Adelphia jumps as workout nears; Allegiance gyrates; Parmalat keeps falling

By Paul Deckelman and Sara Rosenberg

New York, Dec. 18 - Adelphia Communications Corp. bonds were up solidly Thursday, with market participants speculating that the bankrupt cable TV systems operator is starting to look better and better as it gets closer to the point creditor claims will be settled and it will emerge from Chapter 11.

Another significant mover was Allegiance Telecom, Inc., which agreed to sell substantially all of its assets to Qwest Communications International Inc. On the downside, Italian dairy products processor Parmalat Finanziaria SpA's bonds continued to slide, as it remains in talks with shareholders of its Brazilian unit, trying to convince them not to force the cash-strapped company to buy back their stake for $400 million.

Adelphia's paper was quoted up anywhere from four to six points, with its 10¼% notes due 2011 firming to 92 bid from 88 previously and its 9 7/8% notes due 2007 seen five points better at 90.5. At another desk, those bonds were seen even better, at 91.5 bid, up better than six points.

There was no positive hard news out on the Denver-based cabler, which filed for Chapter 11 protection from its junk bond holders and other creditors in June 2002. However one market source had heard talk that the company had paid debts to some of its suppliers, which he saw as an indication that Adelphia was getting its ducks in a row in preparation for an emergence from bankruptcy soon.

A trader who saw the Adelphia bonds up five or six points said: "It looks like they're going to work out [the claims] and the paper will be worth in excess of par, at 105. It looks like all of the claims are going to be accelerated. It's a workout thing, so it looks as though everything is going to be pushed through."

Another trader - although he himself had not seen Adelphia on Thursday, acknowledged that "that whole [cable] area has been on the move," with bonds of other operators, such as Charter Communications and Cablevision Systems, seen better of late. He ruefully noted that someone had recently tried to interest him in some Adelphia bonds, "saying that good things were happening and the company was going to emerge [from Chapter 11] faster than expected." Much to his later regret, he chose not to play in the credit at that time.

Elsewhere, news that Qwest Communications had agreed to buy substantially all of the assets and associated revenue streams from bankrupt Dallas-based Allegiance sent the latter's bonds see-sawing around.

A distressed-debt trader quoted Allegiance's 12 7/8% notes due 2008 as having initially firmed to 43 bid from prior levels around 39, but then having fallen from the highs to close at 33 bid.

At another desk, the 12 7/8s and Allegiance's 11¾% notes were quoted as having pushed up to 44.5 bid, then having fallen to 33.5, before going home at 36.5 bid, 38.5 offered.

Allegiance's bank debt, meanwhile, headed higher on the Qwest news.

The paper was quoted at 98 bid, 99 offered up from previous levels of 97 bid, 97.5 offered, according to a trader.

"A lot of it was built in, but it is higher today," the trader said regarding the acquisition announcement.

Under the terms of the agreement, Qwest will purchase Allegiance's assets for $300 million in cash and will issue about $90 million of convertible debt with a conversion price of $6.10 per share and a coupon of 1.5%, according to a company news release.

However, other interested potential bidders will have an opportunity to offer higher bids for the assets of Allegiance.

The agreement is subject to approval by the U.S. Bankruptcy Court and certain other government regulatory agencies. If Qwest is successful in the bidding process, the company expects to close on the transaction in 2004.

Parmalat bonds continued their retreat, with a trader quoting the company's issues as having fallen to 44 bid from Wednesday's levels in the lower 50s.

The company said it is still in talks with the 18% owners of its Brazilian subsidiary, Parmalat Empreendimentos e Adminstracao, trying to renegotiate the put option that compels it to buy their stake back or face triggering a cross-default on a large part of its €6 billion of total debt.

Parmalat was supposed to have made the first part of that $400 million payment Wednesday and the remainder on Dec. 22.

The company's bonds have been on a roller-coaster ride since last week, when Parmalat failed to pay off a maturing €150 million bond its due date, raising investor fears of a liquidity crunch. Although the company eventually made the payment four days later, Standard & Poor's cut its debt ratings by an unprecedented 11 notches over a two-day span.

A trader said that Allegiance and Paramalat "were the exciting things going on today" among the distressed issues.

Another recently active name has been Solutia Inc., whose bonds fell sharply in response to the St. Louis-based chemical maker's Chapter 11 filing Wednesday.

In Thursday's dealings, Solutia's bonds "bounced back a little," a market source said, quoting its 11¼% notes due 2009 as having firmed to 87.5 bid from 86 previously, while its 6.72% bonds due 2037 and 7 3/8% bonds due 2027 were each up two points, to 41 bid and 40 bid respectively. Another trader, however, saw the junior bonds in a 39 bid, 41 offered context, down slightly on the session. The bonds were trading flat, or without accrued interest, in view of their bankruptcy filing.

He did see Solutia's euro-denominated 6¼% notes due 2005 hanging in at 103.5 bid, trading with interest - for the very simple reason that the company's European units were not included in the bankruptcy filing.

Revlon's 8 5/8% notes due 2008 were seen having firmed to around 50 bid from levels in the mid-to upper 40s previously.

Air Canada's bonds were seen unchanged at around the same "40-ish" level they've recently held; an appeals court in Canada quashed a challenge by one of the Canadian airline company's creditors to its proposal to sell a large stake in the airline to Hong Kong investor Victor Li.

Li's Trinity Time Investments has agreed to invest C$650 million in Air Canada in exchange for a 31% stake in the restructured airline.

Trinity's offer also envisions giving 20% percent to compensate creditors' claims, expected to be between C$8 billion and C$10 billion.

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