Adelphia bonds climb on settlement rumors; Calpine bank debt rally blunted

By Paul Deckelman and Sara Rosenberg

New York, Jan. 27 - Adelphia Communications Corp.'s bonds were seen "up a couple of sticks," a trader said Friday, citing market rumors that the bankrupt Greenwood Village, Colo.-based cable operator would hold settlement talks with its Century Communications bondholders.

In the bank loan market, Calpine Corp.'s second-lien paper headed lower after a three day rally as news emerged that the bankruptcy court overseeing the San Jose, Calif.-based power generating company's restructuring will not have jurisdiction to break certain unprofitable contracts that the company was looking to eliminate.

That Calpine second-lien debt closed out the day quoted at 89.5 bid, 91 offered, down slightly from Thursday's levels of 90 bid, 91 offered, a trader said.

On Friday, the bankruptcy court declared that the Federal Energy Regulatory Commission, not the court, will have authority over the possible ending of unprofitable contracts.

"People thought they had a better chance with the bankruptcy court, so it's kind of a negative," the trader explained.

Calpine's second-lien debt had previously spent most of this week on an upward trend, moving from 84 bid, 85 offered on Monday to 90 bid, 91 offered on Thursday on news that the company would be paying current interest on all first-lien debt and will be making payments on the second-lien debt at the end of March and the end of June of $78 million each.

Calpine's bank debt and its bonds had also been buoyed by the news that the company had lined up $2 billion of debtor-in-possession financing.

Adelphia rises

Elsewhere, Adelphia's bonds were better, with its 10¼% notes due 2011 seen by a trader as up three points on the session at 67 bid, 68 offered, and up seven points on the week.

He cited rumors of the possibility of settlement talks with the Century bondholders as the likely catalyst for the move.

Earlier in the week, the presiding judge in Adelphia's Chapter 11 case, Southern District of New York Bankruptcy Judge Robert Gerber, issued a strongly worded 113-page decision in which he denied motions by creditors of Adelphia's Arahova Communications Corp. - the successor company to Century Communications Corp. following its acquisition by Adelphia several years ago.

Gerber said the motions by which the Arahova creditors had sought the appointment of a trustee to oversee disputes and the disqualification of Adelphia's chief bankruptcy counsel, Willkie Farr & Gallagher, constituted a "nuclear war button" that might doom the $17.6 billion deal under which Adelphia's assets are to be acquired by cable giants TimeWarner Cable and Comcast Inc.

"The relief sought by the Arahova Noteholders Committee could (and, in some circumstances, will) give Time Warner and Comcast the right to terminate the purchase agreements," Gerber wrote in his decision. "If the sale transaction is not consummated, there will be severe, negative economic impact on all of the debtors, including the subsidiaries of Arahova." Adelphia would be on the hook for a $443 million breakup fee should the TimeWarner/Comcast arrangement go down in flames.

He said that the Arahova creditors' maneuverings appeared to "purposefully" imperil the TimeWarner/Comcast deal with Adelphia as part of a "scorched earth litigation strategy" aimed at extracting a larger distribution for the holders of the $540 million of Century bonds by threatening dire consequences for all.

Despite the strong criticism, however, the ruling was not a total loss for the Arahova creditors; while the judge's decision, previously filed under seal but unveiled this past week, denied the appointment of a trustee, it did grant the disqualification of Willkie lawyers from participating in the disputes at issue. Willkie remains bankruptcy counsel to Adelphia.

Foamex rises

In the troubled automotive sector, a trader saw Foamex International's bonds "moving up a little," with the 10¾% senior notes due 2009 of the Linwood, Pa.-based foam rubber products maker up a point at 90.5 bid, 91.5 offered, and its 9 7/8% subordinated notes due 2007 also a point better at 15.5 bid, 16.5 offered.

GM gains

General Motors Corp.'s bonds, and those of its General Motors Acceptance Corp. financing subsidiary, were seen having turned higher Friday, rebounding after having moved lower on Thursday - the day the automotive giant announced whopping losses of $4.8 billion for the 2005 fourth quarter and $8.6 billion for the full year.

GM was "kinda up and down, and all around," said a trader, who pegged the beleaguered automotive giant's benchmark 8 3/8% notes due 2033 at 72.5 bid, 73.5 offered - well up from the 71.5 bid, 72.5 offered area those bonds held on Thursday after the company announced its gigantic losses for the fourth quarter and for the full year. However, he saw GM's 6 3/8% notes due 2008 fall to 81.5 bid, 82.5 offered from 82.5 bid, 83.5 offered on Thursday, although he had no insight as to why the 8 3/8s were higher while the 6 3/8s were going in the opposite direction.

"They had been lower [on Thursday], but they kind of trickled back up," he said of the 8 3/8s' movement in Friday's dealings. There had been "a couple of rumors going around, about [GM getting closer to selling] GMAC, although he characterized such scuttlebutt as "more of the same, nobody was mentioned specifically" as a likely potential buyer. He said that he had also heard that there had been renewed buzz about a GMAC sale in the bank loan market, pushing the company's debt up.

At another desk, a trader saw the 8 3/8s at 73 bid, 73.5 offered, which he called up a point, but saw the GMAC 8% notes due 2031 unchanged at 99.5 bid, 100.5 offered.

Yet another trader, who also saw the GM benchmarks up a point to the 73 area, saw the GMACs a quarter-point lower at 99 bid, 99.5 offered.

GM said back in October that it would sell a majority stake in GMAC, presumably to a deep-pocketed financial buyer, which would lift GMAC's now-junk level credit ratings back to investment grade, in line with the new majority owner's, allowing it to substantially cut its borrowing costs. Such a transaction would be expected to also put anywhere from $10 billion to $15 billion into GM's coffers; although GM ended 2005 with some $20 billion of cash on hand, it has been feeling the effects of sharply reduced sales and the ocean of red ink in which it has been wallowing.

However, since that optimistic beginning to the sale process, nothing has happened, other than several potential buyers, such as Bank of America, Wells Fargo & Co. and Citigroup, publicly distancing themselves from the idea. On GM's fourth-quarter conference call following the release of its quarterly and year-end results Thursday, GM executives such as chairman and chief executive officer G. Richard "Rick" Wagoner and chief financial officer Frederick A. "Fritz" Henderson offered no real updated progress report on the potential sale, except to say that GM was still working on it. Statements by the executives that GM could get by, sale or not, while meant to reassure investors that GM was in no imminent danger of insolvency, at the same time created the impression of less urgency on management's part to do a deal, according to published reports.

Wagoner, making an appearance Friday at the Houston Auto Show, declined to comment on the status of the GMAC sales negotiations.

Also in the automotive realm, GM arch-rival Ford Motor Co.'s flagship issue, the 7.45% notes due 2031, were a quarter-point better at 72.25 bid, 73.25 offered, while its Ford Motor Credit Co. financial arm's 7% notes due 2013 were unchanged at 89.5 bid, 90.5 offered.

Delphi steady

Former GM subsidiary Delphi Corp. - whose bonds were seen having climbed a point or so on Thursday amid speculation that GM might be nearing an agreement with Delphi and the United Auto Workers union on the extent of possible GM help to its bankrupt problem child, after GM on its call quantified its likely liability - were seen little changed in Friday's dealings.

The Troy, Mich.-based automotive electronics manufacturer's 6.55% notes due 2006 were quoted Friday at 57.5 bid, 58.25 offered, while its 7 1/8% notes due 2029 were steady at 58 bid, 58.75 offered.

All told, a trader said, the automotive sector, which had recently been hopping, with many sector players such as GM, Ford, Lear Corp., ArvinMeritor Inc. and Dana Corp. reporting quarterly numbers, was "pretty quiet" Friday.

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