Solutia gains on loan news, Fleming off in quiet dealings; loan auctions excite market

By Paul Deckelman and Sara Rosenberg

New York, Jan. 16 - Bonds of Solutia Inc. were seen firmer Friday, as the St. Louis-based chemical company won bankruptcy court approval for a $525 million debtor-in-possession loan, which will replace a current facility. Bankrupt grocery products distributor Fleming Cos. Inc.'s bonds were notably lower than recent levels, although no immediate cause was seen for the easing.

There was meanwhile a flurry of excitement in the distressed bank loan market Friday, as two bank debt auctions kicked off - one for Teco Energy/Panda Energy's debt and one for Exelon - causing a mini-frenzy amongst potential buyers in this otherwise hard to find paper market, according to a trader.

"They're trading in the low 60's on both names. They're both having bank debt auctions. There's a bank seller and all the distressed guys are chasing it," the trader said.

Back among distressed bond players, the general consensus was that Friday's activity was extremely quiet, with the bond market closing early (2 p.m. ET) ahead of Monday's Martin Luther King Day federal holiday, which will close the debt markets completely.

Some recently active distressed bond names were seen little changed on Friday; for instance, Exide Technologies Inc.'s 10% notes, which have run up sharply since the beginning of the new years, to around 29 bid from prior levels as low as two or three cents on the dollar before a bondholder-friendly ruling by the judge supervising its bankruptcy case, were seen continuing to hold to their recent bid levels around 29.

Bankrupt long-distance telecommer MCI Inc.'s WorldCom Inc. bonds were still hanging around the 36.5 bid level, while the bonds of the company's eponymous MCI long-distance level continued to hover around 81.5-82. There was little or no market response to the Ashburn. Va.-based company's announcement that during November, MCI recorded $1.79 billion in revenue, down sequentially from $1.98 billion in October. MCI attributed the decline to the fact that November had fewer business days during the month and also cited non-recurring equipment sales in October.

However, it said, November's operating loss of $21 million was $14 million better than October, with lower access costs and an accounting change of $144 million which more than offset the lower revenue levels.

MCI had a net loss in November of $23 million, an improvement of $171 million from October. The improvement resulted from lower restatement items compared to October.

And Italian dairy products producer Parmalat Finanzaria SpA's dollar-denominated 6 5/8% notes due 2008 and its various issues of euro-denominated debt were seen holding steady in the 23-25 range, "no big change there."

Solutia moves higher

Among the few distressed bond names that were actually moving, Solutia "was up a couple of points," a trader said, quoting the company's 11¼% senior notes due 2009 at 95 bid, 96 offered, while its 6.72% debentures due 2037 were at 46 bid, 48 offered.

The bonds apparently moved up in anticipation of the approval of the DIP facility by the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan, since the formal announcement of the approval did not come out until late in the day Friday, after the debt markets had closed.

The new credit facility is being provided to Solutia by a group of lenders led by Citibank. Of the $525 million being loaned, $350 million will replace its pre-bankruptcy credit facility, $75 million its current DIP and $100 million will be available as new liquidity.

The trader also saw RCN Corp.'s bonds still hanging around the mid-50s, after the Princeton, N.J.-based broadband provider's decision to not pay the $10.3 million interest payment on its 10 1/8% senior notes due 2010. RCN instead invoked the standard 30-day grace period while it continues attempts to negotiate a debt restructuring.

The decision to not immediately pay the coupon "is probably better for the bonds, bad for the stockholders," since RCN's aim is to restructure all of its debt into new equity. "Essentially, the bondholders will get paid par, the stockholders will get wiped out."

He noted that billionaire telecommunications investor Paul Allen recently "sold his stock at 50 cents, or sold a chunk of it. Why this stock is still trading at $1.11 or $1.12 is beyond me." (RCN gained 12 cents, or 10.13%, in Friday's dealings, to close at $1.27).

He likened RCN's situation to what happened to Kmart Corp. stockholders when the Troy, Mich.-based discount retailer restructured last year.

"I knew guys buying Kmart stock for 10 cents just before they finished coming out of bankruptcy - paying 10 cents [per share] for something that in two weeks was going to be worth zero. Then they got upset when they got wiped out."

Elsewhere, a trader saw the bonds of Fleming Companies "very quietly down six or seven points" to bid levels around 17.5 bid, 19.5 offered, well down from 24 bid, 26 offered previously. He did not see any news to justify the easing.

The trader also saw the bonds of film and imaging maker Polaroid lower, offered in the 25-26 area from recent bid levels at 26.

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