Pegasus senior bonds take flight as DirecTV completes unit buy; Delta steady despite bondholder's slap

By Paul Deckelman and Sara Rosenberg

New York, Aug. 27 - Pegasus Satellite Communications Inc.'s senior bonds were seen winging their way skyward Friday, up solidly, though on relatively light end-of-week summer trading, after the Bala Cynwyd, Pa.-based television satellite programming distributor announced the completion of the sale of its prime subsidiary's satellite assets to former partner and sometime corporate enemy DirecTV Group Inc.

Elsewhere, Delta Air Lines Inc. bonds were reported pretty much unchanged - even after a group of dissident bondholders appears to have thrown a monkey wrench into the Atlanta-based air carrier's efforts to set up an out-of-court debt restructuring.

Pegasus Satellite Communications announced that its subsidiary, Pegasus Satellite Television, Inc., had completed the sale of the latter company's satellite television assets to DirecTV, Inc. for a purchase price of $938 million, including $875 million cash, subject to certain closing adjustments.

Following the announcement, a trader in distressed bonds said that he had seen the company's 12 3/8% senior notes due 2006 jump to 66 bid, 68 offered, from prior levels around 63 bid, 65 offered.

However, he saw Pegasus' 13½% subordinated notes due 2007, which had recently traded as high as the lower teens, in an 11-13 context, fall to between one and three cents on the dollar. That, he said, reflected the fact that with the junior bonds at the very bottom of the food chain, "the senior guys aren't gonna let the juniors get any money until they [the senior bondholders] get paid. The junior guys are gonna get the shaft."

A second trader saw the 11¼% senior notes up three-quarters of a point to 65.75 bid, 66.75 offered.

Another trader saw the 13½% notes "off huge on the week," falling to two cents on the dollar Friday after having begun the week at bid levels around 10-12 - pretty much an indication, he said, that those junior bonds will get either nothing or next to nothing from the proceeds of the satellite asset sale to DirecTV.

However, he said, "the better stuff" such as Pegasus' 11¼% notes and its 9 5/8% notes, had firmed to around the 65.5 bid, 66.5 offered level, up at least a point or more on the session, though in thin trading.

Pegasus - which for years distributed DirecTV's programming to its 1.1 million mostly rural customers but which feuded with its El Segundo, Calif.-based satellite broadcasting partner over just how much those customers were worth, or should have been worth - filed for Chapter 11 protection for its subsidiaries (although not for parent company Pegasus Communications Corp.) in early June in Portland, Me. Pegasus thus sought to preserve its exclusive distribution status, even as DirecTV and the National Rural Telecommunications Cooperative, a satellite programming distribution industry group, sought to end Pegasus' exclusive rights to its territory.

After several legal setbacks in the bankruptcy courts, Pegasus announced on Aug. 2 that it had reached agreement with DirecTV to sell its satellite assets, for a far higher price than the $675 million offer that DirecTV had earlier made, which Pegasus scorned as inadequate and unrealistic.

Delta unmoved

Delta Air Lines bonds were seen essentially unchanged, with its benchmark 7.70% notes due 2005 still in the 45 bid area, while its 8.30% bonds due 2029 were still around 27-28 bid.

Traders also saw the troubled Atlanta-based airline operator's 7.90% notes due 2009 at 31 bid, 33 offered, with "no real changes," a trader said.

Those bonds - which had jumped the previous week on the news that Delta and its pilots would resume talks on the company's demands for a $1 billion annual pay cut for the line's 7,500 unionized captains, only to fall on a ratings agency downgrade, and then bounce back up this past week as world oil prices seemed to moderate - were little changed Friday, despite the Thursday night announcement by that the Committee of Senior Secured Aircraft Creditors that it had rejected as "inadequate" a question and answer formatted news release issued by the company earlier Thursday in which Delta had tried explain why it was asking the holders of its $1.7 billion of equipment trust certificate and pass-through certificate debt to approve indenture changes that would let Delta buy those bonds from them and hold them, something currently barred by the bonds' indenture.

Getting permission from the holders of those $1.7 billion of bonds secured by liens on the company's aircraft fleet is seen by Delta-watchers as a key first step in the company's expected effort to restructure its $20 billion of debt in order to cut interest costs, part of an effort to bring its cost structure into line with hose of its competitors.

The committee, which claims to speak for a majority of the secured debt holders, had already rejected Delta's demand that the consents be granted by Aug. 31, saying they needed more time to study the company's turnaround business plan and details of its planned restructuring. They asked Delta to provide more information, but said Thursday night that the company's Q&A was simply not good enough.

Traders in distressed bank debt meanwhile said that their market was virtually motionless Friday, and was not expected to revive until after Labor Day.

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