Air Canada sustains weakness; AK Steel down; Adelphia, cable sector active

By Carlise Newman

Chicago, Oct. 1 - Air Canada Inc. was somewhat weaker Wednesday, three days after the company announced another step in the reorganization process, narrowing to two investors the candidates to provide liquidity to accomplish its business plan and revealing details about recovery for unsecured creditors.

Air Canada will enter into negotiations with Cerberus Capital Management LP, and a company controlled by Victor T.K. Li, a Canadian citizen with global business interests, based upon their proposed letters of intent.

Both proposals address Air Canada's minimum C$700 million target of new equity and each also incorporate co-investment by creditors through a rights offering which would increase proceeds to C$1 billion.

Based on the proposals, unsecured creditors including bondholders and other financial institutions, with total estimated claims in the range of C$8 to 10 billion, subject to the results of the court supervised claims process, will receive an estimated 40% to 65% of the company's equity, depending upon the total amount raised and the extent to which unsecured creditors take up the rights offering.

Air Canada bonds were down 3 points to 34½ bid, 36½ offered, much lower than Friday's levels in the mid-40s, a trader said.

"The big shoe dropped Friday, but it was after the close so we didn't see the effects until Monday. The paper is still weaker but getting better," he said.

Meanwhile AK Steel Inc. has been "a pretty big loser" since news in mid-September of the resignation of the company's chief executive and president, a trader said.

AK's 7¾% notes due 2012 were down 1 point at 68 bid. Its 7 7/8% notes due 2009 were seen at 70½ bid, 71½ offered, down ½ point, a trader said.

AK Steel Holding Corp.'s chairman and chief executive Richard Wardrop and president John Hritz resigned on Sept. 18, as the company's share price sank to historically low levels.

In April, AK Steel was trumped by rival United States Steel Corp. in its attempt to acquire bankrupt National Steel Corp., partly because U.S. Steel had managed to secure a critical labor deal that AK Steel did not match.

"The bonds have been sinking since the resignations, but really, the company has not done well since April," a trader said. "That hit them hard, and losing leadership has had a lasting effect."

Elsewhere, cable names were big movers on Wednesday on the heels of Adelphia Communication Corp.'s release of better performance numbers to lenders in a private call, according to a trader.

Adelphia's bank debt was up about a point on the day pretty much across the board with the Old Century paper quoted at 89½ bid, 90½ offered, the FrontierVision paper quoted at 96 bid, 96½ offered and the Olympus paper quoted at 91 bid, 92 offered, according to the trader.

In response to Adelphia's improvement, Charter Communications Inc.'s bank debt also headed higher, trading around 95½ and ending the day at 95½ bid, 96 offered, compared to a trading level of around 94 ¾ on Tuesday, the trader added.

HealthSouth Corp., in the throes of an accounting scandal and mired in bankruptcy, said Wednesday its corporate counsel and corporate secretary resigned.

William Horton, corporate counsel, and Brandon Hale, executive vice president of administration and corporate secretary, have left, the Birmingham, Ala.-based company said.

The company also said it will divide its ambulatory services division into two divisions, outpatient rehabilitation and diagnostics.

HealthSouth's benchmark 7 5/8% notes due 2012 lost 1½ points from Friday, when it was last seen trading, to end the session at 85½ bid, 86 offered, a trader said.

Meanwhile WorldCom Inc. erased losses incurred earlier in the week. The bankrupt telephone company's senior notes rose 1 point to 33½ bid, 34 offered, a trader said.

"It was pretty quiet today, but we saw some names we don't see that often, so that kept it interesting," one trader said.

Elsewhere, New York-based cosmetics company Revlon Inc. was all over the map. The 9% notes due 2006 were up ½ point to 71 bid, while the 8 1/8% notes due 2006 were down 1 point at 69 bid.

Revlon's 8 5/8% notes due 2008 were down 2 points at 54½ bid.

Princeton, N.J.-based RCN Corp. was seen up 1½ points across the board. The cable company's 9.80% and 11% notes due 2008 were quoted at 46½ bid, 47½ offered, while the 10% notes were seen in the 47-48 bid area.

Troy, Mich.-based Collins & Aikman's 11½% notes due 2006 were up 1 point at 78½ bid, 79½ offered, while its 10¾% notes due 2011 were unchanged at 87 bid.

(Paul Deckelman and Sara Rosenberg contributed to this report.)

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