Asbestos bonds continue profit-taking slide; Adelphia paper active; airlines lower

By Paul Deckelman and Sara Rosenberg

New York, May 22 - Bonds of such asbestos-challenged names as Owens Corning, Armstrong World Industries Inc. and Federal-Mogul Corp. - which seemed to be on fire less than two weeks ago - were ice cold on Monday, quoted several points lower than Friday's levels as the sector continued to retreat from its recent highs on apparent profit-taking off those gains.

In the bank loan market, Adelphia Communications Corp. was the most active distressed-debt name, as investors were focusing on a hearing set to take place Tuesday that will discuss the possibility of escrowing its banks' recovery.

A trader said that the bankrupt Greenwood Village, Colo.-based cable television operator's Century Old and Century New bank debt were trading actively in a 96.25 bid, 96.75 offered context, unchanged on the day.

Meanwhile, Adelphia's TCI and Parnassos bank debt were also very active at unchanged levels, with trades going off around 99.5, the trader continued.

And its Olympus bank debt traded in a 96.5 bid, 97 offered context, also unchanged on the day, the trader added.

A trader in distressed bonds, however, said that he had seen "nothing doing" in the cable company's bonds on Monday.

The action, he said, was elsewhere, with "everything pretty heavy," and levels on most names lower.

For instance, he said, Movie Gallery Inc.'s 11% notes due 2012 were well down from Friday's closing levels, dipping to 71 bid, 73 offered from prior levels at 75 bid, 77 offered.

No fresh news was seen out about the Dothan, Ala.-based video-rental chain operator, whose bonds and shares had risen last week after a major shareholder disclosed in a Securities and Exchange Commission filing that it had increased its holding in the company to 13.4% from 8.6% previously, and reiterated its intention of recommending that management raise fresh capital via an equity rights offering and use the proceeds to pay down debt.

Airline bonds drop as oil gains

The trader also saw airline bonds lower, in line with higher world crude oil prices - an indicator of possible future price movements for jet fuel. He quoted bankrupt Atlanta-based Number-Three U.S. air carrier Delta Air Lines Inc.'s 8.30% notes due 2029 and its 7.90% notes due 2009 a point lower at 27 bid, 28 offered, and saw its other bonds, like the 7.70% notes that were to have come due this past December, at 26 bid, 27 offered, down a point.

However, he saw no movement in rival bankrupt carrier Northwest Airlines Corp.'s bonds. A market source at another desk, though, saw the Eagan, Minn.-based Number-Four carrier's notes better, with its 7 7/8% notes due 2008 up a point at 53.5.

Asbestos down again

The real activity in the distressed bond sector, however, was among the asbestos names. A trader said they "got hit again," quoting Owens Corning's 7½% notes due 2018 at 108 bid, 109 offered, down about four points from Friday's closing levels. He saw Armstrong's 6½% notes that were to have come due last year at 78 bid, 79 offered, while Federal-Mogul's 7½% notes that were to have matured in 2004 were two points lower at 58.5 bid, 59.5 offered.

Another trader saw those Owens Corning notes at 107 bid, 109 offered, down from 112 bid, 114 offered on Friday, and pegged its 7% notes due 2009 at 105 bid, 107 offered, down from 110 bid, 112 offered previously.

He saw the Armstrong bonds at 78 bid, 80 offered, well down from 83 bid, 85 offered previously, while the Federal-Mogul notes were at 59 bid, 61 offered, down from 62 bid, 64 offered previously.

The bonds of bankrupt Toledo, Ohio-based insulation maker Owens Corning had jumped earlier in the month to bid levels above 122 from levels around par after the company announced that it had reached an agreement with its asbestos claimants and various other creditor groups on a reorganization plan that would bring Owens Corning out of bankruptcy this year, six years after it went in.

The plan would set up a trust fund mechanism that would pay out as much as $5 billion in claims over the next several years, following the example earlier this year of yet another asbestos name, bankrupt Chicago-based building products maker USG Corp.

The bonds of Lancaster, Pa.-based floorcovering maker Armstrong and Southfield, Mich.-based automotive brake systems manufacturer Federal-Mogul - each, like Owens Corning, driven into Chapter 11 by a deluge of asbestos-related lawsuits - had risen solidly in line with the latter company's notes, with Armstrong's bonds pushing into the low 90s and Federal-Moguls into the upper 60s, well above the levels that each held before news of the Owens Corning settlement.

But the bonds of all three began retreating last week, with traders chalking the movement up to profit-taking from the recent gains.

Elsewhere, a trader saw the 12% notes due 2013 of bankrupt Novi, Mich.-based automotive frames maker Tower Automotive Inc. down two points at 72 bid, 74 offered. But he saw little movement in the bonds of other bankrupt auto names such as Delphi Corp. or Dana Corp.

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