Leap Wireless paper continues gyrations; asbestos bonds on fire, but bank debt cooler

By Paul Deckelman and Sara Rosenberg

New York, June 25 - Leap Wireless Inc. bank debt strengthened slightly on the day Friday after another "erratic and all over the place" trading session, according to a trader.

Bonds of companies with asbestos exposure were seen solidly higher on market buzz that deadlocked talks on a federal asbestos claims bill could once again start up, with Senate Democrats having made a counter-offer to a Republican proposal. However, after some initial enthusiasm, bank debt investors were seen as more wary.

San Diego-based telecommunications operator Leap's paper was quoted at 123.5 bid, 124.5 offered by the end of the day, according to a trader, up slightly from its 122.5-123 bid, 123.5-124 offered context seen on Thursday.

Leap was seen trading all through the 122.5 to 124.5 context throughout the day, the trader said.

"Trading was a bit disjointed today. Market technicals. Nothing has changed on the credit," the trader added.

Leap has spent the past week basically retreating from its recent highs, apparently pushed lower by a bearish research report that Imperial Capital put out on the company this week.

Also affecting the paper was technical pressure as the bank debt started to feel a bit heavy and was said to be correcting itself.

Before being brought lower by the Imperial Capital report, which was described as "not too favorable," Leap's bank debt had recently jumped as high as 126 bid - well up from levels around 110 bid seen earlier in the month.

Many in the market had cited new valuations as the primary driver behind the recent surge, with a generally held belief that there is great equity value behind the company's name - and because the bank debt holders get equity along with some new debt as part of the Chapter 11 reorganization plan, the more equity value people attribute to the company, the better the bank debt trades.

Asbestos debt spikes

Elsewhere, there was a bank-debt trader called a "brief spike" in levels on asbestos-related companies' paper, as market rumors to the effect that an agreement may be reached between Senate leaders on a national fund to pay asbestos victims' claims may emerge following Senate Democratic leader Tom Daschle's $141 billion trust fund proposal.

Ehrenkrantz, King and Nussbaum said in a research note that the counteroffer of $141 billion for the trust amount was made by the Democratic Senate leadership in response to a proposal of $131 billion made by the Republican leadership, narrowing the gap between the two sides to $10 billion.

Several weeks ago, efforts to win passage of a $124 billion claims bill foundered, causing the GOP to come back a week or so ago with its somewhat higher offer and the Democrats to counter.

"Maybe they can split the difference, just like king Solomon," a bond trader quipped.

He saw Armstrong World Industries' bonds "up a point or two" to 61 bid on the news of Daschle's proposal to his Republican counterpart, majority leader Bill Frist. He noted that according to news stories, Frist and Daschle had met three times this week to talk about getting the asbestos bill back on track after its failure earlier in the year.

Armstrong, a Lancaster, Pa.-based floorcovering maker, was driven into Chapter 11 several years ago under a flood of lawsuits by people claiming to have suffered medical problems as a result of asbestos' previous use as a fireproofing material in floorcovering and numerous other industrial applications.

He saw the bonds of Chicago-based sheetrock maker USG Corp. At 109 bid, well up from recent levels around 106 bid, 107, and likewise saw Toledo Ohio-based insulation maker Owens Corning's bonds at 47 bid, 48 offered. The Southfield, Mich.-based auto parts maker Federal-Mogul's bonds were in the upper 20s. All of those companies sought bankruptcy protection due to asbestos lawsuits.

But while bond traders saw gains, bank debt traders saw the gains in their market fade. A trader noted that one of the news stories about a possible deal quoted someone who said that an agreement would not be reached because numbers were off - causing everything to back off in the bank debt market.

"So net levels didn't change much from yesterday."

For example, Owens Corning's bank debt is still being quoted in the 76 area, the trader added.

Pegasus rises

Back among the bond investors Pegasus Satellite Communications Inc.'s bonds were seen better Friday, although there was no fresh news out on the bankrupt Bala Cynwyd, Pa.-based satellite television programming distributor.

The senior notes, such as Pegasus' 12 3/8% notes due 2006 and 12½% notes due 2007 were both up to 44.25 bid, 45 offered, a point-and-a-half gain, a trader said, "though I don't know why."

However, Pegasus' deeply distressed junior bonds continued to languish, its 13½% notes due 2007 marooned around 8.25 bid, 9.5 offered.

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