WorldCom still going strong; AK Steel continues improvement

By Carlise Newman

Chicago, July 23 - The distressed debt markets were relatively active Thursday, with lots of energy from WorldCom Inc. and also AK Steel Inc., which continues to recover from its earnings bomb last Friday.

WorldCom bonds opened at 30½ bid, and rose to 31½ bid, 32½ offered, 1 point higher than Wednesday, a trader said.

"WorldCom was actively traded in the Street," he added.

The Senate Judiciary Committee held a hearing Tuesday to discuss the company's 2002 collapse to determine whether to adjust existing bankruptcy laws and if telecommunications policies are adequate to promote competition. WorldCom's competitors claim that the laws are in favor of WorldCom.

Earlier this month, a federal judge in New York approved a settlement between the SEC and WorldCom in which the Ashburn, Va.-based company would pay $750 million to investors aggrieved by the scandal. The SEC will monitor the payment plan, which will result in the distribution of cash and stock to bondholders and stockholders.

WorldCom competitors proposed that companies that have engaged in massive fraud and misconduct be prohibited from using the Chapter 11 protection, which allows a company to reorganize while holding off creditors, and be forced to file for Chapter 7 instead, which would put them out of business.

AK Steel's 7 7/8% notes due 2009 were up another half-point to 78 bid, a trader said.

"They've been shooting up a little every day since the (earnings) report," he said.

On Friday, AK Steel reported a second-quarter net loss on a combination of lower selling prices for flat-rolled steel and higher costs for maintenance and raw materials. The supplier of steel for auto makers reported a net loss of $78.2 million, or 72 cents a share, in contrast to net income of $16.2 million, or 15 cents a share, a year earlier.

Analysts were expecting a loss of 43 cents a share.

Elsewhere, Global Crossing Inc.'s bonds closed Wednesday's session at 3½ bid, 4 offered, down a point from Wednesday.

A trader said the IRS announced a refund of $34 million to Global Crossing, under an agreement to settle company's tax liabilities.

Mirant's 8.3% notes due 2011 were last seen 76 bid, 78 offered, "just about unchanged" from Wednesday, a trader said.

News Tuesday that an emergency order by the court would halt some Mirant creditors from trading shares or claims has not impacted the bonds this week.

The court order stated those holding claims against the Atlanta-based energy company over $250 million, and shareholders owning 4.75% of Mirant's stock, are prohibited from selling or trading shares or claims until the bankruptcy court can consider Mirant's request to establish a notice procedure regarding trading of shares and claims.

The Atlanta-based energy company also requested that the court establish a procedure for the imposition of sanctions for violations of the notification requirements.

The order prevents potential trades or claims of stock that could hurt Mirant's tax attributes, which are currently $1 billion and could get as high as $2.5 billion by the end of the year. They may result in future tax savings of $200 million to $400 million.

"Things picked up a little today. It was busier than yesterday but with just the same names, WorldCom, Adelphia and so on," a trader said.

He said Adelphia Communications Inc.'s 9 5/8% notes due 2007 were seen at 69½ bid, down 1 point from Wednesday.

Also, New York satellite operator Loral Space & Communications Inc., which filed for Chapter 11 last week, "came in a little more," a trader said. The 10% notes due 2006 down 2 points to 62½ bid, a trader said. The New York-based satellite company filed for bankruptcy protection last week.

A trader said "people were checking" HealthSouth Corp. after news that the federal

probe of the Birmingham, Ala.-based hospital operator may widen, but he had no levels.

The Justice Department said it has uncovered new crimes related to the alleged $2.5 billion accounting fraud at HealthSouth and is investigating dozens of individuals and corporations, according to a report from CBS Marketwatch. More plea agreements are also forthcoming, the report cited federal prosecutors as saying.

The trader also said he'd heard Bethlehem Steel Inc. bonds around 5-6, up from recent levels around 3, a "big percentage move." He referred to rumors that the company was moving toward resolving pension funding issues.

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