's 7½% notes due 2018 seen at 94 bid, 95 offered, up between 2 and 2½ points.

A trader saw bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries' 6½% notes that were to have come due last year at 81.5 bid, 82.5 offered, up two or three points on the session.

He also saw bankrupt Chicago-based building products maker USG Corp.'s 8½% notes that were to have come due last year at 81.5 bid, 82.5 offered, also up two to three points on the day.

Another trader, however, said that USG "already made its move," right after the company announced earlier in the week that it would set up a trust fund to pay all present and future medical claims, and would also pay off its bond holders and bank creditors in full. He saw its 9¼% notes that were to have matured in 2001 - but which are now scheduled to be paid off, with all accrued interest - as holding steady in the mid 140s.

The asbestos bonds are seen getting a lift ahead of Monday's scheduled start of Senate debate on plans to set up a $140 billion industry- and insurance-financed trust fund to pay present and future medical claims. The bill was first introduced last year, was approved by the Senate Judiciary Committee last May, but then languished for the rest of 2005.

Century bonds plunge, bounce

A trader saw Century Communications bonds fall precipitously, but then bounce part of the way back - while those of Century's corporate parent, bankrupt Greenwood Village, Colo.-based cable operator Adelphia Communications Corp., moved higher but came down off their peak - indicating, he said that "Century is losing its case," as the bondholders of the two companies square off in a dispute over intracompany claims before the bankruptcy court overseeing Adelphia's restructuring.

He saw the Century 9 ½% notes that were to come due last year open at 89 bid, 91 offer, plunge to around 83 bid at 2 p.m. ET on "some kind of ruling," but then saw the bonds bounce back to close only slightly lower at 87 bid, 88 offered.

At the same time, Adelphia's 10¼% notes due 2011 "had some pop" that lifted the bonds to 74 bid, 75 offered from 71.5 bid, 72.5 offered previously. Then, however, the bonds came off that high to end at 72 bid, 73 offered, still up slightly on the day.

InSight plummets

InSight Medical "got destroyed," a trader said, quoting the company's 9 7/8% notes due 2011 at 45 bid, 47 offered, down sharply from levels earlier in the week around 67.5 bid, 68.5 offered.

InSight was "way down," another trader said, seeing the 9 7/8s at a wide 45 bid, 50 offered versus a 65 bid, 67 offered level on Thursday. He also saw the company's senior secured floating-rate notes due 2011 dropping to 89 bid, 90 offered from 93.5 bid, 94.5 offered on Thursday.

"They've got a lot of problems," he said about the company, which filed its 10-Q report for the most recent quarter with the Securities and Exchange Commission on Thursday.

He cited higher gasoline prices "for moving their trucks around" - in addition to its 130 fixed-site centers, InSight has a sizable mobile operations component, with a fleet of 110 mobile MRI units that provide services to hospitals, physician groups and other healthcare providers - as well as generally higher costs, combined with less business.

On top of those already daunting conditions, "there are some Medicare cuts that are going to go into effect this year and in '07 that are going to materially adversely affect the credit.

"It remains to be seen when - or if - they can dig themselves out of these situations," the trader continued. "It sounds like Medicare is going through the general cutbacks across the board of government spending. They [InSight] are getting clamped down, just like Select Medical Corp." The Mechanicsburg, Pa.-based provider of long term medical care's 7 5/8% notes due 2015 had fallen sharply to around 88 bid, 90 offered from 103 previously, about two weeks earlier, on investor fears of what scheduled Medicare reimbursement cuts could do to the company's finances. Those Select Medical bonds were still at those some lower levels on Friday.

Another trader saw InSight bonds "down points" on Friday, with the 9 7/8s having fallen from the mid-60s earlier in the week to around 52 bid, 54 offered at Friday's opening. He said that the bonds had then gyrated between an intraday high of 57 bid and a low of 41 before settling in at 45 bid, 47 offered.

He saw the same jerky pattern for the floaters, starting the day at 92 bid, 94 offered, and then finishing at 89 bid, 90 offered, down about five points from Thursday's level in the mid-90s.

In its 10-Q report, InSight warned that "the implementation of the reimbursement reductions in the [federal government's Deficit Reduction Act of 2005] will have a material adverse effect on our business, financial condition, results of operations and cash flows."

It noted that for the fiscal year ended June 30, 2005, Medicare revenues represented approximately $32 million, or some 10% of total revenues for that period. If both reimbursement reductions [i.e. the one that went into effect on Jan. 1 and the one slated to take effect next Jan. 1] had been in effect during that period, we estimate that our total revenues would have been reduced by approximately $10.0 million, or 3.2%."

"We would expect to experience comparable reductions in our Medicare revenues in the future when the [Medicare cuts mandated under the Deficit Reduction Act are] implemented," the company concluded.

A trader, in noting the steep fall in InSight's bonds - he termed that "a disaster" - observed that for the most part, "the action was in the medical area" Friday. "Not much was going on elsewhere."

Radiologix, Alliance Imaging, MedQuest also lower

He saw the 10½% bonds of InSight competitor Radiologix ending at 73 bid, 74 offered, well down from 83.5 bid, 84.5 offered previously.

The 7¼% notes due 2012 of another InSight rival, Alliance Imaging, were down on the same kind of Medicare reimbursement concerns, the trader said, though "not as bad". He saw those bonds dip to 78.5 bid, 79.5 offered from prior levels at 82.5 bid, 83.5 offered.

And he said "last, but not least, was this pig called MedQuest," whose 11 7/8% operating company notes due 2012 swooned to 77.5 bid, 78.5 offered from 90 bid, 91 offered the day before, while its MQ Associates zero-coupon/12¼% holding company step-up bonds due 2012 finished at 19 bid, 21 offered - versus "loosely quoted" levels several days area around 49 bid 51 offered. However, he called that bond "a small issue" that "doesn't trade much."

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