Intermet bonds gyrate at lower levels; Owens-Corning bank debt tumbles

By Paul Deckelman and Sara Rosenberg

New York, Sept. 21 - Intermet Corp. - whose bonds slid sharply on Monday in response to the Troy, Mich.-based automotive components maker's warning that it would show a third-quarter loss and could default on its financial covenants - was seen by traders Tuesday as first continuing to fall, then bouncing off the day's lows and finally ending the day moderately lower versus Monday's close.

In bank debt trading, Owens Corning's paper was the big mover of the day, as levels plummeted by about 10 points on what a trader attributed to investor jitters regarding a substantive consolidation ruling in the company's ongoing bankruptcy case that should come out any day now.

The paper was quoted at 77 bid, 82 offered, well down from around 87 on Monday, the trader said, while a second trader said that a lot of paper traded in the high 70s with levels more in the context of 75 bid, 80 offered by the end of the day - or on the tighter side, 77 bid, 78 offered.

"But, it's all going to change again tomorrow," the second trader said. "Everyone is waiting on the judge's ruling and it can either go up 15 points or down 15 points."

There was tension in the air during trading hours, market participants said, as rumors were flying around that the bankruptcy judge for the Toledo, Ohio-based insulation maker's case was "very hard on the banks' lawyers" on Monday, the first trader explained - leaving investors worried that the company may win the battle to consolidate its subsidiaries, which in turn could dilute bank debt claims.

While that would be a debacle for bank debt investors, the same is not true for other creditors - witness the rise in Owens Corning's bonds, even as the bank debt seemed to be in freefall.

A market source saw Owens Corning's 7½% notes due 2005 as having firmed to 47.5 bid from prior levels at 45.5. The company's 7% notes due 2009 and 7½% notes due 2018 both were quoted as having risen to 47.5 bid, from 47 bid and 46.5 bid, respectively on Monday.

Federal-Mogul unchanged

Even as the company's bonds were firming, no movement was seen in the bonds of other companies which were driven into bankruptcy by rapidly multiplying asbestos-related claims, as Owens Corning was in October 2000 - with even Federal-Mogul Corp. bonds seen unchanged around the 30.5 bid, 32 offered level, although there actually has been some news out over the past few days on the bankrupt Southfield, Mich.-based auto parts maker.

The company and its noteholders are trying to get British judicial authorities to drop their plans to liquidate FedMogul's U.K.-based Turner & Newell subsidiary, filing a motion with the U.S. Bankruptcy Court in Wilmington, Del., which is overseeing Federal-Mogul's reorganization, seeking an auction of T&N instead of its liquidation. Each side claims that its preferred course of action would yield a greater return for the company's creditors, particularly those with outstanding asbestos claims. Under terms of Federal-Mogul's proposed reorganization plan, the asbestos claimants would get 50.1% of the equity of the reorganized company, and bondholders would get the other 49.9%.

Delta still quiet

Lack of activity in Fed-Mogul was no isolated phenomenon - a trader in distressed bonds noted that things on his beat were extremely quiet in general.

For instance, he saw little or no activity in the bonds of Delta Air Lines Inc., even with the news, after the market closed on Monday, that the struggling Atlanta-based air carrier and its pilots union had reached a tentative agreement on the thorny issue of early retirement - a deal, which, if ratified by the 7,500 members of the union's rank and file, would allow the airline to recall newly retired pilots to ensure that operations are not disrupted. That's a positive for Delta, which has warned that a wholesale exodus of veteran pilots could send its efforts to stay out of Chapter 11 into a nosedive - but it had little effect on the bonds.

The trader saw Delta's benchmark 7.70% notes due 2005 still hovering around the 50 mark and its 8.30% bonds due 2029 still around 26 - the same levels they've held for the last several sessions.

Another trader opined that the Delta bonds may not have moved because even though union leadership had approved the plan, the line's rank-and-file captains still have to vote on it, with no guarantees the measure will pass. Senior pilots who retire can take up to 50% of their pensions in a lump-sum up front - an attractive option for those who fear that Delta may try to abrogate its pension obligations in the event of a Chapter 11 filing, the same way bankrupt United Airlines has proposed ending its pension contributions.

The second trader quoted the 7.70s at 49.25 bid, 50.25 offered, and said that movement in those bonds "has been slow this [past] week. People are waiting for the next real news."

Intermet down again

If Delta bonds remained in a holding pattern Tuesday, the bonds of Intermet, a maker of cast-metal powertrain, chassis/suspension and structural components for the automotive industry, were continuing to skid lower.

A trader saw the company's 9¾% notes due 2009 - which had plunged to 45 bid Monday from prior levels in the mid-70s on the loss warning and the red flag on a possible default - as having opened Tuesday around 43.5 bid, and then having retreated further, to 41.75 bid, 43.25 bid, causing him to exclaim in a message "OUCH!"

But later in the day, he saw those bonds back up to around 43 bid, 45 offered.

Another trader saw an even more pronounced fall, quoting the bonds as having retreated all the way down to 38 bid, 39 offered during the morning, before coming back partly off those lows to close around 42.

The Intermet bonds - which, as one trader tartly noted had been "around par maybe two weeks ago" - began their swoon after the company said that it expects to report a third-quarter net loss of between $19 million and $24 million, or 74 to 94 cents per diluted share, despite an anticipated increase in revenues to $197.9 million from $172.7 million in the year-earlier third period, mostly due to escalating raw materials costs. Such a loss, it said, would cause the company to be in default on various financial covenants contained in its credit agreement, unless its lenders agree to waive them. Intermet said it expects its bankers to grant the waivers, which would probably run through early December.

MCI up again

Also continuing on the move Tuesday were the bonds of MCI Inc., which were seen as having firmed for a second straight session following news reports that the Ashburn, Va.-based telecommunications company - the old WorldCom Inc., reincarnated after coming out of bankruptcy earlier this year - was supposedly looking for a buyer for some or all of the company, anticipating proceeds north of $6 billion in the latter case.

MCI's chief executive officer, addressing a Banc of America Securities conference Tuesday, declined specific comment on the reports, indicated that much of what was in those reports was a rehash of old news, and said the company - which had already "been through every distraction known to man" - would remain focused on fulfilling its business plan (see related story elsewhere in this issue).

Nonetheless, the bonds continued to firm, with MCI's 5.908% notes due 2007 quoted half a point better at 99.75; its 6.688% notes due 2009 at 96.625, up 5/8 of a point; and its 7.735% notes due 2014 up nearly a point at 94.875.

Citation loans steady

Back on the bank debt front, Citation Corp.'s bank debt held steady at 79 bid, 80 offered on Tuesday, unchanged on news that the company filed for Chapter 11 bankruptcy protection, since investors were already expecting the move, according to a trader.

Citation is a Birmingham, Ala. manufacturer of cast, forged and machined components for the capital and durable goods industries.

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