Adelphia up as Rigas family driven from power; Trico, Roundy's, Trimas deals price

By Paul Deckelman and Paul A. Harris

New York, May 23 - It was the end of an era in Coudersport, Pa., as members of the embattled Rigas family finally acceded to demands from their bondholders and other interested parties and surrendered control of Adelphia Communications Corp., founded half a century ago by clan patriarch John J. Rigas and tightly controlled by Rigas and his offspring ever since. But the changing of the guard brought no tears among the bondholders, who drove Adelphia's paper up on the news Thursday, even as the stock tumbled after resuming trading for the first time in more than a week.

In primary market activity, a trio of deals priced - Trico Marine Services, Trimas Corp. and Roundy's Supermarkets - as players cleared the decks ahead of Friday's abbreviated pre-holiday session.

And word of new junk bonds from Constar International, Intermet Corp. and TransDigm Corp. was also heard during the day.

Meanwhile, late in Thursday's session Moody's Investors Services put out a report that lent some historical perspective to the large Caa1 casino deal that priced Wednesday.

Although the Moody's report did not identify the credit in question, market observers will have no difficulty matching "The $850 million sale by a Caa1 rated casino on Wednesday" with Venetian Casino Resort, LLC/Las Vegas Sands, Inc.'s $850 million of eight-year second mortgage notes (Caa1/B-), which priced Wednesday at par to yield 11% - in the middle of the 10 7/8%-11 1/8% talk - via Goldman Sachs & Co.

According to the Moody's report, the unidentified $850 million deal "should greatly reduce any lingering concerns about the existence of a broad based credit crunch. Investor willingness to provide such a large amount of funding to a very low-rated company is convincing evidence that access to capital has not evaporated."

The report went on to state that the $7.6 billion of rated junk bonds sold thus far in May is on pace to eclipse the $8 billion monthly average of January-April 2002. The three months ended May could produce $28 billion of new high yield bonds for the highest three-month total since the span ended July 1999.

However, Moody's noted, for telecoms "capital access is more limited than in the late 1990s, which has impeded the ability of some companies to bolster weak liquidity and prevent a credit rating

downgrade."

The report went on to specify that the Venetian second mortgage notes offering, according to reports, was the largest triple-hook in the history of the high yield market although Moody's turned up six Caa rated convert deals for amounts greater than $850 million.

In primary market activity Thursday TriMas Corp. priced an upsized offering of $352.773 million ($350 million proceeds) of 10-year senior subordinated notes (B3/B). The deal, upsized from $250 million, priced at 99.214 to yield 10%, via Credit Suisse First Boston, JP Morgan and Wachovia Securities, joint books.

Trico Marine Services priced $250 million of 10-year senior notes (B2/B) on Thursday. The Houston marine transport firm priced its notes at 99.196 to yield 9%. Lehman Brothers and Bear Stearns were the joint bookrunners.

And Roundy's Supermarkets upsized its deal Thursday by $25 million. Its $225 million 10-year senior subordinated notes (B2/B) priced at par to yield 8 7/8%, via dealrunner Bear Stearns.

The forward calendar built out with the addition of three new deals Thursday.

Troy, Mich.-based automotive industry components-supplier Intermet Corp. will start roadshowing a deal for $175 million of seven-year senior notes on Tuesday, via joint bookrunners Deutsche Bank Securities Inc. and Banc of America Securities. The roadshow is set to run until June 7.

Details on the other two offerings that surface Thursday remain to be fleshed out.

However, Constar International, Inc., a subsidiary of Philadelphia-based Crown Cork & Seal, will bring a registered deal for $200 million of 10-year senior subordinated notes via Salomon Smith Barney, although a syndicate official told Prospect News Thursday that the timing has not yet been determined.

The bond deal, along with a $250 million senior secured credit facility, will be excecuted alongside an IPO that will partially spin off the company from parent Crown Cork & Seal.

And late Thursday Richmond Heights, Ohio aerospace industry supplier Transdigm Inc. announced it is "contemplating offering" a $75 million add-on to its 10 3/8% senior subordinated notes due 2008.

No other details on the TransDigm add-on were available.

In the secondary market, cable-TV operator Adelphia became the name to watch, on the news that the closely knit Rigas clan had run up the white flag and agreed to demands from its bondholders, other creditors and other stakeholders that it give up control of the troubled company, which was founded by the elder Rigas in 1952 and which had grown into sixth-largest U.S. cabler in the decades since.

Under terms of the agreement, the 78-year-old Rigas, who resigned as president, chairman and chief executive officer last week, will give up his seat on the company's nine-member board of directors, as will his son Timothy, who followed in his father's footsteps and relinquished his chief financial officer post last week. Also giving up their board seats will be two other sons, Michael and James Rigas, who additionally resigned their posts as executive vice president of operations and EVP of strategic planning, respectively. Yet another Rigas relative, son-in-law Peter Venetis, was also asked to leave the board. The family will be allowed to name two replacement directors, but they cannot be family members.

The Rigas also agreed to put their 60% voting control of the company into a voting trust, to be controlled by a special committee of the reformulated board, until the Rigases repay some $3.1 billion which they owe the company for loans guaranteed by Adelphia and advances they took. As partial payment, the family further agreed to transfer to Adelphia cash flow from cable properties owned by Rigas family entities independent of Adelphia - a sum estimated at about $1 billion. It will also contribute approximately $567 million of Adelphia convertible debt held by the family. Additionally, those cable properties owned by the Rigas family that Adelphia chooses to have transferred to it will be transferred at their appraised value.

A trader characterized Adelphia's bonds as "up several points on the day, but off from their highs." The most widely quoted Adelphia issue, its 10¼% notes due 2011, was heard to have gone as high as 81 bid during the session, about six points better than the close Wednesday in the mid-70s, while the bonds were mostly seen actually finishing two to three points higher on the day in the 78-79 neighborhood. Adelphia's 9¼% notes coming due later this year were two points better at 81 bid/83 offered, while its 10 7/8% bonds due 2010 also gained a deuce to end at 78. Those bonds had been trading at or near par earlier in the year.

The once high-flying Adelphia's bonds and shares had been stumbling downhill ever since late March, when the company disclosed $2.3 billion of previously hidden off-balance-sheet obligations related to loans extended to partnerships controlled by the Rigas family. In the weeks since then, Adelphia's credit ratings have been downgraded by the major agencies, the Securities and Exchange Commission and other authorities have begun a series of investigations, the company's banks expressed alarm and disgruntled shareholders - including 13% owner Leonard Tow - have headed for the courts. The company has said it would have to delay filing its 10-K annual report, which puts it into a technical state of default on its $8 billion of bank borrowings, unless its banks give it a waiver.

The news that the Rigases have yielded control of the company and agreed to transfer some assets back to cash-strapped Adelphia can only help, said UBS Warburg telecommunications analyst Aryeh Bourkoff, who called the latest developments "incrementally very positive. In my view, this continues to whittle down the probability of an imminent bankruptcy filing, which had seemed to be a virtual certainty a week ago."

Bourkoff, UBSW's head of high yield cable and telecom research, said that "It remains to be seen exactly how the banks will act," but he opined that the lenders likely "would view this as being positive. The banks had specifically requested such a move as this, and the board has decided to acquiesce to the banks."

Adelphia is hoping to restructure its bank debt, which amounts to about $8 billion out of its total debt load of $17 billion (the total figure counts the $3 billion of Rigas-related obligations which have recently come to light, along with the $14 billion previously on its balance sheet). In an effort to clean up that balance sheet, Adelphia had several weeks ago announced plans to shop some of its cable assets, and its major lenders - Salomon Smith Barney, Banc of America Securities LLC and Credit Suisse First Boston - are also advising the company on its asset sales, meaning they may be inclined to give Adelphia a break so that it will stay solvent and its assets retain value.

Senior analyst Mike Paxton of Cahners In-Stat Group of Scottsdale, Ariz., said that in agreeing to give up their power, Rigas and his family "had no choice. It was getting to the point where they were being forced, not only by the bondholders, but by the outside board members to make a move, and they were against the wall, essentially. They needed somebody to loosen up some capital for them, and they couldn't do anything as long as [the Rigases] were sitting there, still controlling the company. So it was either move out of the board positions - or watch the company implode."

Paxton believes that Adelphia "is going to have to restructure, whether it is ordered by the court [i.e., in a bankruptcy filing] or whether it's not, just because their balance sheet is a mess."

Which direction the company goes, he said, may depend on what turns up in the SEC investigation and in grand jury probes into the company's tangled finances going on in at least two states. "That might push them in a certain direction, but whether or not they're really fined or [just] slapped on the wrists by those different organizations, they're going to have to restructure one way or another, and that's going to include selling off a substantial number of their subscribers."

Paxton said that Adelphia's Southern California operations, with over 1.2 million basic cable subscribers, are clearly the crown jewels among the assets the company is shopping around (other properties up for sale include cable systems in Florida, Virginia and the southeastern U.S.) "There's a lot more interest [for the California properties] than in some of the other areas they have." While AT&T and AOL TimeWarner each have a considerable presence in the Los Angeles area, Paxton said, "most of the interest that I've heard of, specifically in those systems that Adelphia now owns, has been coming from Charter Communications and Cox Communications."

UBS Warburg's Bourkoff, who rates Adelphia's bonds as a "buy," said that while "there's still room for [bondholder] skepticism at the Adelphia story, the company is doing a thing here by trying to restore credibility with the market, and the removal of the Rigas family from the board is perhaps the most significant step to date."

On the other hand, Cahners' Paxton said that the ouster of the Rigas regime by itself would not be likely to really restore bondholder confidence "over the short term. They not only need to see positive steps, but they certainly need some greater visibility into the actual financial structure and the relationships between a lot of these different entities that were controlled by the Rigas family. So in my opinion, we're still several weeks away from that."

Adelphia shares - which have lost 87% of their value since the revelations about the Rigas family loan guarantees in late March - resumed trading for the first time since May 14, when they had been halted with the stock valued at $5.70 per share. In busy Nasdaq trading Thursday, they plunged $3.08 (54.04%) to end at $2.62, although market-watchers said the slide was mostly due to the pent-up sell orders placed during the halt being filled, rather than market reaction to the abdication of the Rigases. Volume of 70 million shares was almost eight times normal.

Elsewhere, activity was generally muted ahead of Friday's abbreviated session. The Bond Market Association has recommended a 2 p.m. ET close ahead of the Memorial Day holiday, which will shutter U.S. markets on Monday. A trader characterized the day's trading as "pretty much just book-squaring before the holiday."

A trader said WorldCom Inc.'s bonds initially were easier, before heading back up on the news that the problem-plagued Clinton, Miss.-based telecommunications giant had - as promised - completed a $1.5 billion accounts receivable securitization program, replacing a $2 billion facility which had been suspended when WorldCom's bonds were downgraded to junk bond status earlier this month. The new facility, unlike the old one, will have no ratings triggers.

"I guess that must have been the reason the bonds popped back up," he said. "They traded down a couple of points and then back up to unchanged."

At another desk, a trader quoted WorldCom's 7¼% notes due 2011 at 48.25 bid/48.75 offered, after "they came right back" from an earlier easing. He said that the news of the $1.5 billion facility had essentially been anticipated, since WorldCom had said earlier that it was "on schedule" to clinch the financing by Thursday, but added that "investors know from this that the banks are willing to work with WorldCom, and that's very positive."

Qwest Communications International's bonds were heard to have been fairly actively traded, considering the market's pre-holiday lassitude, but quotes were all over the lot. While one market source saw them as unchanged to "if anything, better" despite Wednesday's downgrade of the company's ratings to junk by Standard & Poor's, he saw its 5 5/8% notes due 2008 a point or so better at 85. At another desk, Qwest Capital Funding's 7¼% notes due 2011 were seen down two points, at 72.

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