aaiPharma bonds fall as stock swoons on delisting, restatement; Armstrong keeps gaining

By Paul Deckelman and Sara Rosenberg

New York, April 15 - News that aaiPharma Inc. is to be delisted by Nasdaq and will have to restate some results proved to be a bitter pill for the troubled Wilmington, N.C.-based pharmaceutical company's shareholders Friday - and its bondholders were feeling the side effects as well.

On the upside, the bonds of bankrupt Lancaster, Pa.-based Armstrong World Industries Inc. continued their recent climb, fueled by hopes that the Senate may soon consider a compromise bill setting up a $140 billion trust from to pay claims against companies like Armstrong filed by persons claiming medical problems as a result of their past exposure to asbestos.

In bank-debt dealings, Mirant Corp.'s paper was seen lower, amid a general loan market feeling of heaviness and malaise.

aaiPharma's 11% notes due 2010 were "under pressure" all day, said a trader in distressed notes, who saw those bonds drop like a stone from their opening levels around 46 bid, 48 offered, to around 35 bid, 40 offered. Later in the day, he said, the bonds came back up, rebounding - at least partly - to 43 bid, 45 offered.

Those gyrations came as the company's shares collapsed 25 cents (39.68%) to end at 38 cents. Volume of 3.3 million was about seven times the usual turnover.

aaiPharma - whose bonds and shares have been getting pounded for more than a year now, following the revelations of accounting problems related to apparently inflated sales figures for two popular products, and a series of management shakeups - said Friday that its common stock will be delisted from the Nasdaq as of the opening of business on Monday because of its failure to timely file its 10-K annual report for 2004 with the Securities and Exchange Commission.

aaiPharma had been in negotiations with Nasdaq, and had sought to have its stock listing continue pending the filing of the 10-K by April 30, but Nasdaq refused.

On a related note, aaiPharma also announced that it has come to the decision that its financial statements for the period ended last Sept. 30 should no longer be relied upon.

It further said that it will modify its preliminary, unaudited financial data for the fiscal year ended Dec. 31 and will restate the results for the quarter ended on Sept. 30 to increase by approximately $2.1 million its allowance for customer credits, which includes estimated product returns, and thus reduce net revenues.

As restated, the net loss for that third quarter is $36 million, or $1.26 per share, a bit wider than the originally reported net loss of $33.8 million, or $1.18 per share.

Armstrong, Owens Corning bonds gain

The bonds of Armstrong World Industries were seen higher on Friday along with those of bankrupt Toledo, Ohio-based insulation maker Owens Corning.

A trader quoted both issues at 82 bid, 84 offered, up from their prior levels around 80 bid, 82 offered.

Another source saw the Armstrong bonds as high as 83 bid, up four points on the day, although he only saw Owens Corning's bonds up 1¾ points on the day to 79.5 bid.

He also saw bankrupt Chicago-based building materials company USG Corp.'s 8½% notes due 2005 hanging in at 131, while its defaulted 9¼% notes that were to have matured in 2001 at 133, also unchanged.

And bankrupt Southfield, Mich.-based automotive parts maker Federal-Mogul Corp.'s notes continue to languish in the upper 20s. They were quoted at 27.5 bid, actually down ¾ point.

The asbestos names - well, at least Owens Corning and Armstrong - had zoomed more that 12 points earlier in the week after the chairman of the Senate Judiciary Committee, Sen. Arlen Specter, R.-Pa., and the ranking Democrat on that panel, Sen. Patrick Leahy, D.-Vt., and several other senators as well, all expressed optimism that a deal might be near on the legislation Specter has been drafting to set up the $140 billion industry-funded claims mechanism, which would take claims of persons who said they had suffered medical problems as a result of past exposure to asbestos out of the courts and ensure that their claims would be paid off quickly, according to set guidelines. Efforts to craft such a bill over the past few years have failed in partisan wrangling over the size of the fund, who would pay for it, and whether plaintiffs could still pursue suits through the courts. The proliferation of court cases sent both Owens and Armstrong into bankruptcy, along with dozens of other companies, earlier in the decade.

On Friday, the nation's largest labor group, the AFL-CIO, expressed reservations about the Specter plan, declaring that "a number of serious deficiencies that must be corrected," even as it acknowledged that it represented an improvement over previous attempts to craft such a bill. However, the union umbrella group said it would continue to work with senators and their counterparts from the business community to try to draft a bill more to its liking.

Salton pays coupon

Salton Inc., to the surprise of some market denizens, made the $9.1 million coupon interest payment on its 12¼% notes due 2008. That payment had been due on Friday.

A trader saw those bonds up about half a point at 62 bid, while its 10¾% notes due 2005 were seen staying around the same 75 bid, 76 offered area in which they had recently been seen.

A company spokesman told Prospect News that the payment had been funded through the company's available credit and its cash flow.

Despite the skepticism about whether Salton would be able to make the payment that some analysts expressed during the company's fiscal second quarter conference call on Feb. 9, the spokesman declared that Salton had "never missed making a coupon payment."

Mirant loans sink

In the bank debt market, heaviness continued to prevail in Friday's session, causing Mirant Corp. to give up about a point and a half on the bid side and about half a point on the offer side, according to a trader.

The bankrupt Atlanta-based energy company's 2003 and 2004 bank debt closed out the session at 73.5 bid, 75.5 offered, down from Thursday's close of 75 bid, 76 offered, the trader said.

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