Weirton Steel bonds firmer; loan market quiet

By Paul Deckelman and Sara Rosenberg

New York, March 19 - Bonds of Weirton Steel Corp. were being quoted about a point or two higher Friday, although trading was thin and no fresh news was seen out on the bankrupt Weirton, W.Va.-based integrated steel producer.

Elsewhere, things were seen very quiet, with traders citing a combination of factors, including the intimidating effect of Wall Street's "quadruple witching" - equity options, single-stock futures, index options and index futures all expired, with predictable effects on market volatility; more snow in New York and other Northeastern points, albeit a relatively light dusting; a well-attended JP Morgan conference; the fact that it was Friday, and last but certainly not least, "March Madness," with the college basketball championship playoffs being televised.

A trader in distressed bonds noted that Weirton's bonds were at 40 bid Friday, "a little higher" than recent levels, he said.

Another trader noted that the company's bonds "had been on a little ride" of late, cascading down from recent highs in the 60-61 range after financier Wilbur Ross, whose International Steel Group Inc. wants to buy most of Weirton's assets, indicated that he thought the company's debt was worth only about 20 cents on the dollar.

Ross' company has recently been buying up the assets of failed old-line steel producers such as Bethlehem Steel Corp. and LTV Corp. at bargain-basement prices, creating one of the largest producers in the restructured U.S. steel industry, second only to industry leader United States Steel Corp. in total output capacity.

In February, ISG agreed to buy the Weirton assets for $158 million in cash plus assumed debt, with the deal's total value estimated at $255 million. ISG also came to a tentative labor accord that would facilitate the purchase with the Independent Steel Workers Union, which represents Weirton's more than 3,000 employees. The union has not released specific details about the tentative contract but confirmed that job cuts would be part of the deal. It also indicated that it is pursuing a pact that parallels the standard steel industry contract.

A group of senior bondholders, feeling that Ross's deal gives them short shrift, recently announced that they had hired steel industry expert John Correnti of International Steel Associates to help put together an alternative plan to restructure the company.

The trader said that the Weirton bonds, which had traded down as low as 33-34 earlier in the week, bounced back up to around 41 Thursday before coming down from that level to go home at 36 - still up from the recent lows.

"People think there will be a better bid for the company," perhaps from the rebellious bondholder group or from other source, "and they'll tell Wilbur to stuff it," he said.

He suggested - tongue in cheek - that while the bondholders would, of course, like to get par value for their bonds, Ross could perhaps "split the difference, offer them 70, and make everyone happy."

On the bank loan front, a trader called Friday's session "a very quiet day. Nothing has really changed. There's just nothing out there."

Allegiance notes firm

One of the few features in that market was Allegiance Telecom Inc., which on Thursday had filed its disclosure statement and reorganization plan with the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan,

A trader said its bank debt continued to be quoted at 99 bid, par offered on Friday, unchanged from previous levels.

However, a junk bond market source saw the company's 11¾% notes due 2008 as having firmed to 45.5 bid Friday from prior levels around 43.

Allegiance, a Dallas-based competitive local exchange telecommunications carrier, sought protection from its junk bond holders and other creditors in May 2003.

On February 13, 2004, Allegiance selected XO Communications Inc. - itself a formerly bankrupt telecom operator, now controlled by billionaire investor Carl Icahn - as the winning bidder to purchase substantially all of the assets of Allegiance and its subsidiaries for about $311 million in cash and some 45.38 million shares of XO common stock.

The bid was approved by the court on Feb. 19, and is currently undergoing certain federal and state government approvals, which are expected to be in place by mid-April.

Allegiance anticipates that once those federal approvals are received, Reston, Va.-based XO will run the Allegiance business under the terms of an operating agreement until final closing.

While XO will purchase "substantially" all of Allegiance's assets and those of its subsidiaries, including the stock of Allegiance's regulated operating subsidiaries, it will not purchase Allegiance's customer premises equipment sales and maintenance business operated under the name of Shared Technologies, its dedicated dial-up access services business with Level 3 Communications Inc., and certain other Allegiance assets and operations.

Allegiance recently announced that it reached a settlement with Level 3, a Broomfield, Colo.-based fiber-optic telecom network operator; subject to approval of Allegiance's bankruptcy judge and other conditions, the settlement would terminate a multi-year contract Level 3 has to purchase wholesale dial-access services from Allegiance, including the use of operating equipment. Under terms of the settlement, Level 3 has agreed to pay Allegiance $54 million in cash in exchange for the contract and certain associated assets dedicated to the contract.

Allegiance said Friday that with the sale to XO and the settlement agreement with Level 3, its remaining operations consist of its Shared Technology customer premise equipment installation and maintenance business and the Allegiance shared hosting business. It plans to operate the Shared Technology business as a free-standing enterprise, with the stock to be held for the benefit of Allegiance's creditors, or distributed to them. Allegiance is in the process of selling its shared hosting business.

Revlon Consumer Products Corp. bonds were little changed on Friday, the day the troubled New York-based cosmetics maker's previously announced debt-for-stock exchange for several series of its bonds was scheduled to conclude.

Revlon's 8 1/8% and 9% senior notes due 2006 were pegged at 98 bid, and its 8 5/8% senior subordinated notes due 2008 were at 88 bid.

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