Firms facing asbestos suits see their bonds dive

By Jonathan Stempel

NEW YORK, Oct 5 (Reuters) - Owens Corning's (NYSE:OWC - news) decision to file for bankruptcy protection dragged the bonds of other companies with exposure to asbestos-related lawsuits sharply lower on Thursday.

``Right now, you don't hold your hand out because you don't want to catch a falling knife,'' said Jim Dunn, a corporate bond analyst for Banc of America Securities LLC in Charlotte, N.C.

``The general medical consensus is that there's a 40-year gestation period (for asbestos claims), so if you were in the business in the early 1970s, you might not even know who will sue you for another 10 to 12 years,'' he said.

In the last two days, bonds with no more than six years to maturity of firms such as Armstrong Holdings Inc. (NYSE:ACK - news), Crown Cork & Seal Co. (NYSE:CCK - news), Kaiser Aluminum Corp. (NYSE:KLU - news) and Owens-Illinois Inc. (NYSE:OI - news) have fallen as much as 30 cents on the dollar.

OWENS CORNING FILES

Toledo, Ohio-based Owens Corning, the largest U.S. building materials maker, voluntarily filed for protection from its creditors in U.S. Bankruptcy Court in Wilmington, Del.

The company, best known for its Pink Panther Fiberglas insulation, has already paid or committed to pay more than $5 billion in awards to settle asbestos lawsuits arising from pipe insulation it made between 1952 and 1972, with the trade name Kaylo. It said it has received more than 460,000 asbestos-related personal injury claims.

Its filing came two days after a unit of Houston-based Kaiser said it will take a roughly $40 million third-quarter charge relating to its asbestos liability.

Exposure to asbestos has been found to cause cancer and a variety of lung diseases.

Owens Corning saw its 7.5 percent notes maturing in 2005 bid Thursday at 27.5 cents on the dollar, down from 38 on Wednesday.

A unit of Armstrong Holdings, the Lancaster, Pa.-based floor and ceiling products giant, saw its 6.5 percent notes maturing in 2005 bid at 54 cents on the dollar, down from 73 on Tuesday.

Crown Cork, the Philadelphia-based packaging products supplier, saw its 7.1 percent notes maturing in 2006 bid at 70 cents on the dollar, down from about 90 on Tuesday.

Kaiser saw its 12.75 percent subordinated notes maturing in 2003 bid at 65 cents on the dollar, down from about 95 on Tuesday.

And Owens-Illinois, the Toledo, Ohio-based glass and plastics container maker that created Owens Corning in a joint venture with Corning Glass in 1938, saw its 7.85 percent notes maturing in 2004 bid at 66 cents on the dollar, down from 85 on Tuesday.

``Obviously, there is not much of a bid side for these bonds,'' said one trader.

The stocks of these companies also fared poorly on Thursday. Armstrong's stock fell 37 percent, Crown Cork's and Kaiser's stocks fell 8 percent each, and Owens-Illinois' stock fell 28 percent.

Dunn said bondholders of Owens-Illinois, which used asbestos-containing products in the 1950s, should hold on.

He said litigation risks are more significant for Armstrong and Owens Corning because they both made asbestos-containing products into the early 1970s, and therefore could face new litigation for many years to come.

Credit rating agency Moody's Investors Service on Thursday cut Owens Corning's ratings on Thursday to ``Ca,'' its second lowest grade, from ``Ba2.'' Another agency, Standard & Poor's, cut all of its ratings for Owens Corning to ``D,'' or default, from ``BB-minus.''

Armstrong and Crown Cork's senior debt carry low investment-grade ratings. Armstrong's debt is rated ``Baa1'' by Moody's and ``BBB'' by S&P, while Crown Cork's is rated ``Baa3'' by Moody's and ``BBB-minus'' by S&P.

Kaiser's subordinated notes and Owens-Illinois' senior notes carry speculative-grade ratings. Kaiser's notes are rated ``B3'' by Moody's and ``CCC-plus'' by S&P, while Owens-Illinois' notes are rated ``Ba1'' by Moody's and ``BB-plus'' by S&P.