Exide plan rejection sparks 12-point gain; Parmalat, Adelphia participate in stronger market

By Ronda Fears

Nashville, Jan. 5 - The rejection of battery maker Exide Technologies Inc.'s reorganization plan sparked a 12-13 point gain in those bonds Monday on hopes that it will be a boost to recovery rates.

Overall, though, traders said the distressed market got a jump-start on the New Year from new money in the sector.

"It's the beginning of the year so everything's up a little bit," one distressed trader said.

"More people are looking for distressed names, paper and there's not a lot of out there."

One trader said the new capital might be directly related to Italian dairy giant Parmalat Finanziaria SpA crossing into distressed pastures in recent weeks after its high-grade status utterly collapsed amid allegations of fraud.

Thus, Parmalat's bonds were up 2 to 3 points.

Adelphia Communications Corp. saw a similar gain, as did most of the distressed bond market, across the board, traders said.

"It was pretty dead. There's a lot of cash out there, a lot of high yield buyers crossing over into distressed and looking to buy," one trader said.

"The market definitely was a lot stronger today but just not a lot of trading."

Exide was the big mover of the day, however.

On New Year's Eve, Exide Technologies announced that the bankruptcy court refused to confirm its plan of reorganization.

In rejecting the plan, the court largely agreed with unsecured creditors, which overwhelmingly rejected the plan, saying that the plan undervalued the company.

The court ordered the parties to restart negotiations and to report back at a hearing on or before Jan. 22. Exide filed bankruptcy on April 15, 2002.

Craig H. Muhlhauser, chief executive of Exide, said in a news release that the company believed it had secured the necessary extensions in its DIP financing and standstill agreements to provide sufficient time to negotiate a consensual plan.

Bankruptcy judge Kevin Carey estimated in a court report explaining his decision to reject the plan that Exide's enterprise value was $1.4 billion to $1.6 billion. That compares with $1.48 billion to $1.71 billion estimated by unsecured creditors. Under the plan, the company estimates it at $950 million to $1.05 billion.

On Monday, the first really busy trading of the year in most of the markets, distressed traders pegged the Exide bonds at about 16 bid, 17 offered, up 12 to 13 points on the day.

Exide's bank debt was not really seen changing hands on Monday, according to a trader, who estimated that levels remained steady around 70.

"It's locked up by two big guys," the bank loan trader said in explanation of why the paper was probably inactive.

"I think it's more of a delay. They'll throw [bondholders] a bone and that will be it," the trader added, referring to negotiations for a new reorganization plan.

Exide's proposed $550 million senior secured exit financing facility (Ba3/BB-) was unchanged by the news also, according to a source close to the deal. Deutsche Bank Securities Inc. and Credit Suisse First Boston are joint lead arrangers on the loan.

The facility consists of a $150 million six-year term loan, $150 million six-year foreign term loan, €150 six-year term loan and $100 million five-year revolver - all priced with an interest rate of Libor plus 400 basis points.

Parmalat - with its sexy headlines like "Parmalat fraud probe widens to Italian, foreign banks" - did not go unnoticed in the market, however.

While the headlines were fodder for some of the gain, one trader said the Parmalat bonds were only "quasi-active" so probably most of the firming was just a by-product of a stronger market.

Parmalat's dollar-denominated bonds were quoted up 2 to 3 points, but still in the low 20s.

The paper, which a month ago carried an investment-grade rating and traded near par, tumbled as low as 14 in recent days, following accusations of massive accounting fraud and a subsequent bankruptcy filing in Europe.

"A lot of people are confused about where to value the bonds," since it's so early in the company's financial entanglement, said one dealer.

Acknowledging that early into a bankruptcy case or severely distressed situation it is always a matter of contention as to what recovery rates are likely and, thus, where the bonds should be valued, the trader added, "But when you have massive fraud, it becomes a lot more unclear."

Italian officials have been interrogating upper executives at Parmalat - eight of which have been arrested - in an effort to track down some €10 billion, or $12.7 billion, believed to be missing from the multinational group's corporate coffers.

The search apparently extended to Parmalat's bankers Monday, according to international reports such as those in the Agence France Presse.

Parmalat itself is expected to spread its efforts to defend "inevitable" claims in the United States, as one trader put it, by hiring bankruptcy lawyers in the United States this week. He said media reports speculated that the New York-based firm of Weil Gotshal & Manges, which lead high-profile cases such as Enron Corp. and WorldCom, would be Parmalat's choice for representation.

A parallel bankruptcy case in the United States is largely anticipated, the trader said.

Elsewhere, Adelphia Communications Corp., which also was driven into bankruptcy in 2002 under similar circumstance, added "a point or two," which one trader also attributed to the overall strong tone in the distressed market.

Adelphia bonds were in the 98 area, with subsidiary paper around 107. Adelphia's Century loan moved to levels of 94 bid, also up about a point on the day.

The Denver-based cable company was the subject of a Reuters article that linked buzz about Adelphia being a takeover target in 2004 to a surge in the bonds.

Several traders said there was not a lot of activity in the Adelphia bonds, however, and one added that takeover talk "has yet to sprout legs," meaning that nothing as solid as negotiations has developed.

The distressed bank loan market was generally up across the board on Monday, as well, again for no specific reason, according to a trader.

Names like Mirant Corp., WorldCom Inc., Reliant Resources Inc. and Conseco Inc. were all quoted higher in the bank loan market, and were relatively active.

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