Distressed loans mostly heavier, bonds too, but Movie Gallery gains

By Paul Deckelman and Sara Rosenberg

New York, May 17 - It was another day of overall general weakness in the distressed loan market Wednesday, with Armstrong World Industries Inc. taking one of the larger hits of the day, and Adelphia Communications Corp. and Delphi Corp. feeling the pressure as well.

In the junk bond market, Armstrong's bonds, and those of fellow bankrupt asbestos-challenged company Owens Corning, continued to slide. Delphi and such other automotive names as its former corporate parent, General Motors Corp., continued to retreat as well - especially as the latter announced an executive shakeup. But Dana Corp. got a boost from news reports about billionaire investor Carl Icahn buying its bonds.

Also on the upside, Movie Gallery Inc.'s bonds rose in tandem with the company's shares, which in turn were helped by the news that a major shareholder had increased its stake and wants to raise capital via a shareholder rights offering.

Armstrong's bank debt tumbled to the 79.5 bid, 81 offered context on Wednesday, down from previous closing levels of 84 bid, 86 offered, according to a loan trader. During the session, trades were seen going off at 81 and then at 80.5.

Armstrong, a Lancaster, Pa.-based floor, ceilings and cabinet company, has been struggling since the start of this week because of the market pressure that has become increasingly noticeable. At the close last Friday, the bank debt had been quoted at 89 bid, 90 offered - meaning that over the course of these past three trading sessions they have traded off by a total of nine to 10 points.

A trader in distressed junk bonds meantime pegged Armstrong's notes as having fallen to 81 bid, 83 offered from prior levels at 84 bid, 86 offered. Those bonds had been trading as high as around 90 last week - but then began sliding in line with an even deeper plunge taken by the bonds of the bankrupt Toledo, Ohio-based insulation maker Owens Corning.

The latter's bonds had shot up all of last week, to levels around 122 bid from prior levels near par on speculation - which later was borne out by a company announcement - that Owens Corning would reach a settlement with its asbestos creditors, whose lawsuits drove the company into bankruptcy in 2000. After the bonds jumped on the official company announcement that the various creditor groups had indeed agreed upon a plan, clearing the way for Owens Corning to exit Chapter 11 sometime this year, the bonds, as well as the bank debt, began to fall victim to massive profit-taking, starting Monday and continuing Tuesday and on into Wednesday's session.

Traders were quoting the Owens Corning bonds, like its 7½% notes that were to have come due last year, down two points on the session at around 111 bid, 113 offered.

However, back among the bank loan investors, Owens Corning's bank debt was actually stronger by about a quarter of a point, closing out the day quoted at 155.25 bid, 156 offered, a trader said.

He saw no credit-specific news seen pushing the paper higher, even as the bonds were getting whacked.

Adelphia loans weak

A company seeing some losses on Wednesday in its bank paper was Greenwood Village, Colo.-based cable company Adelphia, as its Century Old and Century New bank debt were both quoted lower by about a half a point to a point at 96 bid, 96.5 offered, a trader said.

Delphi slips

And, Delphi, a Troy, Mich.-based automotive electronics manufacturer, slipped as well as its revolver came down about a quarter to a half a point to 102.5 bid, 103.25 offered, the trader added.

A junk trader saw Delphi's bonds meantime down around a point across the board, with its 6½% notes due 2009 dipping to 76 bid, 77 offered. At another desk, a source saw those bonds at 77 bid, 79 offered, but called them down two points on the day, while its 7 1/8% notes due 2029 were 1½ points down at 75.25.

Market participants cited Tuesday's news that the unionized hourly workers had voted to give their union leaders the authority to call a strike against the company - which the union chiefs have threatened to use should Delphi try to unilaterally junk its negotiated contracts with the unions to impose a sharply lower wage and fringe-benefit scale. Those pacts don't expire until next year but the beleaguered company has said it might have to act if current negotiations between Delphi, former corporate parent GM - which buys a huge amount of parts from Delphi and thus has a vested interest in preserving labor peace there to protect its own production - and the United Auto Workers union fail to produce a voluntary agreement on cutting labor costs. Delphi has asked the courts for permission to take such a step, although this might just be a negotiating tactic.

GM down on staff changes

Elsewhere in the automotive arena, a trader saw GM's benchmark 8 3/8% notes due 2033 down 1¾ points at 73.25 bid, 73.75 offered, while another trader pegged those bonds down a point at 73.5 bid, 74. A market source at another desk saw the Detroit automotive giant's 7 1/8% notes due 2015 likewise sliding 1½ points to 77 bid.

A trader linked the retreat to the news that GM - under scrutiny recently by the SEC due to accounting errors - announced personnel changes involving key financial officials, and said it was bringing in outside help.

GM said that its controller, 37-year GM veteran Paul Schmidt, will retire this year, and its chief accounting officer, Peter Bible, will resign from the company effective June 1, although he will stay on in a consulting role as GM restructures its controller's office, which will include combining the two positions into one.

GM said that it has retained the financial advisory company AlixPartners to improve its internal financial controls. The trader, noting that Alix is well-known as a turnaround and restructuring specialist company, said that "they're supposedly working on [GM's] financial controls - but I don't think it's ever a good sign when these guys have to come into the picture."

Elsewhere on the automotive front, a trader saw the 8% notes due 2031 of GM's financing arm, General Motors Acceptance Corp., down a point at 92 bid, 92.5 offered, and saw GM rival Ford Motor Co.'s 7.45% notes due 2031 a point lower at 72 bid, 72.5 offered. Ford Motor Credit Co.'s 7% notes due 2013 were ¾ point lower at 86 bid, 86.5 offered.

Dana firm as market slips

A trader saw Dana Corp.'s bonds little changed on the day but noted that "that's a big deal in [Wednesday's] market," since most everything else was down. "Firm today was pretty much the equivalent of up."

The company's 6½% notes due 2009 hung in at 85.25 bid, 86.25 offered, while at another desk a trader saw those bonds at 84 bid, 86 offered.

The bonds were seen having improved on the news - alluded to by one or two participants on Tuesday - that billionaire financier Carl Icahn had bought at least $101 million of Dana's $2.25 billion of unsecured debt, and seeks more, in apparent hopes of positioning himself to become a major equity holder in the bankrupt Toledo-based automotive parts supplier once it likely gives equity to bondholders as part of its restructuring.

However, another trader said that the news of Icahn's debt purchases "has been in the market for a couple of days." Of more interest, he said was the outcome of Dana's legal efforts to restrict the one-time corporate raider's purchases and trading in its debt. On Wednesday, a judge denied Icahn's request for an immediate decision on whether Dana can in fact restrict such debt trading, saying a ruling would be "premature."

American Axle slips

And a trader saw American Axle & Manufacturing Holdings Inc.'s 5¼% notes due 2016 off a point at 81.5 bid, 82.5 offered, although the Detroit-based automotive components company's 2% convertible notes shot up 17 points, to 99.25 bid, 99.75 offered, "one of the most active" issues that the trader saw on the day. Convertibles traders saw a similar rise but spread over Tuesday's and Wednesday's sessions. The company announced that according to the indenture on the $150 million of notes, its holders are entitled to convert those securities to cash, following Standard & Poor's recent downgrade of the company's credit ratings to BB from BBB- previously. The S&P move - citing the company's heavy dependence on sales to GM - followed a similar move earlier by Moody's Investors' Service, triggering the conversion entitlement.

But convertible market players are looking at an October 2004 notice it which the company said it would pay the accreted principal amount on conversion, more than the value of the shares. American Axle has not specifically responded to that expectation.

Published reports said the company has sufficient liquidity to cover payments.

Movie Gallery higher

Apart from the auto names, Movie Gallery's 11% notes due 2012 were seen at 72 bid, 73 offered, up from levels around 70 on Tuesday. The bonds of the Dothan, Ala.-based video chain rental company rose in tandem with its shares, which were up 40 cents (9.35%) to $4.68, on heavier-than-usual volume of 4.4 million.

The securities were helped by an SEC filing by Schultze Asset Management, which earlier this month had filed a 13-D report, saying it would suggest to management raising capital via a rights offering or through some other means.

Schultze reiterated this intention in the latest filing - and disclosed that it had meantime raised its stake in the company to 13.4% from 8.6% earlier in the month, with the purchase of about 1.5 million additional shares in the interim.

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