Adelphia bank debt, bonds fall as company's acquisition threatened; Delphi off on labor woes

By Paul Deckelman and Sara Rosenberg

New York, March 29 - Adelphia Communications Corp.'s bonds and its Century Old bank debt dropped off in trading Wednesday after the bankrupt Greenwood Village, Colo.-based cable company revealed in a 10-K filing with the Securities and Exchange Commission that it is being accused of being in breach of purchase agreements by its prospective purchasers, Time Warner Inc. and Comcast Corp.

In the automotive area, Delphi Corp.'s bonds were seen several points lower in the wake of the rejection by the United Auto Workers union of the bankrupt Troy, Mich.-based automotive electronics manufacturer's latest plan to cut its heavy labor costs. That sharpens the confrontation between the two sides and ups the possibility that UAW members may strike the company.

It was also bad news for Delphi's former corporate parent, General Motors Corp., which has a vested interest in seeing that its single largest parts supplier is not struck, since a walkout would disrupt the steady flow of parts to GM and severely hurt its efforts to stabilize its situation.

GM bonds, and those of its General Motors Acceptance Corp. were lower on the bad vibes coming out of Delphi, as well as on investor dismay with GM's admission in an SEC filing Tuesday that it is now "uncertain" whether it will be able to sell a majority stake in GMAC, which has been a GM goal for nearly half a year now.

A trader in distressed bonds saw Adelphia's 10¼% notes due 2006 as having plunged to 58 bid, 60 offered and its 10¼% notes due 2011 were at 62 bid, 64 offered, both down four points on the session.

Another trader saw the latter bonds at 63.75 bid, 64.75 offered, which he said was a loss of 1¾ points on the day.

Yet another trader called those same bonds three points lower at 63.5 bid, 64.5 offered on the possibility that "their deal could fall apart."

A market source saw Adelphia's 9 7/8% notes due 2007 two points lower on the day at 60 bid.

In the bank loan market, a trader saw Adelphia's Century Old paper quoted at 97.25 bid, 98.25 offered, down about half a point from previous levels.

In April 2005, Adelphia entered into definitive agreements to sell its U.S. assets to Time Warner and Comcast for approximately $12.7 billion in cash plus shares of Time Warner class A common stock.

On March 25, Adelphia received a letter from the two companies alleging that Adelphia's implementation of a system by which eligible basic subscribers can be tracked materially breaches the purchase agreements since it does not include certain marketing promotions, according to the 10-K filing.

The filing asserted that any breach in the agreements could allow Time Warner and Comcast to terminate the purchase, which would have the two cable giants jointly taking over Adelphia's far-flung assets, splitting those assets and selling any which don't fit with either of the two companies' strategic plans.

Adelphia responded with its own letter on March 27, denying that the actions constitute a breach of the purchase agreements, but at the same time, agreeing to incorporate a method of tracking such marketing promotions as part of its subscriber tracking system.

Calpine up more

Elsewhere, a trader saw Calpine Corp.'s bonds continuing their mysterious rise, which has seen some of the bankrupt San Jose, Calif.-based power generating company's issues quoted up as much as 10 points over the past week or so, though nobody can quite figure out why.

He quoted Calpine's 8½% notes due 2008 at 51 bid, 53 offered, up a point, while its 7¾% notes due 2009 were also a point better at 61 bid, 63 offered.

He also saw Calpine's convertible issues up at least two points on the session, with its 4¾% converts due 2023 at 40 bid, 42 offered, and its 6% notes due 2014 at 32 bid, 34 offered.

Another trader saw Calpine's bonds continuing in a firming groove, with its 8½% secured notes due 2010 at 91.25 bid, 92.25 offered, although he added that "all of a sudden it's really hard to see markets in this stuff."

Calpine went into Chapter 11 reorganization in late December, groaning under some $18 billion of debt. The reorganization promises to be a long one, and a messy one, which various classes of stakeholders having conflicting interests. Bond traders are at a loss to figure out why anyone would be buying Calpine bonds at this point in the process.

Asbestos names dip

The trader also saw some weakness in the bonds of bankrupt asbestos-challenged companies, with Lancaster, Pa.-based floor-covering maker Armstrong World Industries Inc.'s bonds down three points at 68 bid, 70 offered, and the bonds of Toledo, Ohio-based insulation maker Owens Corning also down a trey, at 79 bid, 81 offered.

He said he did not know why those issues were off, chalking their fall up to "just market malaise." He said he had seen no fresh news out on the asbestos front, with nothing happening right now in Washington on the $140 billion national trust fund claims payment scheme that has been approved by the Senate Judiciary Committee, but which remains bottled up in the full Senate on parliamentary technicalities.

The trader also saw Northwest Airlines Corp.'s bonds a point lower at 44 bid, 46 offered, and Delta Air Lines Inc.'s bonds at 26 bid, 27 offered, also down a point.

GM loan jumps, bonds weak

In the automotive area, GM's revolving credit facility saw a massive jump in levels as talk began circulating that a refinancing of a $5.6 billion unsecured line of credit could be in the works, according to traders.

The revolver ended the day quoted at 92.5 bid, 94 offered, according to one trader, and at 93 bid, 94 offered, according to a second trader - either way up about 10 points from previous levels of 83 bid, 84 offered.

In a 10-K filed with the SEC late Tuesday, the company revealed that it is currently exploring the possibility of amending or replacing its existing revolver since it is unsure as to whether lenders would allow any borrowings under the facility due to the recent restatement of prior financial statements.

The company needed to restate financial results for its financing arm, GMAC, from 2003 through the third quarter of 2005 as a result of improper classification and presentation of cash flows for certain mortgage loans.

"GM has not previously drawn on this credit facility or its predecessor facilities and believes that it has sufficient liquidity over the short and medium term without drawing on this facility. GM believes that this matter is unlikely to be tested because GM has no current need or intention to draw on the existing facility," the filing added.

"The sheer rise of the revolver, I'm surprised it jumped this high," one trader remarked, claiming that the relative vagueness of the refinancing remarks in the 10-K was an expected cause for such a big run-up in levels.

"Some people use it as a hedge so with bonds going lower, I guess the bank debt is going higher," the trader added.

But while the bank debt was sizzling, GM's bonds were fizzling, the market reacting to the giant carmaker's warning Tuesday that it is now "uncertain" whether it will be able to complete its hoped-for sale of a controlling interest in GMAC to a financially more stable buyer. The major ratings agencies were also perturbed at this latest setback for the GMAC deal.

That, plus the worsening labor situation at Delphi, helped to push GM's benchmark 8 3/8% notes due 2031 a point lower, a trader said, quoting those bonds at 73 bid, 74 offered, while seeing GMAC's 8% notes due 2031 two points down at 91 bid, 92 offered. He saw GMAC's other, less well traded issues down about a point, with its 6¾% notes due 2014 at 88 bid, 89 offered, and its 6 7/8% notes due 2011 at 90 bid, 91 offered.

Another trader saw the GM 8 3/8s at 73 bid, 73.5 offered and the GMAC 8s at 91.25 bid, 91.75 offered, each down 1½ points.

Moody's Investors Service cut GM's senior unsecured debt one notch to B3, with a negative outlook, meaning another cut is possible over the next 12 to 18 months. It cited GM's revelations that that accounting restatements may affect access to a $5.6 billion standby credit facility. GMAC's ratings are unaffected.

Standard & Poor's meantime said it was scrutinizing GM's ratings, including its long-term B rating, for a possible downgrade.

Delphi falls on strike fears

Meantime, Delphi's bonds were seen by a trader to be three points lower across the board, quoting the company's 6½% notes due 2009 at 62.5 bid, 63.5 offered, in apparent response to Tuesday's late news that the UAW had rejected Delphi's latest proposal for cutting its labor costs - thus increasing the possibility of a potentially ruinous strike against the bankrupt Troy, Mich.-based automotive electronics manufacturer.

At another desk, a trader saw Delphi's 6.55% notes due 2006 at 63 bid, 64 offered, down three points, while its 7 1/8% notes due 2029 were 3¾ points off the pace at 62.25 bid, 63.25 offered.

Delphi, which sought Chapter 11 protection from its junk bond holders and other creditors last October, has long insisted that it must bring down its ruinously high labor costs, produced by a contract structure it inherited when it was spun off by former corporate parent GM in 1999, if it is to survive in an increasingly unprofitable automotive parts industry.

It had proposed a gradual drop in the cash wage component of the compensation it pays its 34,000 unionized hourly workers to around $16 from the present $27 per hour average figure - a reduction that the UAW called "unacceptable."

The union's rejection of Delphi's plan brings a strike scenario one step closer. Delphi has said that if there is no framework for cutting its labor costs in place by the end of the day on Thursday, it will go into the U.S. Bankruptcy Court for the Southern District of New York on Friday and ask the judge overseeing its restructuring for the authority to unilaterally spike its contacts with the UAW and two other unions and impose a new, less costly labor cost structure. The unions have said they will strike in that case.

Traders saw generalized weakness in the autosphere, and saw Dana Corp.'s bonds as one victim. A trader quoted the bankrupt Toledo, Ohio-based components maker's 6½% notes due 2008 and 2009 at 78 bid, 80 offered, down from 80 bid, 81 offered. He saw its 7% notes due 2028 and 2029 at 75 bid, 77 offered, down from 77 bid, 79 offered.

The bonds fell even as Dana announced that the bankruptcy court had given final approval to the company's $1.45 billion of debtor-in-possession financing.

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