Goodyear rebounds on better audit results than expected; Charter bonds firm; Weirton up

By Ronda Fears

Nashville, April 12 - Goodyear Tire & Rubber Co. released results from its internal audit and said it estimates it will adjust earnings back to 1997 downward by $65 million. The news was better than expected for market participants, who sent Goodyear bonds up about 3 points.

Ongoing chatter in the cable sector stemming from analyst comments on the Comcast Corp. bid for The Walt Disney Co. was providing optimism throughout the group Monday, and traders noted all the Charter Communications Inc. bonds participated with firm bids.

Weirton Steel Corp. traded a bit higher, too, as there were two competing bids participating in the bankruptcy auction Monday, although the results are not expected until a hearing Wednesday.

aaiPharma Inc.'s bonds were unseen, however, after announcing Monday that it has procured a new $135 million two-year credit facility.

Calpine also was unchanged on earthquake news, with the 8½ bonds at 74 bid, 75 offered, following Associated Press reports that a moderate earthquake shook parts of western India on Monday night but caused no damage or injuries. The independent power producer has operations in India.

New World Pasta Co. didn't see any action, either, traders said, on news that it is in default on its credit facility, as possible exchange negotiations between the company and bondholders continued regarding the defaulted bonds.

Air Canada bonds were quiet, too, with no rumblings on a potential savior for the bankrupt airline to stir players.

It was a quiet day overall on most desks, however.

Goodyear bounces on audit

Goodyear, the Akron, Ohio, tire maker, announced the findings of its internal audit, and while there is still a government probe going on, the results were not as anticipated.

Because the company will not file its 2003 10-K by April 19, as required in its loan agreements, Goodyear said it is in discussions with lenders to extend the deadline by 30 days and in the absence of an extension, it would not be able to access the credit lines.

If Goodyear does not file financials by May 19, there could be an event of default under the loan agreements and thereafter under other debt instruments.

Still, Goodyear bonds were about 3 points higher on the short end. The 6 5/8% issue due 2008 was at 99.5 bid, 100.5 offered, gaining from 96.5 bid, 97.5 offered. And, the 7?% due 2011 rose to 87.5 bid, 88.5 offered from 84.5 bid, 85.5 offered.

Goodyear shares saw heavy volume, too, pushing the stock higher by 40 cents on the day, or 4.63%, to close at $9.04.

Goodyear announced Monday that the investigation into its overseas accounting has been concluded and on a preliminary basis it is expected that the reduction to net income between 1997 and 2003 identified through the investigation will total about $10 million, with most of it impacting the company's European Union operations.

With additional adjustments disclosed in its September 10-Q, the total reduction in net income between 1997 and 2003 is about $65 million. In addition to the $10 million just disclosed, the adjustments include $20 million related to workers compensation claims, $10 million to fixed assets, $8 million to product liability, $7 million to intercompany profit elimination in inventory and $10 million to other items.

Goodyear plans to file its 2003 10-K and its amended 2002 10-K by mid-May.

"This investigative process was thorough and we are pleased to have it behind us," said Robert W. Tieken, executive vice president and chief financial officer, in a prepared statement. "We look forward to issuing our financial results and refocusing all of our energies toward Goodyear's ongoing turnaround efforts."

The accounting investigation was requested by an internal audit committee and announced on Dec. 10. On Feb. 11, the company said it was extending the investigation from Europe to other overseas operations. On March 9, Goodyear reported that it took disciplinary actions against several senior managers in its European Union operation in connection with the investigation.

Goodyear said it continues to cooperate fully with the Securities and Exchange Commission in its review of the company's 2003 restatement of prior-period financial results.

aaiPharma gets new facility

aaiPharma announced Monday that it has executed a commitment letter for a new $135 million two-year credit facility with Silver Point Finance as underwriter and Banc of America Securities as sole arranger.

"We look forward to working with Silver Point as our financial partner," stated Interim Chief Operating Officer Gregory F. Rayburn.

"As an alternative to the previously announced $40 million priority revolving credit facility, this global financing solution will strengthen the company's capital structure and position aaiPharma to immediately resume executing its business plan as a science-based pharmaceutical company."

The stock dropped sharply, but traders at several distressed bond desks said the bonds were nowhere to be seen in the slow session Monday.

aaiPharma stock closed down 61 cents, or 8%, to $6.96. The shares of the Wilmington, N.C.-based maker of pain management drugs have fallen steadily and dramatically since hitting a new 52-week high of $31.85 on Jan. 21.

The new facility is subject to the consent of a majority of the holders of the company's 11% senior subordinated notes due 2010. In conjunction with proceeds from pending sale of its M.V.I. and Aquasol product lines, the facility will replace the existing senior revolving and term debt facilities.

Consent solicitations, for bondholders as of 5 p.m. ET April 7, began last Thursday and will expire at 5 p.m. ET on April 16, unless extended.

Standard & Poor's said Monday that aaiPharma's CCC bond ratings will remain on watch with negative implications, noting ongoing cash flow pressure.

"While the proposed transactions would remove aaiPharma's immediate liquidity pressures, the company's earnings and cash flow generation prospects are highly uncertain given aaiPharma's aggressive sales practices, which have resulted in an excess wholesaler inventory of drugs," said S&P credit analyst Arthur Wong.

"Indeed, the company's cash flow from operations will likely be negative for the first half of 2004 and possibly beyond, and liquidity will remain very tight."

aaiPharma in March was unable to file its already delayed 2003 10-K within the 15-day extension period and was barred from making a $9.6 million interest payment on its senior subordinated notes on April 1.

Earlier this month, aaiPharma revealed that it received grand jury subpoenas for documents and potential testimony relating to 2002 and 2003 financial reports, sales of certain key products, corporate officers' public comments about the company's financial health, loans to the company and terms of employment for some senior managers.

Those subpoenas were issued by a federal court in North Carolina, and the company said court officials said aaiPharma may receive subpoenas from the SEC as well.

New World Pasta in default

New World Pasta Co. said it received a notice of default from The Bank of Nova Scotia, the lead arranger, administrative agent and collateral agent for its credit facility, on its failure to make $425,000 of mandatory principal and amortization payments on the facility.

As a result, the Harrisburg, Pa.-based pasta manufacturer is barred from making any payments on its senior subordinated notes under the notice.

But traders said there was no action in the 9¼% notes due February 2009, chiefly as the company is in active discussions with holders about exchanging the notes for new notes. New World Pasta previously said that it would not make the coupon payments scheduled for Feb. 15 and Aug. 15 on those bonds.

Now, the company is also in discussions with lenders under the credit facility about that default as well. Last year the company needed waivers from its bank lenders because it filed financial reports late.

Weirton on auction block

Weirton's assets were officially on the bankruptcy auction block Monday and it was a live auction in the sense that there were at least two competing bids, although the results are not to be discussed until a hearing Wednesday.

In any event, traders said the Weirton bonds traded up a couple of points into the mid to high 30s and low 40s, buoyed by hope of a better recovery rate with more than one bid involved in the process. But traders noted that there were only a few small trades.

The Weirton 10% due 2008 was 41 bid, 44 offered, gaining from 37 bid, 39 offered last week.

On Friday, the informal committee of holders of Weirton senior secured notes and pollution control revenue bonds said they submitted a qualified bid to compete against the so-called vulture bid from International Steel Group.

"The Noteholders Committee believes its bid to be superior to the competing bid both in terms of cash value and recovery to creditors," committee representatives said in a prepared statement on Friday. "The Noteholders Committee reiterates its commitment to operate the business long-term, make important capital improvements to Weirton's facilities, and protect as many unionized jobs as possible."

International Steel Group's bid is for $255 million - $158 million in cash plus $97 million in assumed debt.

The noteholders submitted the minimum allowed bid of $261.24 million, which had been set as a threshold by the bankruptcy court. The noteholders' bid consists of $138.74 million in cash, credit of $25.5 million and $97 million in assumed debt.

Charter firms on cable chatter

Charter's bonds saw some action Monday as chatter heated up again in the cable sector with comments about the Comcast bid for Disney stirring the pot.

Banc of America Securities equity analyst Doug Shapiro said in a research note that he's "increasingly convinced" that Comcast will ultimately abandon its $66 billion bid for Walt Disney Co. He upped Comcast stock to a buy with a $41 target and that created optimism that spread throughout the cable group.

Charter went along for the ride. One trader said all the Charter bonds firmed a bit and were well bid. He mentioned the 8¼% bonds due 2007 trading in the high 90s. Charter shares, however, gained slightly but volume in the stock was very low. The stock closed up 8 cents, or 1.78%, to $4.57.

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