Charter fluctuates on news of loan from Allen, SEC probe; Aquila firm despite feeble earnings

By Carlise Newman

Chicago, April 15 - Charter Communications Inc. topped the charts as most volatile in distressed debt trading Tuesday after rampant rumors of a $300 million loan from the company's controlling shareholder, Paul Allen, lifted the company's bonds. Later in the session, Charter said the U.S. Securities & Exchange Commission's investigation into its accounting and the way it counts subscribers now has formal status, and prices dropped to earlier levels.

Aquila Inc.'s bonds remained firm even after the company reported a wider-than-expected loss after recording a host of charges for impairment of assets. Aquila cited impairment charges, losses for discontinued operations and losses related to the winding down of its merchant trading portfolio for the fourth-quarter loss.

Charter's bonds shot up as high as 63 bid/64 offered Tuesday as rumors of financing from chairman Paul Allen floated through the markets. Charter said in its 10-K filing Tuesday that it had accepted an offer from chairman Paul Allen's investment vehicle Vulcan Inc. to lend it $300 million - although it was not reported by some news services until late in the day.

Charter's 8 5/8% notes due 2009 closed Monday bid at 57.5, and opened Tuesday at 59 bid/60 offered. The bonds reached mid-day levels of 63 bid/64 offered on rumors of the loan from Allen, but fell to 59 bid/61 offered by day's end.

"The talk about Allen kept it up and down; he's putting money in, he's not, he is," said a distressed trader.

Possibly the cause for the fall in bonds late Tuesday afternoon, Charter said in its annual report filed with the SEC that the government agency "issued a formal order of investigation dated Jan. 23, 2003." The SEC has demanded documents on the number of subscribers the company has and accounting policies on the way it accounts for certain costs, the company said.

The SEC opened an informal inquiry into the company in early November.

Earlier this month, St. Louis-based Charter said it overstated its revenue and cash flow dating back to 2000, citing misinterpretations of generally accepted accounting rules. The company overstated revenue for the first three quarters of 2000 by 1%. It overstated 2001 revenue by 4% and 2000 revenue by 3%.

On Monday, Vulcan Northwest Inc., which holds venture interests of Paul Allen, said it was in talks to transfer some cable systems to Comcast Corp. in exchange for Comcast's stake in Charter. Under a joint venture agreement between Charter and AT&T Broadband, which was bought by Comcast last year, Comcast has the right to force Allen to buy its stake in the struggling cable TV firm for $725 million.

Also on Monday, Comcast and Allen, co-founder of Microsoft Corp., agreed to postpone a deadline for him to buy the Comcast stake for 30 days.

The deal also involves a payment by Allen to Charter to make up for the system it is losing.

Surprisingly, Aquila Inc. remained stable on Tuesday, despite a weaker-than-expected earnings report. The Kansas City, Mo.-based gas and energy company's 7% notes due 2004 "stayed firm in the mid-90s," a trader said.

Aquila posted a $977.9 million fourth-quarter loss after recording a host of charges for impairment of assets, and it restated its cash-flow for the previous two years because of accounting changes. The company delayed its results announcement because of a reaudit, and reported a fourth-quarter net loss of $5.22 per share. That compares with a loss of $6.2 million, or 5 cents a share, a year earlier.

The company, which has $2.8 billion of outstanding debt, last week secured $630 million in new financing, improving a balance sheet that was battered by the credit crunch that followed the collapse of energy trader Enron Corp. and the demise of energy trading market.

"We really didn't see a lot of movement in Aquila...they just kind of caught up to where they were," said a distressed debt trader.

Ditto for WorldCom Inc., which had been trudging higher Monday after relatively quickly turning around a restructuring plan, released on Monday. The company plans to emerge from Chapter 11 with very little debt and a new, relatively untarnished image, accomplished by taking on a new name - MCI - and moving its corporate headquarters to Ashburn, Va., from its current home of Clinton, Miss.

WorldCom's bonds were seen to trade at 28 bid/29 offered and were quoted closing at those levels as well. Another desk saw the bonds bid at 27.75.

Under the reorganization plan, holders of WorldCom senior debt - both bank debt and notes - may choose to receive 14.36 shares of new common stock for each $1,000 of the holder's allowed claim, or new notes at the rate of 35.9 cents on the dollar. Unsecured claim holders will receive 7.2 shares of new common stock for each $1,000 of the holder's allowed claim and cash at the rate of 17.9 cents on the dollar.

For exit financing, if noteholders choose to receive less than $5.5 billion in new notes, WorldCom will obtain a term loan equal to the difference between $5.5 billion and the amount of new notes elected by the noteholders, up to a maximum of $1 billion.

"We saw some WorldCom...they were busier today than yesterday," said a distressed debt trader. "It could be a tough road ahead for them. The image change and new name will help but they've got other hurdles to clear."

American Airlines' 9% notes due 2012 were seen losing a point Monday, to 24 bid/26 offered after trading at 25 bid/27 offered Monday after yet another union delayed its vote.

The three unions of American endorsed an agreement between the company and the Association of Professional Flight Attendants to allow the APFA to continue their balloting process until 6 p.m. ET Wednesday, April 16.

The decision came in light of the vote to ratify agreements by the members of both the Allied Pilots Association and the Transport Workers Union - representing the majority of American's union workforce. The APFA is the only union that has not yet ratified its agreement, American said in a news release.

The company set the April 15 deadline for ratification because it had a substantial amount of loan repayments due. In order to be able to extend the deadline, the company announced that it will immediately make millions of dollars in scheduled debt payments due Tuesday as part of its ongoing commitment to preserve jobs and avoid bankruptcy.

American, a unit of Fort Worth-based AMR Corp. and the world's largest airline, has said repeatedly it would file for bankruptcy very soon if any union failed to ratify concessions.

And in a statement late Tuesday chairman Don Carty said the airline would "immediately" file for bankruptcy if the flight attendants did not back the agreements.

Meanwhile HealthSouth Corp. continued its upward path.

Two sources reporting seeing its debt securities improve on Tuesday.

One source said that the beleaguered healthcare giant's 8 3/8% notes as well as its 7 5/8% notes were firmer, "around 58."

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