Tower Auto bonds bounce around at lower levels; Adelphia bank debt keeps firming

By Paul Deckelman and Sara Rosenberg

New York, Jan. 27 - RJ Tower Corp.'s battered bonds were seen by traders bouncing crazily around at lower levels Thursday amid talk in the market that someone was trying to dump a big block of the Novi, Mich.-based automotive component maker's bonds and other unconfirmed scuttlebutt suggesting possible problems with the scheduled interest payment next week on a euro-denominated bond issue.

In bank debt dealings, Adelphia Communications Corp.'s paper was, for a second day in a row, very active at stronger levels, helped by better monthly numbers and the approaching end of the bidding process in the company's bankruptcy auction of its cable systems.

Tower's 12% notes due 2013 were being quoted around 56 bid, 58 offered - down from previous levels in the 57-58 context that those bonds had finished at on Wednesday, when they broke a three-session losing streak which had seen the bonds skidding down into the mid-50s from prior levels around 80 after the company warned of possible liquidity problems ahead.

But before they got to 56 bid, 58 offered, those bonds had been "all over the map," as more than one trader suggested, having fallen to intra-day depths as low as 51 bid before regaining some of their lost ground.

"There was rumor around that there was supposed to be a large block of the bonds for sale," a trader said, pegging their intra-day low-water mark at 51 bid, 53 offered, but adding: "I don't think they traded" at that level.

"If they were, maybe some accounts said 'I d like to sell a big bunch of them,' the market traded down so far that they said 'forget it - it doesn't make any economic sense to sell down here.'"

He said that there had been some market buzz that a block of as much as $25 million of the bonds had been for sale, apparently pressuring prices lower.

He saw the bonds pretty much closing "around where they had gone out [on Wednesday]. It was a lot of smoke. They did move a lot [in terms of price quotes] - but there wasn't a lot of trading at the lower levels. They traded briefly down there and then traded right back up to the 56-57 level.

Another trader said he had seen no concrete news on Tower - whose bonds have been careening wildly downward into the 50s from levels around 80 over the past week, after it warned of potential liquidity problems of as much as $40 million in the current quarter because some of its carmaker customers closed their factories from longer-than-expected periods of time during the holidays. That warning prompted both Standard & Poor's and Moody's Investors Service to lay multiple-notch ratings downgrades on the company's debt. Moody's also raised the possibility that the company might eventually file for bankruptcy or otherwise going into a "distressed restructuring" transaction.

But he said the way the bonds dropped so precipitously, "it was like there was a large seller there," echoing the assessment of the first trader.

But yet another trader had another explanation.

Tower " had some gyrations," the third trader said, quoting the bonds at 56.5 bid, 57.5 offered at the opening, but then falling as low as 52 "at around 2 o'clock-ish," on "rumors of a pending problem of non-payment of interest on one of their other bonds, which was not proven to be true." He saw the issue firming off the low to go home around 55.5 bid, 56.5 offered, down a point on the session, "but quite volatile for a one-hour time span."

The first trader said that while Tower has an interest payment due Feb.1 on its $149.6 million of outstanding 9¼% euro-denominated notes due 2010, "that's something that's been known for some time. It's certainly not anything that caught anyone by surprise.

"Do they got it [the money for the interest payment]?" he said. "Are they going to make it? I frankly don't know. There's a chance they won't."

But noting that the amount of the payment was relatively small - he calculated it to be around $7 million - he didn't think that such speculation was enough to cause the wild swings in the bonds Thursday.

"This was just pure trading, because it went down and back up that first, I think it was more of a rumored large seller - which never took place."

Addressing Moody's warning that a bankruptcy was possible, the trader said: "It's a definite possibility." He said the $57 million the company now says it needs for the quarter as a result of the liquidity crunch arising from the shutdown by General Motors and other customers "is a lot of money for a company like this."

He said the bonds had fallen into the 50s from 80 because of "the realization that these guys have to come up with a bunch of money that they may not have. And from there, as people did as little more homework on it, it's realizing how tight they are on liquidity."

He allowed that "the game isn't over yet for them - you don't know if they're going to make this last interest payment."

Adelphia loans gain

In bank loan trading, Adelphia Communications' Parnassos and TCI paper were seen trading on top of par and the Old Century quoted at 99 5/8 bid, par offered, according to a trader.

The Parnassos and TCI paper were stronger by about an eighth on the day and the Old Century paper was stronger by about a quarter on the day, the trader added.

The bank debt has been trending higher since the company put out monthly numbers late Tuesday that included a net income of $69.7 million for December against a loss of $72.9 million a year earlier, and cash and cash equivalents for the end of 2004 of $338.3 million, up 37% in a year.

Also spurring on activity is next week's deadline for final bids on the Adelphia assets, which are worth an estimated $17 billion to $20 billion.

The Greenwood Village, Colo.-based cable operator is pursuing a two-track strategy, soliciting bids from current cable operators and/or financial backers, while at the same time reserving the right to reject the bids and continue to reorganize in hopes of emerging from bankruptcy as an independent company three years after it first sought Chapter 11 protection.

But while the bank debt was stronger, a bond trader declared that Adelphia "has now given back all of its gains from yesterday [Wednesday] morning."

He quoted its 10¼% notes due 2011 as having fallen to 92.5 bid, 93.5 offered, well down from Wednesday's highs around 96 bid.

"They were right back to where they were [before Wednesday's rally took them to 96]. So much for that."

At another desk, an observer quoted the company's bonds down about 2½ to 2¾ points across the board, with its zero-coupon 2003 notes at 99.25, and its 8 3/8% and 8¾% notes due 2007 both at 110.5.

Bank of New England down again

Traders said that Bank of New England's 8¾% notes and 9 7/8% notes that were to have come due in 1999, which got whacked Wednesday on an unfavorable settlement of a long-running lawsuit in the case, "got whacked again," one trader said, falling to about 10 bid, 11 offered from prior levels in the 11-12 bid area.

The Boston-based bank went broke in 1991 and filed for bankruptcy; one of the issues to emerge from that collapse was controversy over the role that auditors Ernst & Young may or may not have played in the fiasco. The trustee for the bonds pursued a lawsuit, which was finally to come to trial this week after several years of motions - but abruptly settled with the accounting firm.

Bonds had been trading around the 27-28 levels, but swooned to around 11-12 on the apparent recovery that bondholders will get from the settlement.

"The bondholders are very unhappy with the trustee," the trader said. "After all this time and effort, the case was finally going to come to trial - so why give up now and settle for so little? Why not keep fighting it?"

All in all, he said, "it's just a disaster."

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