Grace bank debt firms as company unveils plan; Delta resumes upward move.

By Paul Deckelman and Sara Rosenberg

New York, Nov. 15 - W.R. Grace & Co.'s bank debt was heard to have rallied on Monday as the company filed its plan of reorganization and disclosure statement with the U.S. Bankruptcy Court in Delaware over the weekend. USG Corp. - like Grace driven into Chapter 11 early in 2001 by asbestos claims - came along for the ride. Bonds of some other asbestos-challenged companies were also seen on the upside.

So too were the bonds of Delta Air Lines Inc. in an apparent release of pent-up demand for the troubled Atlanta-based air carrier's notes on the part of market participants not around late last week, when the airline announced that its pilots had given their reluctant approval to Delta's demand for $1 billion of pay-cut concessions.

Columbia, Md.-based chemicals maker Grace's bank debt was quoted at 111 bid, 112 offered Monday, a trader said - up about three points from Friday, while Chicago-based building products producer USG's debt was quoted in the 112 bid, 114 offered context, up about three or four points from Friday.

The filing deadline for Grace's reorganization plan had originally been scheduled for Oct. 14 but was extended to Nov. 15 to allow the company to continue negotiations with creditors, equity holders and asbestos claimants on a consensual plan.

"While these negotiations have been constructive, and are expected to continue following the filing of the plan, agreement among all parties has not been achieved. Accordingly, Grace believes it should move forward to file its plan with the bankruptcy court in compliance with this extended deadline," a company news release explained.

Under the reorganization plan, a trust would be established for all pending and future asbestos-related claims, all allowed administrative or priority non-asbestos claims would be paid totally in cash and all allowed general unsecured claims would be paid in 85% in cash and 15% in Grace common stock.

Financing for these non-asbestos related claims would come from $150 million of cash on hand, $115 million from Fresenius Medical Care Holdings Inc. paid in settlement of asbestos and other Grace-related claims, $800 million in new debt and $143 million in value of Grace common stock.

The plan needs to be approved by eligible creditors and the bankruptcy court, but the disclosure statement needs to be approved first. Grace has requested a hearing on the disclosure statement for Dec. 20.

Other asbestos names strong

A bond trader saw USG's 8½% notes due 2005 and 9¼% notes that were to have come due in 2001 both unchanged at 127 bid, although he allowed that "I haven't seen an offering" - so it could be higher.

He saw the bonds of other asbestos-plagued bankrupt junk bond issuers "all firm," with Lancaster, Pa.-based floorcovering maker Armstrong World Industries' 6.35% notes that were to come in 2003, its 6½% notes due 2005 and 7.45% notes due 2029 all up one point at 70 bid, 71 offered.

Toledo, Ohio-based insulation maker Owens Corning's 7% notes due 2009, 7.7% notes due 2008, and 7½% notes due 2018 were also a point better at 64 bid.

And he saw Southfield, Mich.-based auto parts supplier Federal-Mogul Corp.'s 7½% notes due 2009 and 7¾% notes due 2006 "pretty static" around the 30 bid level.

Another market source saw Federal-Mogul's bonds up half a point on the session to 30.5 bid.

Asbestos-related issues have recently firmed smartly in the wake of the Republican electoral victories earlier this month, which are seen as possibly breaking the Capitol Hill logjam on passing a bill to set up an industry-funded claims-paying mechanism - a move that would also put a top limit on the company's damages and end the proliferation of lawsuits that have driven dozens of companies into Chapter 11.

Delta gains

Elsewhere, a trader quoted Delta's bonds all higher across the board, with the carrier's benchmark 7.70% notes due 2005 up one point on the session at 87 bid, 89, and well up from the 81 bid, 83 offered level that those bonds had been at just a couple of sessions ago before the airline announced its good news that the union representing its 7,000 pilots had agreed to the $1 billion of paycuts that Delta said it absolutely needed in order to avoid bankruptcy, although it has also warned that even with the concessions, it might still be forced to file if other pieces of the puzzle do not fall into place.

One of these is Delta's efforts to get its debtholders to sign off on a debt-exchange effort aimed at getting $1.56 billion of existing unsecured notes and pass-through certificates off the books, by giving their holders a lesser amount of new debt.

That exchange offer is scheduled to run though Nov. 23, although Delta warned Monday in a filing with the securities and Exchange Commission that while some $252 million of short-term existing securities have been tendered in the exchange offer, fulfilling the minimum tender condition for that class of notes, Delta "does not expect the minimum tender conditions to be met for the other notes covered by the exchange offer. We intend to seek to use the collateral originally reserved for those other notes to secure additional financing."

The Delta notes have recently strongly rebounding because of optimism on the pilot pay-cut front, which turned out to be justified. What effect the company's admission that its debt swap offer is less than a total success may have on price action remains to be seen.

But in Monday's dealings, the company's Delta's 10% notes due 2008 winged their way up to 65 bid 67 offered from 62 bid, 64 offered on Friday; its 7.90% notes due 2009 gained two points to go home at 55 bid, 57 offered; and its 8.30% notes due 2029 were two points better at 44 bid, 46 offered.

Airlines move higher

Delta's continued strength gave a little-bit of a pick-me up to bankrupt rival United Airlines' notes, which were seen half a point better at 6.5 bid, a trader said.

And he saw another airborne rival, AMR Corp.'s 9% notes due 2012 at 71 bid, 72 offered, up a point or so.

Back on terra firma, the trader said that he had seen Fleming Co.'s notes a point firmer, at 22 bid, 24 offered, although he saw no news on the bankrupt Dallas-based wholesale supermarket supplier.

Supermarket operator Winn-Dixie Stores Inc. - which recently announced plans to sell 10 stores in North Carolina and Virginia to Food Lion, as part of its effort to divest underperforming locations as a component of its turnaround plan - "looked like it was a little better," its 8 7/8% notes due 2008 up two points, at 88 bid, 90 offered.

And Mississippi Chemical Corp.'s 7¼% notes due 2017 were being quoted at 56 bid, although there was no news seen on the bankrupt Jackson, Miss.-based chemicals maker. A market source said that the notes had fallen three points to reach their present levels.

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