FedMogul moves little on expected bankruptcy filing; primary revives

By Paul Deckelman and Paul A. Harris

New York, Oct 1 - Federal-Mogul Corp. became the latest major U.S. company to duck under the protection of the Bankruptcy Code umbrella to get out from under an anticipated deluge of asbestos-related lawsuits. But the Southfield, Mich.-based auto parts maker's action had been fully expected by the market and had essentially been factored into the pricing of its bonds.

In the primary, there were signs that new issuance could be about to restart after a break since Sept. 6 when United States Steel LLC and Iron Mountain Inc. sold deals. Word emerged on the first part of Calpine Corp.'s next borrowing and timing and a new structure surfaced for Fleming Cos.

In trading, Federal-Mogul's debt had already sunk to almost single-digits over the months in which its financial condition deteriorated, as much from the overall downturn of the U.S. economy and its important automotive segment as from the rising tide of claims by people (usually former employees of companies which used asbestos in manufacturing their products) of serious medical problems linked to the carcinogenic fireproof fiber.

Traders said the filing of Chapter 11 with the U.S. Bankruptcy Court in Wilmington, Del. was the long-awaited dropping of the other shoe.

"It was fully expected," said one in quoting the company's various issues of junk bonds as having opened at a wide 1 bid/10 offered, before tightening to a 7 bid/9 offered range.

At another desk, issues such as Federal Mogul's 8.33% notes due this coming November went from 9 bid to around 6.5.

More interesting was the behavior of the bonds of such companies as Crown Cork & Seal Companies Inc., and Owens-Illinois Inc., both packaging makers with some asbestos liability and now the last major high yield issuers to have not sought refuge in the bankruptcy courts (others who preceded Federal-Mogul included such names as Owens Corning, Armstrong World Industries, W.R. Grace and, years ago, Johns Manville, which since emerged as a restructured company).

A trader saw Crown Cork's 2002 paper, which last week traded at 68 bid/70 offered, open at 65 bid/69 offered, before tightening to 67 bid/69 offered. Its 2005 paper started at 45 bid/49 offered, tightening to 47 bid/49 offered.

He saw Owens-Illinois' 7.85% notes due 2004 meanwhile down just a half point, at 81 bid/83 offered.

"We thought they would be lower, but nothing was dropping by three, four, five points," he said. The Owens paper for sure, he said, seemed a likely candidate "to get beat up, because they have a long way to fall," but did not.

Elsewhere, there seemed to be little or no market response to another not-unexpected bankruptcy, that of Aladdin Gaming, which took place late Friday in Nevada. Aladdin's zero-coupon.13.5% notes due 2010 were unchanged at 13.

Outside the realm of the bankruptcy courts, Global Crossing's bonds were quoted down four points, to around 40 bid, continuing the easing seen last week among many telecom issues after Exodus Communications Inc. ran up the white flag and sought Chapter 11 status (Global Crossing has a 20% Exodus stake).

But other telecom issues were little moved in what traders described as an otherwise slow day.

Even some good news failed to bring much price movement - Williams Communications Group Inc.'s announcement that it was in compliance with all of its financing covenants as the calendar third quarter came to an end. Given the erosion of the whole sector, news that a major player was not in default on something or other should seem to be cause for wild (or at least mild) celebration. But Williams' 10.875% notes continued to hang in around 40.75 bid/41.75 offered, little changed.

A trader observed that "maybe with this long-haul sector these days, going down on the bad news and just stabilizing on good news - that's the natural order of things."

In the primary, "the market's finally starting to heat up," one trader commented Monday, while discussing Calpine's pending issuance. That deal, once rumored to involve more than $1 billion in a combination of European, Canadian and US offerings, finally started taking shape, Monday, with sources saying that a European offering of £275 million could price on Oct. 10 or 11.

Commenting that the sterling deal was extensively pre-marketed, one trader said: "The European market tends to need a little more time than (the US market). They go out to accounts, and find out what certain ones would play at - what kind of structure they're looking at. Then they go out on the road, and get feedback, continuously. That's when the call features and the maturities are set."

A U.S. dollar offering will likely follow, that source added, with an amount in the $400-$500 million range.

Elsewhere in the primary, Dallas-based food distributor Fleming Cos. announced a $100 million add-on to their existing 10 5/8% senior subordinated notes due July 31, 2007 (B2/B+). The deal is a restructuring of a previously announced $250 million offering.

"That's going to be a largely-watched deal, even though it's only going to be a $100 million add-on," one syndicate official said. Along with Terra Capital's offering scheduled to price Wednesday, he said: "I think those will give us a good idea of where the market's going to reprice itself.

"And I'm hopeful that nothing else happens, and we can kind of get back to business, because I'm bored."

But not everything was positive in the primary; EEX Corp. said it was postponing its $350 million senior unsecured notes, blaming "debt market conditions following the recent tragic terrorist attacks."

Another postponement, for different reasons, came from, Sweetheart Cup Co. The Owings Mills, Md.-based manufacturer of single-use disposable products said it would wait until later in October to sell its $275 million senior notes due 2007. Sweetheart chief financial officer Hans Heinsen cited "internal problems with a minority shareholder."

End

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