Parmalat bonds slide on admission of larger debt; Reliant steady despite CenterPoint-Genco news

By Paul Deckelman and Sara Rosenberg

New York, Jan. 26- Parmalat Finanzaria SpA's beleaguered bonds lost nearly half of their remaining value on Monday after the bankrupt Italian dairy products producer said that its total debt load was far larger than originally stated and said that earnings figures had been inflated. Elsewhere, there was little movement in Reliant Resources Inc.'s bank debt or bonds, despite the Houston-based energy operator's announcement late Friday that it would not exercise its option to acquire CenterPoint Energy Inc.'s 81% interest in Texas Genco Holdings Inc.

Parmalat's bonds, including its dollar-denominated 6 5/8% notes due 2008, which had been trading around the 18-20 range on Friday, fell as low as the 11-12 area on Monday, after a fresh audit of the company's tangled books ordered by its court-appointed administrator, found the company's total debt load to be €14.3 billion - over seven times more than the €1.8 billion of net debt which Parmalat claimed to owe in its most recent quarterly report. That report was released early in the fall, weeks before the accounting scandal which brought the company into bankruptcy exploded.

Besides badly understating its debt, Parmalat's former managers apparently also substantially overstated revenues and earnings; the new audit, by the PriceWaterhouseCoopers accounting firm, showed that EBITDA for the nine months ended Sept. 30 was just €121 million - far below the €651 million stated in the company report, while revenues of €4 billion euros were much less than the €5.38 billion the company had claimed.

While saying that the figures were subject to change, Parmalat acknowledged in a statement that the new audit "highlights significant differences compared to the figures reported in the group's consolidated financial statement on Dec. 31, 2002 and in the statement on Sept. 30, 2003."

Parmalat's house of cards began collapsing in early December, when it was unable to make a relatively small €150 million payment on a maturing bond in a timely manner, despite having claimed that it had well of €4 billion in the bank. The whole structure fell after just days later Bank of America said that a document claiming to certify that a Parmalat subsidiary did have €4 billion in an account was, in fact, a fake. It was meantime discovered that some €3 billion of bonds which supposedly had been already bought back in fact had not been, and estimates of Parmalat's true debt load began climbing.

Investigators have expressed theories that at least some of the previously unreported debt was linked to huge diversions of cash from the dairy company to tourism businesses owned by the founding Tanzi family. Company founder Calisto Tanzi - who has admitted diverting at least €500 million to his family-owned business - is among a number of former company executives now jailed and being grilled by prosecutors and other probers.

A distressed-debt trader exclaimed that the new figures show that the stricken dairy-products giant "has a lot of debt - and not a lot of value."

He saw Paramat's bonds fall to 11.5 bid.12.5 offered in London dealings from prior levels around 18 bid, 19 offered, and said that they had eased further in U.S. dealings, to around the 11 bid, 13 offered area, in "pretty quiet" trading.

Parmalat's bonds, he said, were not yet in the single-digits - but they were "getting close - unless they find some cash someplace."

Another trader likened Parmalat to WorldCom Inc., whose bonds "went from par, down to 70, and then down to 40, and then down to 10" after massive accounting fraud was discovered at the Ashburn, Va.-based telecommunications giant in 2002 and it was forced into bankruptcy (from which it is expected to emerge soon). Parmalat's bonds, he said, "can't fall much further;" he pegged them at 12 bid, 14 offered.

Reliant loans steady

Elsewhere Reliant Resources bank debt was little affected by the company's decision, announced late in the day Friday, that it will not exercise an option to purchase CenterPoint's 81% interest in Texas Genco Holdings Inc., a Texas-based electric generating company.

Reliant's move came as no surprise - it had said in early December that it was unlikely to exercise its option to buy the 81% cut of Texas Genco, citing the utility's heavy dependence on volatile natural gas prices.

With such a situation, "the exercise of the option would likely add substantial volatility to Reliant's earnings," said Reliant chairman and chief executive Joel V. Staff last month

Reliant's bank debt was said to be around the 98.5 area, according to a trader, who added, "I don't think the market moved. Monday's have always been very slow anyway."

On Friday, the paper was seen trading in a 98.625-98.75 context, and was reported to be relatively active on the potential sale of Reliant's New York state power plants and a rumored bond deal.

Reliant's bonds, meantime, "were up a little last week" on the New York asset sale talk and the bond issue buzz, "but didn't move much [Monday]." He quoted Reliant's 9½% notes due 2013 hovering at 112.5 bid, its 9 ¼% notes due 2010 were at 111.5 bid and its 12% notes due 2010 all the way up at 125.5.

Doman moves little

There was little movement seen in the bonds of Doman Industries Ltd., after creditors on Friday submitted plan to the court in British Columbia that would restructure the forest products company by converting its $750 million of debt into equity and refinancing $250 million in senior secured notes. Under the new plan, current equity holders, including the founding Doman family, would get nothing.

The plan was submitted, the creditors said, after it became apparent that no buyer would step forward to purchase the company.

Doman's 12% senior secured notes coming due on July 1 were being quoted at par, while its subordinated 8¾% notes coming due on March 15 and its 9¼% notes due 2007 were at 24 bid, about the same levels they've recently held.

Adelphia profits taken

A trader said Adelphia Communications Corp. bonds - which had firmed smartly last week on investor speculation that the Denver-based cable operator will soon be emerging from Chapter 11- were easier on Monday.

"They've had a great run," he said, but now, they're a little softer on profit-taking. He quoted Adelphia's bonds, and those of its Century Communications Corp. unit down half a point to a point, "while the convertibles got knocked back three or four points from their highs of last week."

Adelphia's 10 7/8% notes due 2007 were quoted around 101 bid.

And a trader saw Dan River Inc.'s 12¾% notes due 2009 "a little weaker," at 32 bid, 34 offered, down from 33 bid, 35 previously.

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