Parmalat bonds collapse as €4 billion goes missing

By Paul Deckelman and Sara Rosenberg

New York, Dec. 19 - Italian dairy products processor Parmalat Finanziaria SpA's bonds swooned Friday after the troubled company reported that Bank of America Corp. was not holding some €4 billion of its funds - money which Parmalat had reported as in its possession at the end of September.

Elsewhere, Adelphia Communications Corp. bonds continued to firm, with investors talking about bondholders being made whole when the Denver-based cable operator emerges from bankruptcy.

The possibility of a €3.95 billion ($4.91 billion) hole in its accounts - a black hole that could suck Parmalat right into bankruptcy - sent its bonds plummeting down to bid levels about 27-28, well down from the mid-40s at which they had ended on Thursday.

"Parmalat got killed - that's the only way to put it," said a trader, who quoted its euro-denominated 6¼% notes due 2005 as having fallen to 28.75 bid, 30.75 offered, down from about 44 bid on Thursday.

"That was unpleasant," the trader said, with some degree of understatement. "I feel sorry for the guys who bought them yesterday" [Thursday] in the 40s, apparently feeling that it was a buying opportunity and that the worst was over.

The company's bonds have been on a slide to oblivion for more than a week, starting their plunge after Parmalat failed to pay off a maturing €150 million bond on its Dec. 8 due date, raising investor fears of a liquidity crunch.

Although the company had claimed to have €4.2 billion in cash or equivalents at the end of September, its apparent inability to make a relatively small €150 million bond payment raised red flags.

While 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, dropping them to CC from BBB- and raising the idea that Parmalat had misled investors and the ratings agency about how truly shaky its financial condition actually is.

Having dodged that bullet, Parmalat moved on to the next challenge - it had to make the first part of a $400 million payment to the holders of 18% of its Brazilian unit, Parmalat Empreendimentos e Adminstracao, to buy back their stake by Wednesday, with the remainder of the money due on Dec. 22.

Parmalat entered talks with the investors and managed to avoid paying the first part of the payment as it tried to get them to not exercise their put option. Failure to buy back the stake could mean triggering a cross-default on a large part of its €6 billion of total debt.

But with Parmalat watchers wondering why it could not afford the $400 million repurchase if it supposedly had €4.2 billion in the bank, the bonds, which had bounced part of the way back up from their lows after the €150 million bond was paid off, fell again.

The slide was accelerated after Friday's announcement from Parmalat - words to the effect that B of A had disavowed the authenticity of a document saying that a Parmalat subsidiary, Bonlat Financing Corp., held €3.95 billion in cash and cash equivalents in an account there as of Dec. 31, 2002.

Where the money is if it is not at B of A - or even whether exists at all - remains to be seen. In the meantime, the company's bonds, including its one dollar-denominated issue, the 6 5/8% notes due 2010, "fell to even lower levels, in the mid 20s," the trader said. "Then people bid them up to just south of 30."

Elsewhere, WorldCom Inc. bonds were being quoted around the 32.5-33 bid level, while those of its MCI long-distance unit were hovering around 80.

"WorldCom got its butt kicked" during the week, a trader said, noting that its bonds had traded as high as 35.5 earlier in the week before coming back down.

After the market close Monday, WorldCom said that for October it recorded $1.977 billion in revenue, essentially flat with September revenue of $1.951 billion. The company had a net loss in October of $194 million.

The net loss reflects a $102 million increase in miscellaneous expense primarily from prior period transactions, as well as a decline in the company's operating income.

In October, WorldCom reported an operating loss of $35 million.

Also on the telecommunications front, Allegiance Telecom's 12 7/8% and 11¾% notes, both due 2008 both "got mowed" Thursday, a trader said, falling to 32 bid, 33 offered from prior levels around 40 after the announcement that Qwest Communications International Inc. had agreed to buy substantially all of its assets for $300 million cash and $90 million in new convertible debt. With Dallas-based Allegiance in bankruptcy, the Qwest offer becomes a stalking horse bid that could be topped if other buyers come forward with bigger offers.

On Friday, the trader said, the Allegiance bonds rebounded a bit from Thursday's closing lows to finish at 35 bid, 36 offered, "up two points on the day - but still down about five points from where they were before."

The company's bank debt, meantime, was still being quoted at 98 bid, 99 offered, unchanged from Thursday's levels; the paper was not seen trading around on Friday.

Adelphia Communications' bonds were up again "though I don't know why," the trader said, quoting Adelphia's 10¼% notes as having firmed to 92 bid, 94 offered from 87 bid, 89 offered on Thursday, and its 10 7/8% notes as having moved up to 90 bid, 92 offered from 88 bid, 90 offered Thursday.

Told about speculation that Adelphia might soon come out of bankruptcy and pay off its bondholders at par or above - speculation that moved the bonds a good four to six points on Thursday as well - he said that "if that's the case, they're gettin' there."

Outside of the communications sphere and back among the old-line industrials, Weirton Steel's 10% senior notes due 2008 were little changed at 51, while its 10¾% notes due 2005 and 11 3/8% notes due 2004, both subordinated issues, were languishing at 7.

International Wire Group's 11¾% notes due 2005 were down half a point at 62.

And Solutia Inc.'s bonds, which had fallen sharply earlier in the week when the St. Louis-based chemical maker and former Monsanto Co. unit declared bankruptcy, remained around those lower levels. Its 11¼% notes due 2009 were quoted at 80 bid, its 7 3/8% bonds due 2027 were at 40 and its 6.72% bonds due 2037 were at 35, even though they are putable back to the company in 2004, a market observer said. "You'd think that they would be trading like a short-term bond because of that," he said, "but they weren't."

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