Adelphia lower as Century unit files for Chapter 11; Intermet sells 7-year notes

By Paul Deckelman and Paul A. Harris

New York, June 10 - Adelphia Communications Corp.'s bonds continued their slide to oblivion on Monday, as the embattled cable television systems operator's Century Communications Corp. filed for Chapter 11 protection from its bondholders and other creditors. Market players wondered when the parent would follow its subsidiary.

In primary market activity, Intermet Corp. sold $175 million of new seven-year notes, while Mothers Work Inc., is expecting to bring a $125 million issue of 10-year notes to market, and Encore Acquisition was heard preparing to hit the road Tuesday to sell its new $150 million deal.

Those two additions to the forward calendar make it a total of 21 dollar-denominated junk bond deals expected to price before the end (some say before the Fourth) of July.

As the calendar continues to build one buy-side source recently told Prospect News that "any number" of them could go the way of Wyndham, Trump and Hollywood Entertainment - offerings that were postponed during the past several weeks.

"We're not buying any of them," commented the source, a portfolio manager of a high-yield bond fund.

Upon hearing this market color from the buy-side, one investment banker told Prospect News Monday that while the calendar has become notably built up, the fact remains that there is a lot of cash waiting to be put to work in high yield.

This sell-sider believes that investors will continue doing what they have done thus far in 2002: no matter how full the calendar becomes investors will render judgments "credit-by-credit, story-by-story."

"With it being this built up I think the stage is set for things to get a little more choppy than we have seen them," the source conceded. "And some of the lower credits might find it a little more challenging to get their stories across.

"But does a deal like Fleming get done? I think it does."

The credit to which this source referred is Fleming Cos., Inc. $200 million of eight-year senior notes (Ba3/BB-), expected to price Wednesday via Deutsche Bank Securities Inc.

Fleming will use the proceeds from its off-the-shelf offering to help fund its acquisition of Core-Mark.

Matt Hildreth, Fleming's senior vice president of finance, told Prospect News on May 30 that the acquisition, which he said will enhance Fleming's multi-tiered distribution business, is part of the company's strategy for coping with the recent bankruptcy of its biggest customer, Kmart.

In addition to Fleming seven other dollar-denominated deals remain to be priced during the week June 10.

One offering priced on Monday. Terms emerged on Intermet Corp.'s $175 million of seven-year seniors (B2/B+) which priced at par to yield 9¾%, in the middle of the 9¾% area price talk, via joint bookrunners Deutsche Bank Securities and Banc of America Securities.

When the Intermet bonds were freed for secondary dealings, traders heard the new 9¾% senior notes due 2009 as having popped up to 101.375 bid/101.575 offered.

And two new offerings appeared Monday.

In the wake of such tight-pricing oil and gas exploration and production deals as Cross Timbers and Pioneer Natural Resources (each yielded 7½%), Encore Acquisition, a Fort Worth, Tex.-based company that acquires, develops and explores North American oil and gas reserves, announced it will start the roadshow Tuesday on $150 million of 10-year senior subordinateds, via Credit Suisse First Boston.

Also Philadelphia maternity apparel-maker Mothers Work, Inc. announced a public offering of $125 million of eight-year senior notes, also via Credit Suisse First Boston. Timing on that deal remains to be determined, according to a syndicate source.

Finally Monday, price talk of 8 3/8%-8 5/8% emerged on JLG Industries' offering of $150 million of 10-year senior subordinated notes (Ba2/BB+), via joint bookrunners Wachovia Securities and Credit Suisse First Boston. That deal is expected to price Wednesday.

Back among existing issues, a trader lamented that "we were closed. Oh, we were here all right, and the lights were on and the computers were humming - but we might as well have been closed, it was that quiet a day."

About the only thing really going on, he acknowledged, was the continued erosion of Adelphia. "There was a little activity there. Some of the people were checking markets, some not. But I don't think a ton of people were really trading paper."

Under the weight of the latest negative news about the struggling Coudersport, Pa.-based cabler, price levels on its bonds "gravitated down," he said, so that by the end of the day, Adelphia's senior paper was going home at 53 bid/55 offered, down from opening levels around 56 bid/58 offered for its 9 7/8% notes due 2005 and from around 60 bid for its 10¼% and 10 7/8% notes.

As for the 8 7/8% notes due 2007 of Arahova Communications Inc. - really, the old Century Communications Corp., which was acquired by the then-high flying and growth-minded Adelphia in 1999 - the trader declared that "Century paper's been illiquid. The quotes have come from the [Adelphia] issues." He described the overall beating that the embattled cable company's bonds have taken as "horrific."

At another desk, a trader quoted the Adelphia senior paper in the 54 bid/56 offered range and the Century bonds at 48 bid/50 offered. He stressed that those quotes had come before the late-day news that Century had filed for protection, and that there likely would be "no further numbers on the bonds until [Tuesday]."

The Century filing, at the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan, did not involve the parent company, although most of the smart money is now speculating that Adelphia itself will be forced to file sooner or later - most likely sooner.

It was the latest bit of a bad news Monday from a company which has reported nothing but for weeks on end.

Earlier in the day, Adelphia said in an 8-K filing with the Securities and Exchange Commission that it would restate its results for 2000 and 2001. It will cut its sales figures by $60 million for 2000 and by $70 million for 2001, while its cash flow figures will be revised downward by $160 million for 2000 and by $210 million for 2001. The company also said that its year-end subscriber numbers had been inflated by about 47,000.

Adelphia - whose shares and bonds have been roiled for weeks since the late-March disclosure of several billion dollars worth of off-balance-sheet liabilities linked to company guarantees for loans extended to the Rigas family, which formerly was in control of Adelphia - also announced that it had fired auditor Deloitte & Touche LLP. The accounting firm was reported to have been shown the gate for having allegedly not kept the company's board of directors fully informed about some of the Rigas-related transactions - although it should be noted that until last month, the company's nine-member board was dominated by members of the family, who presumably may have had knowledge of the transactions.

The latest developments proved to be too much for Adelphia's two newest directors; 12% shareholder Leonard Tow and his associate, Scott Schneider - who had fought so hard to get seats on Adelphia's board on May 24 - announced their resignation, saying in an SEC filing that "serial disclosures of wrongdoing" made it impossible for them to try to help organize a rescue of the company, which is currently in default on $7 billion of loans, has $1.4 billion of convertible debt immediately putable back to the company and which must come up with about $50 billion of overdue May 15 bond interest by Friday to avoid defaulting on several issues of its bonds.

Apart from the trials and tribulations of Adelphia, "today was just so very quiet," a trader said, although he saw AT&T Canada's bonds a touch firmer after the north-of-the-border telecom operator - in the process of being bought out by 31% owner AT&T - announce that it will begin discussions with its public debt holders over the next several weeks aimed at deleveraging its capital structure through a consensual restructuring of its public debt.

That debt has fallen sharply in recent weeks, as Ma Bell sent out signals that even though she would fulfill an earlier pledge to buy the 69% of the company it doesn't already own, that didn't include absorbing the $4.5 billion public debt of Telephone's money-losing Canadian offspring.

"We have recently announced that the company had reached agreement with its bank syndicate for a restructured bank agreement," AT&T Canada said in a statement. "We now expect to work closely with the bondholders to reach a consensual agreement and we will be seeking the input of AT&T Corp."

The bonds - which had been knocked down into the low teens by all of the confusion swirling around the fate of its debt - were heard to have firmed to 13 bid/15 offered Monday from prior levels around 12 bid.

There was further bad news for the embattled conglomerate Tyco International Corp., whose bonds were downgraded to just a step above junk on Friday by both Standard & Poor's and Moody's Investors Service. The company announced that it had fired General Counsel Mark Belnick and had replaced him with Irving Gutin, its top lawyer in the 1980s. Belnick and Tyco spent the day sniping back and forth by press release.

It was the latest development in a controversy which saw the ouster last week of CEO Dennis Kozlowski, who was indicted by New York state for alleged failure to pay sales taxes on some rare paintings - valued in the millions - that he had bought. That, in turn, had probers looking into whether Kozlowski had used company money for any of the purchases, and whether company funds were used to buy his $18 million Manhattan apartment.

On Monday, the Fitch ratings service dropped Tyco to a junk-rated BB from BBB previously.

Yet, its shares rose $1.31 (12.87%) to $11.41 in NYSE dealings Monday, and its bonds firmed as well. "I would have lost my shirt" betting against Tyco Monday, one market source quipped. "Who would have thought they'd go up?"

Tyco's 6¾% notes due 2011 rose to 76.5 bid from 73 on Friday. Its 6 3/8% notes due 2006 were two points better, at 79.

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