Refco bank debt continues climb; asbestos issues cough up early gains

By Paul Deckelman and Sara Rosenberg

New York, June 7 - Refco Inc.'s term loan continued to trade up Wednesday, propelled by the recent news of a settlement with Austria's Bank fuer Arbeit und Wirtschaft (Bawag).

In the junk bond market, bonds of asbestos-challenged issues like the bankrupt Toledo, Ohio-based insulation maker Owens Corning and the equally bankrupt Lancaster, Pa.-based floorcovering manufacturer Armstrong World Industries Inc. initially traded upward - but then they gave up those early gains and then some to end lower, as the idea of the proposed $140 billion national asbestos trust fund came in for sharp criticism during Senate hearings Wednesday.

There were also gyrations going on in the bonds of bankrupt automotive parts suppliers Delphi Corp. and Dana Corp. Each was seen better, helped by reports that hedge fund tycoon David Tepper of Appaloosa Management LP seeks to raise $1.8 billion to solidify the Chatham, N.J.-based fund's investment in that sector, although the hefty early gains gave way to more modest advances by the time the market closed.

A trader in distressed bank debt said that the bankrupt New York-based commodities brokerage company Refco's term loan closed out the day quoted at 104.5 bid, 105.5 offered, up about a point from Tuesday's closing levels of 103. 5 bid, 104 offered.

Late Monday, news emerged that Bawag has agreed to a $675 million global payment to settle with institutional investors who are the lead plaintiffs in a securities fraud class action case rising from the bank's role in the Refco debacle, which came to a head last fall and plunged the once-prosperous brokerage giant into insolvency.

The settlement is subject to approval by federal judge Gerard E. Lynch in New York, who is overseeing the Refco securities litigation.

A trader in distressed bonds, meantime, saw little movement Wednesday in Refco's 9% notes due 2012, quoting them unchanged at 78 bid, 80 offered. At another desk, however, a trader estimated that the bonds had moved up 1½ points to 79.5 bid.

The second trader also saw a rise, of about half a point, in the 11% notes due 2012, of Movie Gallery Inc., although no fresh news was seen about the Dothan, Ala.-based video rental store chain operator. Those bonds moved up to 79 bid.

Asbestos names climb, fall back

But the really volatile action came in the bonds of Owens Corning and Armstrong. A trader saw those bonds rise early on - only to give it all back and close lower. He quoted Owens Corning's 7½% notes due 2018 as having moved up to 111 bid from 107 bid, 109 offered at the opening, before surrendering those gains and ending down a point at 106 bid, 108 offered. And he saw Armstrong's 6½% notes that were to have come due last year start at 81 bid, 83 offered, get as good as 83 bid, 84 offered - but then cough up all those gains and then some to end at 79 bid, 81 offered.

The Senate held a hearing Wednesday on the controversial plan to set up a $140 billion industry- and insurance-funded national trust mechanism to pay off the mountain of asbestos claims that drove Owens Corning, Armstrong and dozens of other manufacturers into bankruptcy.

But critics of the bill - which has been stalled in the Senate since February although Wednesday's hearing was on a revised version intend to address some of the concerns about the original proposal - took the opportunity to denounce the scheme as unworkable and the size of the fund as inadequate (see related story elsewhere in this issue).

Dana, Delphi rise

Also riding a bumpy road Wednesday were the bonds of the bankrupt Troy, Mich.-based Delphi and bankrupt Toledo, Ohio-based components supplier Dana, given an initial boost by a Wall Street Journal report indicating that Appaloosa Management, the $4 billion fund run by Tepper that has invested in both companies, said in a letter to investors last week that it aims to raise as much as $1.8 billion to protect its positions.

A trader saw Delphi's shorter bonds, such as its 6½% notes due 2009, as having risen to 85 bid, 87 offered from prior levels around 82 bid, 84 offered, while its longer bonds, such as its 6 ½% notes due 2013, were at 81 bid, 83 offered, up from 79 bid, 81 offered previously.

Appaloosa has joined with several other hedge funds to form an ad hoc shareholder's committee that seeks to influence Delphi's restructuring - this after a court-appointed trustee nixed the big hedge funds participation in the official shareholders' committee. Appaloosa's rump committee has about 21% of the company's shares, compared with 11% for the official committee's holders.

And the Journal said that Tepper's fund plans to shore up its war chest so that it can potentially take an even bigger stake in both Delphi and Dana, by first tapping existing investors for the $1.8 billion. The paper said that if it could not obtain the full complement of additional funds that way, it would open the door to outsiders - which would constitute a radical departure from its usual way of doing business, since Appaloosa usually shuns new investors and even only rarely accepts new money from existing clients.

The prospect that Appaloosa might take a larger stake in Dana sent that company's bonds up as well, with a trader seeing its 6½% notes due 2008 go up to 90 bid, 91 offered and its 7% notes due 2028 push up to 81 bid, 82 offered, each up two points.

However, other traders said that those early gains evaporated, although by how much was a matter of dispute. One said that Delphi and Dana both had risen three points on the initial Journal story, but then dropped back to end up perhaps a point on the session, quoting Dana's 6½% notes due 2009 going home up a point on the session at 88.5 bid, 90 offered.

Another trader said those Dana bonds, after gyrating around higher, ended unchanged at 87 bid 89 offered, while its 7% notes due 2029 likewise gave up their early gains, to actually end down about a point on the day at 79 bid, 81 offered.

Calpine sees late selling

A trader said that Calpine Corp. bonds were lower across the board, after a "sell off" at the end of the day. The bankrupt San Jose, Calif.-based power producer's 8½% notes due 2011 lost a point to end at 50 bid, 51 offered.

Ferro higher

Elsewhere, a trader saw the 7 1/8% notes due 2028 of Ferro Corp, push up to 98.5 bid, from 94.875 previously, after the Cleveland-based chemical manufacturer - which has been struggling with accounting problems since 2004, forcing it to seek deadline waivers from its creditors - announced that it has completed a secured credit agreement for $700 million, to improve liquidity and refinance debt.

Ferro will be getting a $250 million revolving line of credit and $450 million in term loans. It plans to use the five-year credit line for working capital and general purposes. Under the terms of the financing, Ferro can expand its borrowings by $50 million once it completes its restatement of results from prior years and completes its 2005 filings with the Securities and Exchange Commission.

To that end, Ferro said Monday that it has hired Deloitte & Touche LLP as its new accountants, replacing KPMG LLP.

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