Adelphia loans, bonds gain on auction timetable; Delta off on Goldman warning

By Paul Deckelman and Sara Rosenberg

New York, Aug. 6 - Adelphia Communications Corp.'s bonds and bank debt were heard to have firmed smartly Friday, after the bankrupt Greenwood Village, Colo.-based cable operator company outlined a potential timeline for its auction process, giving investors one more glance at the bankruptcy finish line.

Delta Air Lines Inc. bonds meantime continued their recent weakening trend, pushed lower on Friday by a decidedly negative assessment of the troubled Atlanta-based carrier's prospects issued by Goldman Sachs.

Adelphia's bonds were seen at least two points higher at most desks on the auction news, with its 10 7/8% notes due 2010 firming to 89.5 bid from prior levels at 87.25, while its 8 3/8% notes due 2008 did even better, pushing up to 86 from 83 bid, a trader said, while its 9 3/8% notes due 2009 improved to 89 bid from 87.5.

Another trader said that Adelphia's 10¼% notes due 2011 were seen at 90 bid, 92 offered, up from recent levels in the high 80s, while its 10¼% notes due 2006 were "up a couple of points since they came out with that," at 87.75 bid, 88.75 offered.

A trader in distressed issues saw Adelphia's busted convertible notes a point better at 20 bid, 22 offered, but saw the bonds hovering around "85 bid, 86 bid, 88 bid, depending on which bond, pretty much where they've been."

However, a market source, who called Adelphia "definitely higher," disagreed, pegging its 9 7/8% notes due 2007 at 88.5 bid, up from 86 previously, although its defaulted 9¼% notes that were to have matured on Oct. 1, 2002, were just half a point better at 87.

Among bank loan investors, the debt of Adelphia's Century Communications unit strengthened on the auction timeline news.

The company's New Century paper was quoted at 96.75 bid, 97.75 offered and the Old Century paper was quoted at 96.375 bid, 97.375 offered, with both tranches up by about a quarter of a point, a trader said.

However, Adelphia's non-co-borrower bank debt was unmoved by the news, the trader pointed out, using TCI as an example, with quotes unchanged at 98.75 bid, 99.5 offered.

Adelphia plans to begin the sale process shortly after Labor Day and is hoping to complete the auction by year-end. Bids will be solicited for both the entire company and for select clusters of subscribers, with preliminary indications of interest anticipated to be due in October.

The company recently appointed UBS Investment Bank and Allen & Co. as financial advisors for the sale, and they will manage the auction under the direction and control of the Colorado cabler's board of directors.

Assuming the sale comes about as scheduled, it would represent the culmination of many months of effort by bondholders and other debt creditors, who objected to Adelphia's original plan to restructure and emerge from bankruptcy as an independent stand-alone company. Those creditors contended that they would get a greater return by selling parts of the company - perhaps even the whole ball of wax - and lobbied aggressively to get management to agree to at least consider selling the company, or some of its assets, as an option.

"In an effort to build the greatest possible value for the Adelphia Chapter 11 bankruptcy estate, we announced on April 22 that Adelphia would consider a sale of the company," Bill Schleyer, Adelphia's chairman and chief executive officer, said in announcing the prospective auction timetable. "Since then, we have been working diligently to assemble the appropriate advisors, information and documents needed for a robust and fair sales process to maximize the value of Adelphia to the company's stakeholders."

Adelphia - founded in 1952 by John J. Rigas and tightly controlled for decades after that by Rigas and members of his close-knit family - slid into bankruptcy in June 2002, after revelations of massive off-balance-sheet borrowing by the Rigases, who were overthrown and driven from power the previous month by disgruntled creditors, shareholders and other interested parties and were later tried by federal authorities on allegations that they had systematically looted the company of hundreds of millions of dollars and had in effect used Adelphia as a "private piggy bank," as one prosecutor colorfully put it.

At the time of Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of Manhattan, Adelphia was the sixth largest U.S. cable operator, with valuable assets in the Los Angeles area, as well as in parts of the Northeast, Florida and northern Virginia. Adelphia has more than five million total subscribers, with at least 1.2 million of these in Southern California - considered the crown jewels of the Adelphia empire in the event the company is sold piecemeal. There have been estimates that the entire company might be sold for around $20 billion, with the Number-2 U.S. cable operator, Time-Warner Cable, seen as the most likely buyer under that scenario, although cable industry leader Comcast Inc. and another large player, Cox Communications Inc., have also been mentioned as potential suitors.

One widely discussed scenario projects Time-Warner emerging as the buyer for the whole company, with industry observers believing that Time-Warner would then turn around and swap some of Adelphia's clustered assets with Comcast in return for the 21% stake that Comcast holds in Time-Warner. Comcast has some assets in L.A., the Northeast, Florida and Colorado that would fit neatly with Adelphia's assets in those areas to form unified local footprints.

Delta continues descent

Elsewhere, Delta Air's bonds were continuing to spiral back earthward, getting a downward push Friday from Goldman Sachs, which warned that "the probability of a Delta bankruptcy is rising," as well as from the Fitch ratings service, which sounded a similar note in downgrading some of Delta's debt.

In cutting Delta's unsecured senior debt rating on about $4.5 billion of debt to CC from CCC+ previously, while keeping a negative outlook, Fitch cited the "heightened risk that a stalemate in negotiations over pilot cost restructuring may ultimately force the carrier into a Chapter 11 filing."

A trader quoted Delta's 8.30% notes due 2029 as having retreated to 28.5 bid, 30.5 offered from prior levels at 30 bid, 32 offered.

At another desk, a trader said that Delta's 9¾% notes due 2021 retreated to 32.75 bid, which he said was down at least three or four points from recent levels, although he did not believe that all of the movement came during Friday's session.

Delta's bonds - which had recently firmed after the Airline Pilots Association sweetened its concession offer to Delta about 10 days earlier to 23.5% in pay cuts, as well as workrule changes - have been coming down ever since after Delta CEO Gerald Grinstein said that the pilots' offer was a good first step - but only that, and that substantially more in the way of concessions must be granted for Delta to have a cost structure that will permit it to remain a financially viable company in the long run.

The pilots had previously been offering only 12.5% in givebacks - while Delta has been asking for at least 34.5% in pay cuts for the 7,500 unionized pilots, and work-rule changes and other concessions that bring the size of the whole package to around 45%. After management's initial brush-off of the pilots' increased offer, the union said that Delta's problems could not be solved solely on the back of its members - a position that Grinstein himself has articulated on company conference calls and other public forums.

In his research note Friday that accompanied his downgrade of Delta's shares to "underperform" from "in line" previously, Goldman analyst Glenn Engel, said that "Delta's losses continue to mount as yields remain under pressure, fuel prices soar higher, and negotiations with pilots appear to stall."

He said that absent the kind of concessions that the beleaguered airline is seeking from its pilots - considered the best paid in the industry - the brokerage house was revising its full-year 2004 loss estimate to $13.65 a share from $10.90.

Delta shares fell to historic lows on Friday after the one-two punch from Goldman Sachs and from Fitch, losing 39 cents (8.67%) to end at $4.11 on New York Stock Exchange volume of 6.1 million shares, up somewhat from the usual 5.4 million turnover. The close was the lowest for Delta since at least 1980.

Other airlines pressured

A trader said that the airlines "got smacked around" Friday in the wake of all of Delta's bad news, as well as continued energy prices at near sky-high levels (crude lost 1% in New York trading, but still closed at $43.95 a barrel, near its all-time high) and terrorism jitters.

"Everyone says 'AMR, AMR,'" he said, referring to the Fort Worth-based largest U.S. carrier, which escaped bankruptcy last year by dragooning large pay concessions out of its pilots and other employees, "but AMR never had to deal with $45 a barrel crude oil," which translates down the line into higher jet fuel costs.

He saw Northwest Airlines Corp.'s 9 7/8% notes due 2007 down a point on the day at 70 bid, 71 offered, while Continental Airlines Inc.'s 8% notes due 2005 were half a point off at 88 bid, 89 offered.

Parmalat gains

Back on terra firma, Parmalat Finanzaria SpA's were at 16 bid, 16.5 offered, a trader said - "a little better than [Thursday's] levels," although he added that "it was very quiet" in the name with "only a few quotes." The bankrupt Italian dairy giant said it filed suit against UBS Investment bank for $350 million over allegations rising out of the company's fall from solvency last year and said that it was seeking a total of at least another €1.6 billion from the various banks that lined up its debt financing last year. Those legal actions would come on top of its $10 billion suit against Citigroup.

Parmalat filed for insolvency status in Italy in late December after having discovered that billions of dollars that it thought it had in its coffers wither were missing or were never there in the first place - allegations that led to the ouster of company founder Callisto Tanzi and his subsequent arrest by Italian authorities.

Parmalat, which is in the process of shedding non-core assets as it attempts to turn itself around, contends that its banks were in on some of the financial manipulation that allegedly went on before the company's collapse, and helped to disguise the company's real financial condition from its shareholders, creditors and other stakeholders.

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