Pegasus bonds tumble, bank debt easier on 10-Q; Parsons remarks help Adelphia

By Paul Deckelman and Sara Rosenberg

New York, May 18 - Pegasus Satellite Communications Inc. bonds fell sharply Tuesday, while its bank debt and Pegasus Media & Communications Inc.'s term loan D both headed lower by about a point following the company's 10-Q filing with the Securities and Exchange Commission. That filing said that the company did not have the cash on hand to pay a recent legal judgment plus other associated costs - and outlined a worst-case scenario under which it might have to seek bankruptcy protection.

That sent the Bala Cynwyd, Pa.-based diversified media and communications operator's bonds swooning - although traders and other market participants acknowledged that at this point, the idea of a bankruptcy filing remains theoretical rather than imminent.

However, given the recent bearish tone of the market, even a theoretical mention of the B-word was enough to throw the bonds for a big loss.

A market source looking at the Pegasus carnage exclaimed: "wow! Holy cow!" He added with no little understatement that "it looks like a significant drop." While he acknowledged the Chapter 11 scuttlebutt, he added that "there was different news out on it, so it was not like everybody was throwing that rumor around."

He pegged the Pegasus 13½% notes due 2007 as having fallen to 25 bid from previous levels around 48, clearly the biggest decline of the day. He said the company's 9 5/8% notes due 2005 were only off 10 points at 58 bid, but its 12 3/8% notes due 2006 dropped to 51 bid from prior levels at 69. Pegasus' 9¾% notes due 2006 retreated to 54 bid from 67.5, while its 12½% notes due 2007 ended at 55, down from 69.5. "Listen to this," he exclaimed, noting that the 12¾% notes due 2007 dropped a full 20 points to 40 bid.

Pegasus "was up and down all over the place," a trader said, "some in the mid-40s, some in the low to mid-50s, depending on the coupon."

Another trader said that Pegasus bonds were down about 15 points across the board, quoting its 131/2s at 28 bid, 30 offered, while its 11¼% notes due 2010 were at 52 bid, 54 offered, off 13 points.

The trader attributed the drop to the market rumors, although he allowed that "for that credit, not much traded that I saw. Some guys came out to sell paper, but some guys wanted to buy paper too low and sell it too high. It was a tough one to get around [Tuesday]."

On the bank-loan front, the Pegasus Media term loan D was quoted at par bid, 101.5 offered by the end of the day, but traded around in the 101 bid, 102 offered context during market hours, a trader said. The Satellite paper was quoted at around the 98 level.

"They released their 10-Q. The detailed discussion of the liquidity picture scared people," the trader explained.

In the filing, the company revealed that is was figuring out how to pay a $51.5 million breach-of-contract settlement to DirecTV Inc. with the main issues being how much pre-judgment interest it will have to pay and how much the bond will be if the company decides to appeal the decision.

If Pegasus fails to pay, it could be in default under its credit facilities and its bonds. And without waivers, Pegasus Satellite Television, Pegasus Media and/or Pegasus Satellite may have to file for protection under Chapter 11, the filing said (see related story elsewhere in this issue).

Pegasus' Nasdaq-listed shares meanwhile dropped 83 cents (5.94%) to $13.15 on volume of 462,000, not quite three times the norm.

Adelphia up on bid hopes

Elsewhere, news that Time Warner Inc.'s chief executive officer, Richard Parsons, said that his company would consider making a bid for bankrupt Adelphia Communications Corp. pushed the Greenwood Village, Colo.-based cable operator's bonds up a bit.

Adelphia's 8¾% notes due 2007, 8 3/8% notes due 2007 and 8 7/8% notes due 2007 were all up half a point to 107 bid across the board. Its 10 7/8% notes due 2010 moved up to 105.25 bid from 104 previously.

At another desk, Adelphia's 9 7/8% notes due 2007 gained a point-and-a-half to end at 105.

But another trader disagreed, saying: "There was nothing there, no changes" in the company's prior debt levels.

Parsons said that Time Warner - which recently cut its debt load - now has a little more financial room to maneuver and said it could be "a little more aggressive" about potential acquisitions. He was quoted by news reports as having said that Adelphia "is obviously a situation that anyone interested in expanding in the cable space will want to look at."

Adelphia recently announced that it would explore the possible sale of some or all of its assets - a course favored by bondholders and other creditors looking to maximize their recovery, even though management would prefer Adelphia to emerge from Chapter 11 later this year as an independent company.

Asbestos debt unchanged to higher

Bank debt of asbestos-related names were unchanged to up a little after initially "popping" during Tuesday's market hours, following news late Monday that Judge Alfred Wolin had been removed from overseeing the Chapter 11 cases of Owens Corning, W.R. Grace & Co. and USG Corp. after creditors complained that he was not impartial.

Owens Corning was quoted at 76 bid, 77 offered, according to a trader who said the paper was basically unchanged. However, a different trader placed that paper up half a point from Tuesday's levels of 75.5 bid, 76.5 offered.

W.R. Grace was quoted "on either side of 80" by the trader and quoted wide by another trader at 78 bid, 82 offered, up a couple of points since the start of the week but unchanged on the day and USG was quoted at 93.5 bid, 94.5 offered, up slightly to unchanged, the trader added.

In the bond-trading pits, a distressed-debt trader said he had seen "mostly better bids" for the asbestos names, with Owens Corning bonds still in their recent 39-40 context and Armstrong World Industries Inc.'s bonds remaining around 52-53.

"I didn't see a lot of activity," he said. Most of these bonds are in pretty firm hands."

Judge Wolin was originally assigned to judge five asbestos-related Chapter 11 cases - those three, plus Armstrong World Industries and Federal-Mogul, Inc. He will continue to oversee the Federal-Mogul case, and a separate hearing will be held to determine whether he will continue judging the Armstrong case.

Armstrong's bank debt was quoted at 53 bid, 54 offered on Wednesday, up a little on the day, and up about three points since Monday, the trader said.

Kensington International Ltd. and Springfield Associates, LLC as agents for Owens Corning's pre-petition bank lenders had petitioned Wolin to recuse himself, arguing his advisors had conflicts of interest. D.K. Acquisition Partners LP, Fernwood Associates LP and Deutsche Bank Trust Co. Americas petitioned him to recuse himself in the Grace case and USG petitioned him in its own case. He refused, leading the companies to carry their arguments - successfully - to the appellate court level.

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