Finova seen steady as company repays Berkadia loan

By Paul Deckelman and Sara Rosenberg

New York, Feb. 9 - Finova Group bonds were seen holding fairly steady Monday, even as the restructured Scottsdale, Ariz.-based financial services concern announced that it had repaid a $5.6 billion loan from Berkadia LLC - and warned that it would likely not be able to fully pay off its bondholders and would likely have nothing in the way of distributions for its shareholders.

Elsewhere, distressed debt trading was seen quiet, with the junk bond market in general subdued as a major bond conference was going on in Colorado.

Finova said that its principal operating subsidiary, Finova Capital Corp., had fully repaid its $5.6 billion loan from Berkadia, a joint venture between financier Warren Buffet's Berkshire Hathaway, Inc. and Leucadia National Corp., who had gotten together in 2001 to front Finova the money it needed to emerge from bankruptcy.

Finova said that the Berkadia loan was scheduled to mature in 2006 but was repaid earlier due to accelerated collections from the company's liquidating portfolio.

It warned that that although the Berkadia loan has been repaid, Finova remains obligated to repay the $3 billion principal balance outstanding on its 7½% senior secured notes due 2009, using any excess cash to make the semi-annual principal payments

However, Finova cautioned that it does not believe that it has sufficient assets to fully repay this debt - and the indenture prohibits the Finova from engaging in any new business to boost revenues. As a practical matter, therefore, it intends to rely on the liquidation of its remaining assets as its only meaningful source of cash. The company believes that those senior notes will not be fully repaid and further warned that shareholders should not expect any payments or distributions from Finova.

Despite such bearish projections, a market source quoted the Finova 7½% notes as having firmed to 66 bid from 64.75 on Friday, perhaps on investor satisfaction that the Berkadia obligation no longer hangs over Finova's corporate head.

At another desk, a trader saw the bonds hanging around the same 65-66 context they'd recently held, declaring that "there's been no movement."

Pegasus holds around lower level

Elsewhere in distressed trading, a trader said that the bonds of Pegasus Communications Corp. "have been jumping around "on extremely thin dealings, with its zero-coupon notes in the same 75-77 bid context they'd seen on Friday, when DirecTV announced that it was terminating further attempts at mediating its dispute with Bala Cynwyd, Pa.-based Pegasus, which resells the satellite broadcaster's service to customers in rural markets. That caused Pegasus' bonds to fall more than 10 points and its stock to lose nearly a third of its value, since it virtually abolishes the chance that DirecTV would buy out Pegasus to settle the company's dispute over how much Pegasus's rural customers should be worth to DirecTV.

At another desk, a market source quoted Pegasus's 9 5/8% notes due 2005 a point better at 88, saying that "nothing else moved."

Winn Dixie Stores Inc. bonds continued to languish in the low 80s, the level to which the Jacksonville, Fla.-based supermarket operator's debt had fallen last month, from its prior levels above par, after it reported an unexpected quarterly loss.

Parmalat Finanzaria SpA's bonds were seen a bit easier, with the bankrupt Italian dairy products producer's dollar-denominated 8 5/8% notes due 2008 and its various issues of euro-denominated bonds at 10 bid, 12 offered, off about a point on the session.

A trader noted that the bankrupt Oakwood Homes bonds were lower on the session, its 7 7/8% notes due later this year and 8 1/8% notes due 2009 dropping as low as 43 bid from prior levels at 47 bid, 48 offered. The bonds were left offered at 46, with no bids seen.

And the news that music retailer Tower Records had filed for Chapter 11 status produced a yawn in the distressed debt market. A trader acknowledged that the company has some bonds out, but added that "they're too closely held. You never see them trade around."

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