Federal-Mogul continues to trade on reorganization plan; AES active on asset sale completion

By Sara Rosenberg

New York, Feb. 4 - Federal-Mogul Corp. and AES Corp. were actively trading on Tuesday in what was described as a slightly heavier secondary bank loan market. Federal-Mogul has been trading since late last week when investors were given a clearer picture on the company's reorganization plan. AES' activity has been attributed to the company's recent announcement that proceeds from a completed asset sale are going towards reducing bank debt.

The secondary bank loan market was said to have a heavier feel to it due to the relatively poor performance of the equities market, according to market participants. The New York Stock Exchange closed down 60.33 points at 4824.46. The Dow Jones Industrial Average closed down 96.80 points at 8013.00.

Federal Mogul Corp. continued to trade actively on Tuesday, according to a distressed trader, with a 74½ bid and a 75½ offer. These levels are slightly lower than previous quotes since a bit of the euphoria has worn off from the company's announcement late last week that a deal was reached with creditors and asbestos claimants.

"It went to about 76½ after the announcement," the trader said, adding that despite the minor drop in price, the bank debt is "still a great play."

On Friday, the company announced that the Official Committee of Unsecured Creditors, the Official Committee of Asbestos Claimants, the Steering Committee of Pre-Petition Lenders, Icahn Associates and the Futures Representative have all agreed to the principal terms of a plan to reorganize Federal-Mogul and emerge from Chapter 11 free of asbestos liabilities, with a de-leveraged balance sheet. The reorganization plan, which is expected to be filed in early March, is still subject to court approval.

Under the plan, 49.9% of the new common stock will be distributed to noteholders and 50.1% will be distributed to a trust established for the benefit of existing and future asbestos claimants. U.S. trade creditors are expected to receive one or more cash distributions under the plan. The approximately $1.6 billion in claims of the pre-petition senior secured lenders will be restructured into a combination of 6½ year senior secured term loans and 11-year junior secured PIK notes.

"We are very pleased to announce that we reached this important agreement and expect that we will emerge from Chapter 11 later this year with a much stronger balance sheet and with a full resolution of the company's asbestos liability issues. This agreement, combined with our recently announced letter of intent to acquire Honeywell's Bendix friction materials business, should position the company to be an even stronger and more competitive global supplier to the automotive industry. The plan will eliminate over $2.5 billion of interest-bearing indebtedness, remove the taint of asbestos liabilities from the company, and give customers, suppliers and other stakeholders the confidence they need in the long-term health and success of Federal-Mogul," said Frank Macher, chairman and chief executive officer, in a news release at the time.

In early April, the company's bank debt skyrocketed into the high 60s from the 50s in response to new reports that asbestos plaintiffs and bondholders reached an agreement with the company, which would allow Federal Mogul to emerge from Chapter 11 bankruptcy protection. One report said the agreement would give claimants 50.1% of the company's new equity and insurance proceeds and that holders of the company's $2 billion face value of bonds would get the rest of the company's equity.

At that time, a trader explained to Prospect News that the bank paper went up after these reports because "there's a conclusion that there's a structure out there and there's good value to the company" given they are a global supplier of automotive components.

Federal-Mogul, a Southfield, Mich. automotive parts manufacturer, filed for Chapter 11 in October 2001.

AES Corp. was another name that attracted attention on Tuesday. The company's bank debt remained at basically the same levels with the term loan A bid at 97 and offered at 97½ and the term loan B bid at 98 and offered at 981/2. However, the paper was reported as trading pretty actively due to the closing of an asset sale of which proceeds will be used to help pay down debt.

According to a trader, investors essentially "pocketed the pay down, took the discount and bid at the same levels."

On Friday, the company announced that it completed the sale of Cilcorp Inc., a utility holding company, to Ameren Corp. for $1.4 billion. In connection with the transaction, Ameren indirectly assumed debt and preferred stock of Cilcorp amounting to about $900 million. Of the $500 million in net equity proceeds that AES received, about $250 million was slated for the reduction of parent debt.

In December, the Arlington, Va. power company refinanced its credit facility with a new $1.6 billion loan consisting of a $350 million revolver, three tranches of term loans totaling approximately $1.2 billion and a reimbursement agreement associated with a £52.5 million letter of credit, all due July 15, 2005 with an interest rate of Libor plus 650 basis points. Citibank was the lead bank on the credit facility.

Meanwhile the bid/offer on aaiPharma Inc.'s revolver moved up slightly on Tuesday, according to data from LoanX, with a current bid of 99.305, compared to 99.055 on Monday, and a current offer of 99.555, compared to 99.430.

The Wilmington, N.C. pharmaceutical company announced that it is increasing its full-year 2003 revenue estimates to between $275 million to $280 million from between $270 million to $275 million. Also, the company is raising its full-year 2003 earnings per diluted share estimates to between $1.58 and $1.65 from between $1.53 and $1.58.

In addition, aaiPharma announced that it has declared a three-for-two stock split. Following the split, the estimated first quarter and full-year 2003 earnings per diluted share are expected to be between $0.23 and $0.25, and $1.05 and $1.10 respectively.

And lastly, the company received FDA approval for a new drug called Azasan that is an adjunct for the prevention of rejection in renal homotransplantations and is also indicated for the management of severe, active rheumatoid arthritis.

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