Adelphia bonds fall 10 points on new plan; Calpine bonds drop 3 points on defaults; Dana DIP gains

By Ronda Fears and Sara Rosenberg

Memphis, April 12 - Adelphia Communications Corp. was the loudest noise in a quiet distressed debt market Wednesday ahead of the religious holidays observed in the United States. Adelphia's revised bankruptcy plan was met with extreme disappointment as it slashed the value of stock distributed by some 14%, or 4% of the total value by the company's estimate including the $12.7 billion cash component of the proposed deal.

In Adelphia's words, the new plan - the fourth amended plan - is its "effort to advance its bankruptcy case and maximize the return to its creditors," citing the dispute between creditor groups that has delayed its emergence from Chapter 11.

The market didn't exactly see it as an acceptable meeting point, onlookers said, but moreover seemed to be ready to put the ordeal to bed.

"The reaction in the market was that people were disappointed. There was massive selling," said a sellside trader at a shop in New York. "Probably the bonds have settled into an area they are comfortable with but there may be a few more bottom-fishers."

Adelphia's bonds dropped 10 points on the news over the course of the session, traders said, with the 10¼% bonds due 2006 falling to the 48 bid, 50 offered area and the 10¼% bonds due 2011 dropping to 53 bid, 53.75 offered. One trader noted that the 2011 issue opened Wednesday at 59, after going home Tuesday with a 63 handle, and traded down at least to 52.

Market sources in the bank debt arena said that despite the news from Adelphia, the Greenwood Village, Colo., cable company's bank debt was flat on the day.

Recoveries cut 20% to 25%

Adelphia's senior bondholder recovery levels would drop to anywhere from 31% to 85% of their claims from previous estimates of 56% to 105% under the fourth new plan.

The lower recovery, the company said, is from a lower estimate of the equity valuations of a new company being created when Time Warner Inc. and Comcast Corp. acquire Adelphia's assets. Adelphia bondholders will receive stock in the new cable company being formed from that combination.

The new "deal" proposed by Adelphia on Wednesday slashes some $710 million of the estimated value of stock to be distributed, but asserted that was "less than the overall decline of cable stocks" over the period it has been in bankruptcy.

Adelphia said on Wednesday that the value of stock to be issued in the acquisition will be about $4.25 billion.

Adelphia: Time is crucial

Adelphia chief executive William Schleyer said the plan was proposed because creditors have been unable to resolve their differences despite months of negotiations and litigation and in order to preserve benefits from the sale to Time Warner and Comcast, or maximize value of the Adelphia estate, it is essential to seal that transaction by July 31.

Thus, the revised plan of reorganization allows creditors to accept Adelphia's proposed settlement solution or opt for a holdback plan that essentially postpones the dispute for future resolution while allowing the rest of the bankruptcy case and the sale to Time Warner and Comcast to conclude in a timely manner.

The holdback alternative in the revised plan is subject to the risks that the cash and Time Warner Cable stock immediately available under the revised plan will not be sufficient to fully fund the required holdbacks. Also, any other property proposed to fund the holdbacks, such as rights to receive future releases of reserves established by the plan or future proceeds of litigation, if any, will not be approved by the court.

Dana DIP facility rises

Dana Corp.'s debtor-in-possession financing facility freed up for trading during Wednesday's market hours, with the $700 million term loan quoted at par ¾ bid, 101¼ offered on a consistent basis throughout the day, according to a trader.

The term loan is priced with an interest rate of Libor plus 225 basis points. During syndication, pricing on the term loan was reverse flexed from Libor plus 275 basis points on strong investor interest.

Dana's $1.45 billion 24-month debtor-in-possession facility (B3/BB-) also contains a $750 million asset-based revolver with an interest rate of Libor plus 225 basis points and an unused fee of 37.5 basis points.

Originally the DIP was supposed to have a tenor of 18 months, but was recently amended to extend the term to 24 months.

Citigroup, Bank of America and JPMorgan are the lead banks on the deal, with Citi left lead.

Dana already borrowed the $700 million DIP term loan on March 30 and used the proceeds to refinance its pre-bankruptcy revolver and to pay other pre-bankruptcy obligations, as well as for working capital and general corporate expenses.

In connection with this U.S. DIP transaction, Dana Canada is getting a $100 million Canadian revolver with an interest rate of Libor plus 225 basis points.

Dana is a Toledo, Ohio, engineer, manufacturer, supplier and distributor of systems and components for vehicle manufacturers.

Calpine off as defaults triggered

Calpine Corp. bonds were pushed lower by as much as 3 points Wednesday, distressed traders said, as a skipped payment by Calpine Energy Services, LP on its natural gas hedging contracts triggered defaults on term loans and second priority notes.

"The distressed guys just continue to push stuff around. Calpine has come off a couple of points in the past couple of days," one trader remarked.

Calpine Construction Finance Co., LP said Wednesday it has notified holders of its first priority senior secured institutional term loans due 2009 and second priority senior secured floating rate notes due 2011 that Calpine Energy failed to pay a portion of a payment on the hedging contract, which constituted a default under the instruments governing the term loans and the senior notes as of April 7.

There is a grace period of 60 days to cure the default or replace the hedging contract with a substantially similar agreement.

Calpine Canada's 8½% due 2008, the bonds that have a double-dip claim at Calpine Canada and parent Calpine Corp., dropped to 61.75 bid. The bonds had been seen as high as 65 bid in the last week, one trader said, but he described the issue as probably down a half-point Wednesday. Another trader pegged the bonds closing out at 61 bid, 63 offered, down 3 points from 64 bid, 66 offered at Tuesday's close.

Calpine Corp.'s 8½% notes due 2011 were quoted at 37.75 bid, a half-point better on the day, while the parent Calpine second secured 8½% notes due 2010 were said to be unchanged at 93.50 bid.

"There continues to be a lot rumor floating around on this credit. A lot of people who think they have claims on different entities of Calpine are pushing rumors to see what they can stir up to affect the bonds," one trader said. "It's been a tough one to trade."

Paul Harris contributed to this article.

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