RCN bonds firm smartly; Leap Wireless bank debt up again

By Paul Deckelman and Sara Rosenberg

New York, April 28 - RCN Corp. bonds were being quoted up as much as five points in Wednesday's session, not so much because there was any news out on the embattled Princeton, N.J.-based telecommunications and broadband operator as just positive sentiment among bondholders about the looming restructuring.

Elsewhere, Leap Wireless International Inc.'s bank debt continued to skyrocket with distressed traders quoting the paper at 108.5 bid, 109.5 offered on Wednesday.

Just to recap the sensational week that Leap has had, its bank debt started Monday morning at 98.5 bid, moved to 101.5 bid by Monday's close and then bounced to 105.75 bid, 106.75 offered by Tuesday's finish - so in just three days of trading, Leap's paper has taken a 10 point, well, leap.

"It's up because people think they are buying the overall business for a good multiple (i.e. 8x)...and getting the cash and spectrum for free," one trader explained, essentially agreeing with the overall market theory that presumed equity value of the bankrupt San Diego-based telecommunications company is a primary factor behind the rally.

From this inherent belief in a good equity value, yet another factor has been introduced as an explanation behind this week's rally - market technicals.

"Right now there's a lot of technical pressure. There's a lot of money looking at this as an equity play. Equity-type buyers that we didn't see in it when it was, like 98, are now getting involved," a trader said.

When asked what spurred these equity players to suddenly jump into Leap, the trader couldn't pinpoint any particular reason except to speculate that maybe they just started doing their valuation work and realized there was a lot of upside to the investment.

Most importantly though, as the bank debt keeps flying higher, one must wonder just how high levels can go.

"The number 120 has been thrown around," the trader said. "I've heard 110 too. It's hard to say."

"I heard the recovery value of the bank debt may be as high as 110 based on equity value," a different trader previously told Prospect News, although the trader also cautioned that "that could just be hearsay and based on a very quick analysis."

But while the bank debt has sizzled, Leap's junk bonds have fizzled, with a distressed-debt trader saying that he never saw them trading around.

A market source at another desk quoted the Leap zero-coupon notes due 2010 at 13 bid and its 12% notes, also due 2010, at 16, both unchanged on the session.

RCN gains

But if Leap was leaping on the debtholder hopes that the equity they expect to receive in the company's restructuring will be appreciating in value because of the attractiveness of Leap's Cricket Communications franchise, RCN bondholders are apparently entertaining similar notions about the likely prospects for their company, which has been talking with its bondholders and bank lenders about a consensual restructuring of its debt.

There was no firm news out about RCN on Wednesday, but that didn't stop its 11 1/8% notes from firming to 52 bid, 53 offered from prior levels at 47.5 bid, 48.5 offered.

A second trader also saw the move, pegging the company's 10% notes and 10 1/8% notes at a "52ish bid level," up about five or six points from previous levels in the 40s.

RCN has been in talks with its creditors about a possible restructuring via Chapter 11 since February, when it brought John Dubel of AlixPartners LLC on board as president and chief operating officer; Dubel had also played a key role in the recently completed restructuring of the former WorldCom Inc., which has been reincarnated as MCI.

Adelphia up more

Also in the communications sphere, Adelphia Communications Corp. bonds continued to firm Wednesday, continuing the momentum they've enjoyed over the past few sessions, as investors in the Greenwood Village, Colo.-based cable operator hope for a sale of part or all of the company - something management originally didn't want to do but now says it will consider.

A trader quoted Adelphia's convertible notes around the 56 bid level, up several points in the past few sessions, while at another desk Adelphia's 10¼% notes due 2011 were seen a point better at 110.5 bid, 111.5 offered.

An observer at another shop saw Adelphia's 10¼% notes due 2006 a little firmer around the 106 bid area. Adelphia's 9 7/8% notes due 2007 were seen up another point around the 108.5 level, while the 8 7/8% notes due 2007 issued by its Century Communications subsidiary were likewise a point better at 113.

There was news favorable to Adelphia circulating in the larger cable industry, where U.S. cable industry leader Comcast Corp. announced the end of its effort to acquire Disney Corp.

Comcast, now that it does not have to concern itself with Disney, may look for other acquisitions and it could find what it wants at Adelphia. Among the scenarios floating about the financial markets Wednesday was Comcast teaming up with one of the other large industry players, such as Cox Communications or Time Warner Cable to either buy Adelphia outright out of bankruptcy or to cherry-pick the Adelphia cable systems compatible with their own existing footprints.

Levi Strauss rises

Outside of communications, Levi Strauss & Co. Inc.'s previously battered bonds continued their recent comeback, with the San Francisco-based apparel maker's 12¼% notes due 2012 seen up nearly three points on the session at 90 bid.

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