Owens Corning's bonds jumped 20 points on the announcement that its bondholders will receive equity in the company when it emerges from bankruptcy. Owens Corning's 7.5% '18 bonds climbed 21 points to 121, its 7.7% '08 bonds were up 20 points to 119. The bank debt dipped a point to 155 1/2.
Owens Corning announced May 10 that it had reached an agreement with creditors on the terms of a Chapter 11 reorganization, its sixth plan since the company filed for bankruptcy in October 2000. This is the first plan that all creditors have agreed to, said a spokesman. If confirmed,by the bankruptcy court, the plan paves the way for the company to emerge from bankruptcy later this year.
Bondholders would receive 26.6 million shares in the reorganized company's common stock. They will also have the right to buy a pro rata share of 72.9 million shares of the reorganized company's common stock at $30 a share through an equity rights offering. Bank creditors would receive full recovery, amounting to $2.276 billion in cash, plus interest calculated as of March 31, 2006.
A trader said the bank debt did not move much in trading because it was anticipated that bank creditors would receive a full recovery. The equity rights offering to bondholders is much more of an incentive to make an investment in the company, he said. The plan did cause the bank debt of Armstrong World Industries, another company plagued by asbestos liabilities, to trade up. Armstrong's fully funded revolving credit facility reached 90 basis points from the low 80s. The trader said that Armstrong faces the same reorganization issues as Owens Corning and that it also has some of the same creditors.
