Asbestos names jump as claims bill deal seems near; Elan up on positive report about drug

By Paul Deckelman and Sara Rosenberg

New York, April 12 - Bonds and bank debt of asbestos-challenged companies, including Owens Corning, W.R. Grace & Co., USG Corp. and Armstrong World Industries Inc., moved higher Tuesday as rumors made the rounds of the market place that the Senate is getting closer to getting together legislation setting up a claims-payment mechanism. That speculation was later intensified when the key Republican and Democrat on the Senate Judiciary Committee each indicated that a deal might, indeed, be near.

Elsewhere, Elan Corp. plc's battered bonds got a badly needed tonic when the Irish drugmaker released the findings of a study that had positive things to say about its new multiple sclerosis drug Tysabri, which Elan and partner Biogen Idec Inc. recently pulled off the market after several patients using the controversial medication came down with an unusual nervous-system disease - and two of them died of it.

And Calpine Corp. bonds were seen getting smacked around, despite a lack of fresh negative news out on the San Jose, Calif.-based power generating company.

A bank debt trader saw Owens Corning's paper closing out the session at 114 bid, 115 offered, up about 5½ points on the day, while Armstrong closed out the session around 75 bid, 78 offered, up about six points or so on the day.

W.R. Grace closed out the session at 123.25 bid, 124.25 offered, up about two points on the day, and USG closed out the session at 122 bid, 123 offered, up about five points on the day, according to a trader.

Grace, a Columbia, Md.-based provider of chemicals and materials, had the smallest gains out of all four asbestos-affected companies, probably because it's the least liquid of the bunch, the trader explained.

In the bond trading pits, Owens Corning's bonds and those of Armstrong, were seen hovering in the upper 70s, at least 10 to 12 points higher on the session. USG, whose bonds were already around the 130 mark, was seen about two points better on the news.

A trader saw bankrupt Chicago-based building materials provider USG's 8½% notes a point better at 132 bid, while its 9¼% notes were at 134, also up a point.

He quoted bankrupt Toledo, Ohio-based insulation maker Owens Corning's bonds having moved up to 78 bid, 80 offered from about 65 bid, 66 offered, while the bonds of bankrupt Lancaster, Pa.-based floorcovering and cabinet maker Armstrong World Industries likewise ended at 78 bid, 80 offered, although they had started the day at 69 bid, 71 offered, he said.

The asbestos bonds and debt, along with the companies' shares, were propelled upward after both Sen. Arlen Specter, R.-Pa., the chairman of the Senate Judiciary Committee, and the ranking Democrat on that panel, Sen. Patrick Leahy, D.-Vt., indicated that they might be able to soon present a bill setting up the $140 billion asbestos claims trust fund that would be acceptable on a bi-partisan basis.

"I think that we are very close to a deal," Specter told reporters.

Leahy, meantime, concurred that "I think we are very, very close to a bill that Sen. Specter and I will both support."

Another Democratic senator who indicated Tuesday that she was inclined to support such a bill was Sen. Dianne Feinstein, D.-Calif., and Texas Republican Sen. John Cornyn said that he was "pleased with the direction it's been heading."

Cornyn's support is considered important, since he is closer to the conservative mainstream among Senate Republicans than is Specter. The latter, in negotiations with Leahy, agreed to some changes some Republicans might be wary of, including allowing some compensation for trial lawyers, about 5% of the payouts, and allowing additional lawsuits if the $140 billion did not resolve all claims.

On the other hand, Specter apparently got his Democratic counterpart to agree to language barring payments to any lung cancer victims who couldn't definitively show that their illnesses were asbestos-related, a key demand of business and insurers who feared that claimants with only tenuous medical claims might be able to latch onto the fund anyway.

Even with the apparent progress, though, Capitol Hill players are cautious, noting that the bill is far from a done deal and could still end up where prior attempts to craft a claims mechanism did - nowhere.

Elan moves up

In other names, Elan Corp. - whose 7¼% notes due 2008 got hammered down into the 80s recently from prior levels above par when it was disclosed that at least two patients taking its new Tysabri drug had died of unexpected complications - was on the rebound on Tuesday, with those bonds quoted at 88 bid, 90 offered, up from 86 bid, 88 offered.

Another trader saw the bonds at 88.5 bid, 90 offered, up from 86.75 bid, 87.75 offered.

The bonds firmed after Elan and its partner in the development of Tysabri, Biogen Idec, reported for the first time full results from a pivotal-stage trial of the drug. The companies said that it slows disability in relapsed MS patients.

It is a healthy dose of good news for Elan and Biogen, which were forced to withdraw Tysabri in February after one patient died from a rare brain infection condition, progressive multifocal leukoencephalopathy. A second Tysabri user who had died some months before that was later determined to have died from the same infection, and a third was diagnosed with the condition, but lived.

The companies said they are working with regulators to evaluate the future of the drug.

Calpine plummets

Elsewhere in distressed bond territory, a trader euphemistically said that said that Calpine Corp. "got the blank beat out of it," although he had seen no news that would justify such a harsh reaction to the company's bonds.

He quoted Calpine's 8½% notes due 2008 as having fallen to 67.5 bid, 68.5 offered from prior levels around 70.25 bid, 70.75 offered.

All the company's bonds, he said were "about three points lower, across the board," with Calpine's 8½% notes due 2011 dropping to 66.5 bid, 67.5 offered from 69.5 bid, 70.5 offered, while its 8¾% notes due 2007 were quoted down two points at 77.

Delta lower

Despite an easing of world crude oil prices, Delta Air Lines Inc.'s bonds were seen lower, perhaps in reaction to a decline in the troubled Atlanta-based air carrier's shares following a downgrade of that equity by Fulcrum Global Partners, who cut it to "neutral" from "buy," citing a renewed possibility that Delta might go bankrupt before the end of the year.

Delta's benchmark 7.70% notes due 2005 dipped two points to 77 bid, 79 offered; its 10% notes due 2008 were also down a deuce at 41 bid, 43 offered, while its 7.90% notes due 2009 and its 8.30%

notes due 2029, were both off three points on the day at 35 bid, 37 offered and 29 bid, 31 offered, respectively.

Delta New York Stock Exchange-traded shares lost 13 cents (3.30%) to close at $3.81.

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