The debt of bankrupt building parts companies Armstrong World Industries and Owens Corning fell last week on continued concerns of a slowdown in the housing sector. Armstrong's revolving bank debt fell nine points to 65, while its 7.45% '29 bonds fell four points to 67 1/2, before rebounding to 70 1/8. Owens Corning's 7% '09 bonds fell to 78 7/8 from 83, before rebounding to 81 1/2.
The decline in trading levels of Armstrong and Owens Corning debt mirrors the poor performance of other homebuilders' debt over the past few weeks. Several large homebuilders reported a decline in orders in April and May (CIN, 6/19), sparking concern of a housing sector slowdown. The U.S. Department of Housing and Urban Development said new construction actually rose 5% in May to 1,957,000 homes, according to the New York Times, but is down 3.8% compared to May 2005.
Owens Corning bonds also traded down because the notes will be converted into equity when the company expects to emerge from bankruptcy later this year. Investors are concerned that homebuilders' equity will underperform because of the housing slump, said traders dealing in the debt.
Owens Corning bondholders will receive 26.6 million shares in the reorganized company's common stock and a right to buy a further 72.9 million shares at $30 a share. Owens Corning 7% '09 bonds have fallen 26 points since the beginning of the month. Armstrong's bonds will also be converted into equity when it emerges from bankruptcy in August. An Owens Corning spokesman declined to comment on the trading levels of the company's debt. An Armstrong spokeswoman did not return calls.