Asbestos names up on judge resignation, legislative progress; Pegasus steady

By Paul Deckelman and Sara Rosenberg

New York, June 4 - Bank loans and bonds of asbestos names directly tied to Judge Alfred Wolin were on the rise Friday, following the news that the controversial federal jurist had resigned from the bench to go back to private law practice.

Asbestos-linked debt was also seen having gotten a boost from speculation that Congress may make another attempt to come up with a comprehensive claims payment mechanism that would take cases of people saying they suffered medical problems due to asbestos exposure out of the courts. There was also news that Ohio's governor had signed into law a new measure restricting the kind of asbestos liability cases that could be brought in the state's courts - potentially a big assist for Toledo-based Owens-Corning, in particular, since many asbestos claims cases are filed in the home domicile of defendant companies. And Mississippi's lawmakers passed a bill that was seen reining in what critics have called a runaway tort litigation juggernaut.

W.R. Grace & Co. and USG Corp. bank debt was seen higher by about a half a point to a point, and Owens Corning Inc. was seen higher by about a half a point to 1½ points depending on the trader quoting it.

"Judge Wolin announced his retirement," one bank loan trader explained. "Even if the appeal [by several defendant companies and plaintiff committees to get him reinstated on those cases] is successful, he no longer wants to participate.

"And there's general progress of the settlement fund," the trader added.

W.R. Grace's bank debt was quoted around 85 and USG was quoted around 94 bid, 96 offered. Owens Corning was quoted at 76 bid, 78 offered by one trader and 77 bid, 78 offered by a different trader. On Thursday, Owens Corning had been quoted at 75.5 bid, 77 offered.

On the bond side of the ledger, "asbestos names were all up," a trader said, quoting Owens Corning's notes at 43.5 bid, 44.5 offered, "up another two points" on top of Thursday's gains, and well up from bid levels earlier in the week around 39-40.

Armstrong World Industries Inc.'s 6% notes were seen at 56.5 bid, 57.5 offered, its 7.45% notes at 56 bid, 56.75 offered, and its 9% notes were at 54.5 bid, 55.5 offered; the bankrupt Lancaster, Pa.-based floor-covering maker's bonds had all languished around 50-51 bid before the recent upturn.

Even bankrupt Southfield Mich.-based Federal-Mogul Corp.'s deeply distressed bonds were seen getting into the act, quoted at 26.5 bid, 27.5 offered, the trader said, up from long-held previous levels in the 24-25 region.

And for a second straight day, W.R. Grace's New York Stock Exchange-traded shares soared to double-digit percentage gains, jumping 56 cents (14.47%) Friday to close at $4.43 on volume of 3.7 million shares, more than seven times the norm. Chicago-based sheetrock maker USG's NYSE-traded shares were up 96 cents (6.40%) to $15.95 on volume of 1.4 million, about double the usual.

On May 17, Judge Wolin had been removed from overseeing the Chapter 11 asbestos-related cases of USG, Owens Corning and W.R. Grace due to questions about whether he was impartial. The cases were reassigned to other judges. The appeals court also said it would decide whether to take Wolin off the Armstrong case, but left him on the Federal-Mogul restructuring.

Creditors of the asbestos companies, feeling that Wolin might potentially be improperly influenced because he was being advised by several asbestos plaintiff lawyers working on other, unrelated cases, had campaigned for many months to have him taken off their companies' cases.

However, on May 27, Owens Corning, the Committees of Asbestos Personal Injury Claimants, James J. McMonagle & Dean M. Trafelet had filed a petition for re-hearing in the Third Circuit Court of appeals, according to a court document. The filing includes W.R. Grace and USG as well. On June 1 Baron & Budd joined the move.

The appellants said that the removal of Wolin opened the door to tactical attempts by litigants to depose sitting judges in hopes of getting more favorable jurists in their cases. They also noted that Wolin's removal and replacement would delay the cases, since the new judges would need time to get up to speed on the complex issues involved.

That motion to have Judge Wolin back on the case was heard to have put some pressure on asbestos names on Wednesday, but with this latest news of his retirement, asbestos-related bank debt and bonds have rebounded.

Financial market observers were also noting the added positive psychological impact of reports that Senate Majority Leader Bill Frist R.- Tenn.) and Minority Leader Tom Daschle (D.-S.D.) seemed to have ended their recent feud - or at least, to have back-burnered it - in the interests of getting legislation through the evenly split, highly partisan Senate this year.

The congressional newspaper The Hill reported: "Daschle told reporters he holds out hope for action on a stalled asbestos bill and energy legislation, although he said there weren't great prospects for success on the class-action bill."

Attempts to pass a claims mechanism bill earlier this spring ran aground amid a partisan power struggle, with Frist finally giving up efforts to get the bill out for a vote after Democrats won a key procedural vote. The bill would have set up a $124 billion trust fund to pay out claims, although critics said that the sum - to be funded by defendant companies and their insurers - was inadequate.

On Wednesday the International Union of Glass, Molders, Pottery, Plastics & Allied Workers, in league with Owens Corning and several other companies, wrote to senators to urge them to work together to enact a trust fund bill, warning that "it would be tragic if, having come this far, the Senate failed to enact legislation this year.

"It is reported that the Senate leaders are currently discussing a trust that would have total funding somewhere, roughly, in the $125 billion to $150 billion range. Surely, with a commitment of resources of this magnitude a trust can be constructed that will serve injured workers better than does the existing tort system, in which 60% or more of total expenditures is spent on lawyers and related costs," the union letter said .

On a state level, asbestos company creditors were heartened by Ohio Gov. Robert Taft's signing a law making it difficult for Ohioans who may have been exposed to asbestos but who do not show any signs of illness to sue for damages. The law would be the first in the country to require people to prove exposure to asbestos and provide medical evidence of an asbestos-related illness before continuing with their lawsuits, and is expected to affect thousands of cases now pending in Ohio courts.

In Mississippi - up till now considered one of the most favorable venues in the nations for big class-actions suits brought against corporate defendants - the legislature passed a sweeping tort reform bill aimed at cleaning up what has been called a "judicial hellhole" by limiting where a plaintiff can sue, setting caps on non-economic and punitive damages and providing protection for innocent product sellers and premises owners. Gov. Haley Barbour was expected to sign the bill into law.

Leap loans higher

Elsewhere, Leap Wireless International Inc.'s bank debt headed higher by about half a point to a point on Friday with quotes reaching around 110 as the market continued to show its support for the company's hire of a new chief executive officer, according to a trader.

On Thursday morning, Leap announced that William Freeman was appointed as CEO of the operating subsidiary, Cricket Communications Inc. Additionally, Freeman will assume a seat on Leap's board of directors when it emerges from Chapter 11 bankruptcy and will be appointed as CEO of the San Diego-based telecommunications company when court approval has been obtained. Freeman will be succeeding Harvey P. White.

"The market interpreted that as a positive event," the trader said.

Most recently prior to Leap, Freeman was president of Verizon Public Communications Group, a business unit of Verizon Communications focused on payphones, prepaid programs, long distance and other services.

Pegasus steady

Also on the communications front, bond traders reported little movement in Pegasus Satellite Communications Inc,. bonds, which had gyrated wildly earlier in the week before the Bala Cynwyd, Pa.-based satellite television programming distributor sought Chapter 11 protection, in order to prevent DirecTV, whose service Pegasus sells in rural markets, and the National Rural Telecommunications Cooperative, an organization of which the company is a member, from ending its exclusive rights to sell DirecTV in its service territories.

Pegasus's senior notes, such as its 11¼% notes due 2010, remained bid around 56, flat (without accrued interest), while its junior paper, like the 13½% notes due 2007, remained quoted around the 16-20 level.

Mirant Corp.'s bank debt was a little higher Friday, trading right "on top of 53", according to a trader.

"It's probably half a point higher since the company released its 10-Q today," the trader explained.

Mirant is an Atlanta energy company.

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