Cablevision slides due to tight spreads; Time Warner Cable climbs; Charter better; EOP up; Delphi off

By Ronda Fears

Memphis, Jan. 12 - Cablevision Systems Corp. was sent into a tailspin Friday as players frantically unwound positions because of tight spreads in the face of a fatter bid from the Dolan family of $8.9 billion to take the company private as it was considered to be a best and final offer.

Activity also picked up in the when-issued shares for Time Warner Cable, moving the stock sharply higher although the debut of the stock, created by the purchase of Adelphia Communications Inc. cable assets by Time Warner Inc. and Comcast Corp., could be delayed by a setback in the effective date of the Adelphia bankruptcy.

In bankrupt paper, Northwest Airlines Corp. collapsed after the Eagan, Minn., airline filed a reorganization plan without a disclosure statement that reiterated the common stock will not get a distribution, although traders noted strong buying as a rival bid is speculated. Northwest shares were retracing two days of sharp gains after US Airways Group Inc. boosted its hostile bid for Delta Air Lines Inc. by around $2 billion to roughly $10.5 billion.

Bankrupt Delphi Corp. also was lower Friday but settled well ahead the session lows on news that a bankruptcy judge had approved its reorganization plan with support from a group of investors led by Appaloosa Capital Management rather than a competing bid from Highland Capital Management.

Short covering was rampant in Northwest and Delphi, traders said, noting "still a lot of buying [which] must be punishing the shorts before they implode."

Elsewhere, Equity Office Properties Trust extended gains on an anticipated higher bid for the Chicago REIT than the $48.50 per share bid from The Blackstone Group, yet the stock remains below the $50 to $53 threshold many players are hoping for. There still was no new development on rumors that Cerberus Capital Management was preparing a rival bid to Blackstone's $36 billion offer, but EOP bondholders relented to the tender offer needed for the merger transaction. The stock (NYSE: EOP) added 10 cents on the day to $49.45.

Extending previous-day gains, Level 3 Communications Inc. shares added another 2%, shrugging off the company's announcement after Thursday's closing bell that there would be an exchange of $490 million of bonds for 160.1 million shares. The stock (Nasdaq: LVLT) gained 12 cents to $6.60.

"Everyone is glad to see progress on the process of shoring up the balance sheet," one Level 3 trader said. "Nobody cares about 160 million shares when they have over 1 billion shares outstanding."

Elsewhere, market sources said negotiations by Doral Financial Corp. to refinance its $625 million of floating-rate notes were stalled. Talks had been thought to be close to resolution earlier in the week, but a source familiar with the discussions with the Puerto Rico mortgage bank said Friday there continues to be several points of contention, so the parties appear to be taking a break, or a cooling-off period. The floaters, which come due in July, however, traded up another 2 points to 98 on Friday, but Doral shares (NYSE: DRL) slipped by 3 cents, or 1.15% to $2.59 on moderate volume.

Cablevision snaps back by 4%

The Dolan family upped its offer to $30 per share on Friday for Bethpage, N.Y.-based cable operator Cablevision, which they say is their best and final offer, but the stock traded far below that mark on heavy selling as arbitrageurs bailed out.

Cablevision shares (NYSE: CVC) fell $1.21 on the day, or 4.09%, to close at $28.39 on whopping volume of 20.8 million shares versus the norm of 1.5 million shares.

Arbs began to rapidly unwind, believing that the $30 offer is indeed the Dolans' final offer, thus making the 40-cent spread from Thursday's close at $29.60 "too tight given the situation and risk."

"We think it's worth more than that [$30]," one trader said.

"It's going to be interesting to see if the Dolans win out," but many people are not willing to remain involved in such a risky play.

In addition to the Dolan dispute, chatter continues to suggest that Liberty Media is in informal talks with Cablevision to buy its Rainbow Media unit - a source of wrangling within Cablevision for several years. Cablevision also owns Madison Square Garden, the New York Knicks basketball team and the New York Rangers hockey team.

Cablevision founder Charles Dolan and his son James say their offer values the company's total equity at about $8.9 billion and represents a 25.4% premium to the closing price of Cablevision shares at the time of the previous offer in October at $27 a share, or $7.9 billion. The family owns about 20% of Cablevision stock but controls 74% of the shareholder vote through a special class of shares.

The Dolans said the latest offer will expire at the close of business Jan. 17.

The Cablevision buyout bid is backed by $10 billion in credit facilities and $2.575 billion of bonds. Assuming a fully debt-financed cash buyout of the public investors, total debt would be about $19 billion, according to Standard & Poor's Corp.

Northwest plan could see rival

It was widely concluded that Northwest Airlines filed its reorganization plan ahead of the deadline during the Jan. 15 week to preempt a takeover bid, but also widely speculated that a rival plan could still emerge.

Northwest shares (Pink Sheets: NWACQ) fell 71 cents, or 12.82%, to $4.83 with 19.3 million shares changing hands versus the norm of 4.9 million shaers; the stock traded in a wide band of $4.37 to $5.39.

Because unsecured claims would not be paid in full, current stockholders would not get a distribution, as the company has said all along. But Owl Creek Asset Management LP, Northwest's second-largest shareholder, is expected to protest the plan or possibly come up with a rival plan, several onlookers said.

Owl Creek has asked the bankruptcy court to establish an official equity committee in the case, saying in court documents that it believes Northwest's reorganization could include enough money to pay off all creditor claims plus shareholders. Owl Creek did not comment on the situation Friday.

Northwest Airlines did not identify any major supporter in its plan nor many details but it did suggest its plan would include a rights offering possibly backed by private equity firms and that, as unsecured claims would not be paid in full, the reorganization would include new debt and equity.

Northwest filed the plan ahead of the Jan. 16 deadline but asked for and received an extension until Feb. 15 to file the disclosure statement, which has all the details.

Of the few tidbits Northwest offered up in the plan, it will have the option to convert its existing debtor-in-possession financing into an exit financing facility consisting of a $175 million revolving credit facility and a $1.05 billion term loan, including a $75 million letter-of-credit facility, each of which has a maturity date of August 2013. Northwest also may elect to proceed with alternative exit financing if more attractive terms than those under the existing facility can be obtained.

The plan proposes to restructure Northwest's balance sheet through the elimination of all pre-petition unsecured debt in exchange for common stock of the reorganized Northwest Airlines and the right to purchase additional common stock in a rights offering.

Terms of the rights offering will be provided in the disclosure statement.

Owl Creek has said that Northwest shares could be worth between $18 and $33 apiece in the event of a buyout. Northwest has been rumored to be in post-reorganization merger talks with bankrupt Delta Air Lines, but like Delta has maintained plans as a stand-alone carrier. Delta shares (Pink Sheets: DALRQ) were far less active than Northwest but dropped similarly with a 12-cent loss, or 8.22%, to $1.34.

Delta has a hostile bid on the table, however, from US Airways Group Inc. so players in Northwest suggest it's reasonable that it could attract one. Delta and Northwest filed bankruptcy within days of each other in the fall of 2005 and both target emergence around midyear 2007.

Delphi bonds seen waffling

Delphi has a similar scenario that is already under way. Delphi got bankruptcy court approval Friday to pursue its $3.4 billion reorganization plan backed by Appaloosa, Cerberus Capital Management and Harbinger Capital Partners and investment banks Merrill Lynch and UBS Securities, rather than a $4.7 billion plan offered by Highland Capital Management.

Also amid heavy activity, Delphi shares (Pink Sheets: DPHIQ) lost 4 cents on the day, or 1.3%, to $3.04 after trading in a band of $2.80 to $3.22 on volume of 22.7 million shares versus the norm of 9.63 million shares.

Traders said there was surprisingly a great deal of buying interest in Delphi; one suggested it could be that major holders wanted to "snap up more on the cheap."

Highland, the second top Delphi stockholder, had wanted more access to Delphi's books to finalize its offer. The Delphi-supported plan also had been contested by the U.S. Trustee in the case and the equity committee, as Highland's plan would distribute a bigger chunk of reorganized Delphi to current stockholders.

Delphi still has to seal deals with former parent General Motors Corp. and its major union by the third quarter and the bankruptcy judge gave the company to July 31 to work that out without interference.

Under Delphi's plan, Appaloosa, Cerberus, Harbinger, Merrill and UBS have pledged $1.4 billion to $3.4 billion for 30% to 70% of reorganized Troy, Mich.-based Delphi. It includes a rights offering at $45 per share and an option for those investors to participate at $35. GM also would hold a big stake in Delphi.

TWC's debut may be delayed

When-issued trading of shares for Time Warner Cable began a week ago and saw their best day on Friday in terms of price gain and volume. But the effective date of Adelphia's bankruptcy plan was moved back on Friday to Jan. 19 from Jan. 17 so the debut of the stock on the Nasdaq likely will be delayed.

Meanwhile, the stock (Pink Sheets: TWCAV) gained $1.50 on Friday, or 3.66%, to settle at $42.50 on volume of 1.83 million shares, versus the average over the past week of 522,100 shares.

Time Warner Cable will be the second-largest cable company in the United States as the product of the $17 billion purchase of the Adelphia assets by Time Warner and Comcast last July.

There continues to be a line of thinking that Time Warner Cable will have to bump up its capital expenditures in order to upgrade or roll out new services for the customers acquired from Adelphia. Greenwood Village, Colo.-based Adelphia, which filed bankruptcy five years ago, serves customers in 31 states with analog and digital video services, high-speed internet access and other advanced services over broadband networks.

Many players also speculate that Time Warne Cable will be looking to add to its portfolio, likely from the likes of St. Louis-based Charter Communications Inc. Charter shares (Nasdaq: CHTR) on Friday were better by 4 cents, or 1.15%, to $3.52 on light volume.

Charter chief executive Neil Smit said last month, however, at the Credit Suisse Media & Telecom Conference in New York that the company preferred to take an opportunistic approach with regard to its assets and does not view selling assets as the best solution for deleveraging its capital structure.

"I don't believe that, strategically, the solution to our heavily leveraged capital structure is selling assets, and we'll continue to look at assets opportunistically to see if we can capture greater operational efficiencies in the assets," Smith told the gathering.

In 2007, he said Charter's primary goal is to drive market penetration in areas where its telephone service has been deployed and to expand telephone availability.

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