Telecommunications loans continue to feel weak as negative news surrounds sector

By Sara Rosenberg

New York, May 21 -Telecommunication companies have been suffering a downward move in the secondary bank loan market, according to market sources. The sector has received a lot of negative attention recently, with the most noticeable newsmakers being WorldCom Inc. and Adelphia Communications Corp. As the sector struggles, various telecommunications companies continue to feel the outside pressure on their own performances.

For starters, Adelphia Communications Corp. traded up and down during trading hours Tuesday. The Adelphia Century loan started trading at 89 7/8 and then two bids got hit at 881/2, driving the paper back down, a trader said.

"I don't know if the trades were dealers trying to push the market or retail driven," the trader added. "More things will come out on the Adelphia story. Who knows, maybe there will even be a (10K) filing."

The next telecommunications name to grab market attention Tuesday was Broadwing Inc. The Cincinnati, Ohio company's bank loan paper was slightly weaker with a bid of 97½ and an offer of 99 despite the company's encouraging letter to stockholders, a trader said. Previously, the company's bank loan paper was trading at around par.

"Any bad news sends them down," the trader said. "It's very hard to bring them back up."

Concerns over the company's accounting practices and ability to refinance existing debt have been raised recently. Broadwing, however, stated in company letter to shareholders that it is in compliance with all debt covenants under its credit facility. The company reduced its bank debt by 15% since the beginning of 2002 to $2.12 billion, the letter said, making the debt to EBIDTA ratio 3.27 at the end of the first quarter 2002. Under the credit facility, the company is required to maintain a debt to EBIDTA ratio under 4.75. Additionally, the company plans to refinance a portion of its existing debt prior to or during 2003 due to maturities within the current facility. As for the accounting issue, the company stated that IRUs have been recorded in accordance with SEC regulations.

Lastly, Global Crossing Ltd., a Hamilton, Bermuda telecommunications company, held a lenders meeting Monday for the purpose of keeping people informed, according to market sources.

"I don't think they gave lenders all that much clarity around the firm's future operating prospects," a market professional said. "People left the meeting feeling kind of empty."

The company filed for Chapter 11 bankruptcy protection on Jan. 28 at which time a letter of intent was signed with Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte. Ltd. for a $750 million cash investment for a joint majority stake in the company's equity in connection with restructuring.

Global Crossing is expected to have until late June to submit a formal plan of reorganization. On Monday, Fiber Optek revealed its $7.3 billion proposed plan of reorganization for Global Crossing. Fiber Optek anticipates submitting this competing plan to the bankruptcy court after the period of exclusivity ends, a company press release said.

According to the Fiber Optek reorganization plan, secured creditors will receive $250 million in cash, assignment of $500 million in accounts receivable, approximately 28% equity and zero cost warrants convertible to approximately 8% additional equity in the reorganized company, unsecured creditors will receive $50 million in cash and zero cost warrants convertible to approximately 3% equity in the reorganized company and existing shareholders will retain approximately 25% equity and will be allowed to purchase warrants convertible to an additional approximate 25% of the equity in the reorganized company, a Fiber Optek press release said.

Otherwise, the secondary market was quiet on Tuesday and it is expected to stay that way until after the upcoming holiday weekend.

The bank loan market has been primary-driven recently due to all the refinancings, a market professional said. Going into a holiday, the market should slow down to a halt, he added.

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