Adelphia bonds ease, bank paper steady on Time Warner/Comcast deal; autos firmer, airlines better

By Ronda Fears and Sara Rosenberg

Nashville, April 21 - Adelphia Communications Corp.'s definitive agreement to be acquired by Time Warner Inc. and Comcast Corp. in an $18 billion deal was the obvious headliner in the distressed bond market Thursday. Adelphia bonds eased a bit on the news as it dashes any hopes of a higher price tag from any bidding rivalry, and the bank paper reacted in a complacent manner as well.

Adelphia's bank debt held steady with the Century Old bank debt quoted at 99 5/8 bid, par offered and the Century New bank debt quoted at 99½ bid, 99 7/8, unchanged from previous levels, according to a trader.

"It was expected and it doesn't change much for the bank debt," the trader added about the Greenwood Village, Colo.-based cable company's acquisition announcement.

On the Adelphia news, a buyside market source said it probably did more for Time Warner and Comcast to remove the uncertainty now that the deal is done "at a price in the ball park" of the previous tentative pact.

Elsewhere in the bank loan market, Werner Ladder Co.'s bank debt was better bid on Thursday as information surfaced that the company would be seeking a new $100 million 41/2-year second-lien term loan to pay down the first-lien debt.

"I saw a bid for 97 but I think it might even be as high as 98. It was right around the 96 level before," a trader said.

The Greenville, Pa., manufacturer of fiberglass, aluminum and wood ladders plans on holding a bank meeting on Monday to launch the new second-lien loan with opening pricing set at Libor plus 1,000 basis points. Credit Suisse First Boston and Morgan Stanley are joint lead arrangers, with CSFB on the left.

Back in the distressed bond field, the auto and airline paper remained high profile with both areas firming as the broader markets advanced.

Adelphia deal caps price tag

Uncertainty surrounding Adelphia's new position in the cable industry has been removed with the Time Warner/Comcast agreement, onlookers said, but it also put a lid on any chances of a better price from rivals. The disappointment showed up as Adelphia bonds eased, with the 101/4s of 2011 moving from a 96½ bid early Thursday to 94¼ bid by late in the day.

The deal still needs bankruptcy court approval, but what has been inked would give Adelphia stakeholders $9.2 billion in cash and 16% of Time Warner Cable Inc. stock. In addition, Comcast will pay Adelphia $3.5 billion in cash for a total estimated deal value of $17.6 billion, beating out Cablevision Inc.'s $17.1 billion bid.

Time Warner chief executive Richard Parsons said he expected little competition from any other rival bidders. "There's been a lengthy and exhaustive process that led us to this point in time," Parsons said. "The fat lady has sung."

Under proposed transactions between Time Warner and Comcast, the two companies will swap cable systems to enhance their respective geographic clusters and unwind Comcast's investments in Time Warner Cable and Time Warner Entertainment Co. LP.

Adelphia has been embroiled in bankruptcy since June 2002 following an accounting scandal that culminated in the indictments of founders from the Rigas family.

Ford, GM long ends tighten

Auto paper was still firming Thursday, especially on the long end, a distressed bond trader said. Another said that the strong lift in the broader markets helped, along with there still being some enthusiasm based on Ford Motor Co.'s first-quarter results.

Ford's 2031 bonds were quoted at 435/425 over Treasuries and GM's 2033s bonds at 80 bid, 81 offered.

For first quarter Ford posted a $1.2 billion profit to GM's $1 billion-plus net loss.

While both are teetering on the brink of high-yield territory, another distressed bond trader remarked of how strange it was to see Ford's bonds quoted like a high-grade issue and GM's as if it were junk. "It has to get to a certain junk level before you quote the bonds in dollars," he said. "Not long ago that was the case with Ford. Ford has tightened up; both were a little better, tightening up a little today."

A couple of suppliers to the automakers also saw a little action. Collins & Aikman Products Co.'s 10¾% notes due 2011 were quoted at 77 bid, 79 offered around mid-afternoon and the R.J. Tower Corp. 12% bonds at 54 bid, 55.5 offered.

Delta 8.3s gain 1½ points

Delta Air Lines Inc. has wavered around bankruptcy levels for months, and the airline's first-quarter results were admittedly disappointing even to the legacy carrier's management, but a lift in the broader markets helped propel its bonds as well.

"It just seemed like the market was in a buying mood," one distressed analyst said, referring more to the stock market than distressed bonds. As for the Delta bonds, he said there did not seem to be a lot of traffic, but the paper did "feel a lot better today."

Delta's 8.3% bonds due 2029 were quoted at 29 bid, 29½ offered, compared with 27½ bid, 28½ offered on Wednesday ahead of the earnings. Another shop pegged the Delta 8.3s settling the day at 28½ bid, 29½ offered, up about a point. Delta shares rallied 5.75%, gaining 21 cents on the day to close at $3.86.

For first quarter, Delta reported a net loss of $1.07 billion, or $7.64 a share, wider than the net loss of $383 million, or $3.12 a share, in the year-ago period. Excluding special items, the March loss was $684 million, or $4.89 a share, versus a net loss of $598 million, or $4.86 a share, in first-quarter 2004. Operating revenues increased 3.3%, while passenger unit revenues decreased 2.9% compared to year-ago levels.

"Today's financial results clearly are disappointing," said Gerald Grinstein, chief executive of Delta.

"Record-breaking fuel prices [up 54% year over year in first quarter] are masking the many crucial, large-scale, core initiatives our airline implemented during the quarter. The issue is simple: including fuel, Delta is not on plan, but excluding fuel, we are better than plan."

Grinstein added that as competitive and cost pressures continue to grow, Delta is aggressively pursuing opportunities to further curb its cost structure and maintain liquidity levels, with unrestricted cash standing at $1.8 billion as of March 31.

For example, Delta said it's talking to lenders about amending covenants because of fuel price hikes

Airline paper lifted

After getting walloped in recent weeks ahead of earnings, market sources remarked about buyers stepping in on the weakness. Plus, while fuel prices and other rising prices have not been entirely mitigated by fare hikes and the like, some onlookers say the liquidity situation among the legacy carriers seems OK for the next year or so. Still, the longer dated paper went along with the rising tide in the sector.

Northwest Airlines Corp., which one source said "has gotten killed over the last two to three weeks and have fallen faster than a lot of the airlines," was better Thursday with its 8 7/8% notes due 2006 finishing at 82¼ bid, 83¼ offered versus 80 bid, 81 offered on Wednesday.

The liquidity situation, a market source said, seems adequate for "most of the airlines," noting that "AMR still has $3 billion of cash [and] Continental has the liquidity to get through" near term.

"Oil prices are still super-high," he continued. "So over the long term I don't think any of these guys can really operate in this environment, because there is only so much cost that you can wring out, away from fuel. But through 2005 and 2006 a lot of these guys have the liquidity to service their debt. So we're seeing that on the short end."

Continental Airlines Corp.'s 8s due 2005 were a little better Thursday at 98¼ bid, 99 offered compared with 97½ bid, 98¼ offered a couple of days ago.

"A lot of the short stuff moved back up because they had gotten cheap," the source said. "But the long stuff is going to continue to languish because there is no transparency there. No one knows how they are going to be able to service that stuff. But even the long paper today was a little better."

Standard & Poor's cut virtually the entire group of airline EETCs on Thursday and scheduled a teleconference at 10:30 a.m. Friday to discuss its review of aircraft-backed debt and the credit outlook for U.S. airlines, featuring S&P credit analyst Philip Baggaley.

Calpine trades up

Calpine Corp.'s situation had gotten pretty ugly with restatements and the like sparking the independent power producer's bonds to drop at least 8 points over the last week as investors shed the paper due to little tolerance for risk. But Thursday, some of the Calpine bonds saw a nice bounce.

The Calpine 8½% notes due 2008 were at 59½ bid, 60½ offered in the morning, finishing the day at 60½ bid, 61½ offered.

"At least the bleeding stopped, and there was a little bit of a recovery and a chance to do a little trading today," one trader said.

"It's a weak balance sheet to begin with. They are one of these triple-Cs that ran so much when the times were good, and now the air is coming out of the tires," he continued. "And there have been headlines and rumors. There was a rumor Friday about the coupon not being made. And they had to restate some results. So it just came in."

With some time elapsing since the last batch of bad news in the Calpine story, there was room for the paper to bounce. There was no news specifically from Calpine on Thursday to move the issues. The El Paso-based power firm is scheduled to report earnings May 5.

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