Asbestos bonds continue to crumble; Werner notes tumble on bankruptcy filing

By Paul Deckelman and Sara Rosenberg

New York, June 9 - Bonds of asbestos-challenged companies continued to slide Monday, with sector bellwether Owens Corning's notes dropping below par for the first time in weeks, more than surrendering all of the gains which the bankrupt Toledo, Ohio-based insulation maker's notes had recently made in the wake of its accord with its different creditor groups on its proposed reorganization plan. Bonds of sector peers Armstrong World Industries Inc. and Federal-Mogul Corp. were also seen lower.

And the bonds of troubled ladder maker Werner Holding Co. fell down multiple rungs in the wake of the news that the Greenville, Pa.-based company sought Chapter 11 protection from its junk bond holders and other creditors.

Elsewhere, the bonds of troubled Sea Containers Ltd. gyrated around after the Hamilton, Bermuda-based maritime container company and ferry operator announced that it had agreed to sell its Baltic Sea ferry business - though for less than the sums recently bandied about the market and in the financial press - and also revealed liquidity pressures and reiterated previously disclosed credit facility covenant problems in its announcement.

On the automotive front, the bonds of General Motors Corp. and GM's former parts subsidiary, Delphi Corp., continued to firm, carrying forward the momentum they exhibited on Friday on the news that the bankrupt Troy, Mich.-based parts maker Delphi had reached an accord with GM and with the United Auto Workers union on extending the program of buyouts Delphi is offering to its hourly workers in hopes of cutting its labor costs.

Owens Corning's bonds fell badly, continuing the recent slide that has seen them drop precipitously from levels around 122-123 that they held as recently as the latter part of May.

In Monday's action, a trader in distressed notes saw the company's 7½% notes due 2018 stumble to 94 bid, 96 offered from prior levels at par bid, 102 offered, while its 7% notes due 2009 dove to 93 bid, 95 offered from prior levels around 99.

Those prior levels were about where Owens Corning paper had been in mid-May when it announced that it had come to an agreement with claimants who had filed asbestos-related lawsuits against the company, as well as other creditor groups, on a reorganization plan that would set up a trust fund mechanism to pay the asbestos claims, would also pay off the other creditors and let the company possibly emerge from Chapter 11 by the end of the year. It has been operating under court protection since 2000.

But after moving up to the peak levels in the several sessions that followed that announcement, it has been all downhill from there, on profit-taking off the handsome gains, as well as investor fears that federal efforts to craft a claims mechanism for the industry as a whole have hit a stone wall. Those fears were stoked last week following a Senate hearing on the proposed $140 billion national asbestos trust fund claims mechanism, to be funded by companies with asbestos exposure and their insurers.

The fund would pay the claims filed against companies like Owens Corning, Armstrong and several dozen other companies driven into bankruptcy by asbestos claims. But the bill setting it up has been stalled in the Senate since February, and critics of the scheme took the opportunity at Wednesday's hearings to further trash the idea, saying that the $140 billion would not be adequate to meet all claims - and that the taxpayers would then get dumped with the responsibility for paying for additional claims.

As Owens Corning bonds fell, bankrupt Lancaster, Pa.-based floorcovering maker Armstrong's notes - which had hit peak levels around 90, from prior levels in the upper 70s - also fell. On Monday, a trader saw its 7.45% notes due 2029 and 9¾% notes due 2008 fall to 71 bid, 73 offered from prior levels at 74 bid, 76 offered. Another market source, though, saw a lesser fall, to 74 bid from 75, across the board.

The first trader also saw bankrupt Southfield, Mich.-based auto braking systems maker Federal-Mogul's bonds dip to 59 bid, 61 offered, down a point.

Werner plummets

Joining those asbestos companies in bankruptcy on Monday was Werner Holdings, one of the nation's largest makers of metal ladders. That caused its 10% notes due 2007 to drop to 20.5 bid from prior levels at 31, a source said, while another observer pegged those bonds at 19, well down from 29.75 on Friday, and said at one point they had fallen as low as 17.5 bid before coming off that nadir to where they closed.

Collins & Aikman loans slip

In the automotive arena, Collins & Aikman Corp.'s bank debt headed lower on Monday by about half a point, although no particular news was seen as sparking the weakening, according to a trader.

The bankrupt Troy, Mich.-based automotive company's bank debt closed out the day quoted at 96.25 bid, 97.25 offered, the trader said.

GM firm

Back among the bond investors, GM's benchmark 8 3/8% notes due 2033 seemed to have a bid to them, although just how much was anybody's guess.

One trader saw those bonds doing no better than just "hanging in," and holding steady at the same 77 bid, 79 offered level he had seen the bonds at on Friday, and saw the company's General Motors Acceptance Corp. financing unit's 8% notes due 2031 likewise staying put at 95 bid, 96 offered - though he said "that's good," compared with declines elsewhere. But another trader saw the 8 3/8% notes at 77.5 bid, up half a point, while GM's 7 3/8% notes due 2013 advanced all the way to 81.25 bid from 78.5 offered on Friday.

A market source at another desk saw those '13s at 81.5, which he called up almost two points, while its 7.40% notes due 2025 were seen up nearly a point at 72 bid. However, the GMAC notes had only edged up to 94 bid, up half a point. Another source saw them a little higher, at 94.875 bid up from prior levels around 94.5, although here and there were "odd lot trades outside of those levels."

The second trader saw Delphi's 7 1/8% notes due 2029 at 82 bid and its 6.55% notes slated to come due on Thursday at 86, both up a point on the day, while its 6½% notes due 2013 rose to 82.25 bid from 81.5 previously.

Delphi and GM were seen continuing to benefit from Friday's announcement by Delphi that it had reached agreement on an expanded buyout program covering all 22,000 of its UAW-represented hourly workers - the majority of its more than 30,000 unionized hourly employees.

Delphi said that Friday's agreement greatly expands the early retirement incentives announced by the company, the UAW and GM in March - and effectively means that all UAW-represented employees will be offered something if they want to leave the company, which is seeking to drastically reduce its labor costs as it reorganizes under Chapter 11, by slashing the size of the workforce covered by costly labor pacts.

The agreement announced in March offered retirement incentives for workers with at least 27 years of service, totaling about 13,000 of its 33,000 total hourly workforce, and offered another 5,000 workers an opportunity to return to GM, which owned Delphi until the latter's spin-off in 1999. The new agreement would offer lump-sum buyouts of $140,000 to workers with at least 10 years of service, while those with less than 10 years would receive $70,000 to leave the company and give up all benefits except for vested, accrued pension benefits.

Even though GM will have to put up much of the money being offered to the Delphi workers, it is worth it to the giant carmaker, which wants to keep the peace between Delphi and the latter's unions, who have threatened to strike if Delphi makes any unilateral move to abrogate their union contracts and impose a less-generous pay scale. Delphi asked the bankruptcy court overseeing its reorganization for permission to do that, and there have been several days of hearings, but no decision from the judge yet.

Dana lower

But while GM and Delphi were firm, other auto names that had been a bit better on Friday on sector sympathy seemed to give up those gains. A source saw bankrupt Toledo-based parts maker Dana Corp.'s 7% notes due 2028 at 79.75, down 1½ points on the session, although its other bonds, like the 6½% notes due 2009, were seen off only slightly at 89.5 bid.

Sea Containers gyrates

Elsewhere, Sea Containers' bonds were bouncing around in choppy waters after the company announced plans to sell its ferry operations for about $594 million - less than the $630 million figure that was generally expected and well down from recent estimates that could peg its take ah high as $670 million.

Sea Containers also talked about some potential covenant problems, and said it was in talks with its various lenders and creditors.

A source initially put the bonds lower, with its 12½% notes due 2009 falling to 97.25 bid from 99 earlier and its 10½% notes due 2012 dipping to 96.25 from 97. He said that the market seemed "confused" about the impact of Sea Containers' lengthy announcement, which also included updates on its general financial condition.

Another trader, though, saw the bonds actually blip higher, although he said that by the end of the day, "they'd run up a little bit, but gave it all back and closed flat" to where they started, with the 7 7/8% notes due 2008 ending at 94.5 bid, 95.5 offered. Another source, however, put that particular bond up a little on the day at 95.5 bid.

Se Containers' New York Stock Exchange-traded shares sank $1.15 (15.23%) to $6.40 in busy trading of 719,000 shares, almost twice the usual turnover.

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