Salton 121/4s recover 2.5 points; RCN, Levi paper both better; Pegasus pegged 1.5-3 points lower

By Ronda Fears

Nashville, May 26 - Distressed bond traders bemoaned a quiet market Wednesday that resulted from a barrage of events such as the heightened terrorist threats to the United States over the summer and the upcoming three-day Memorial Day weekend.

The lack of any news as a catalyst to traffic distressed paper also contributed to the ultra-slow session.

"This has been one of the worst days we've ever had," said a distressed bond trader at a sellside shop that is typically among the busiest.

Pegasus Communications Corp. bonds backtracked by 1.5 to 3 points from levels seen Tuesday as faith faded in recovery levels, but notable moves to the upside were seen in Salton Inc., RCN Corp. and Levi Strauss & Co. bonds. The Levi 12¼% bonds due 2012 were quoted up about 2 points to 91 bid, 92 offered but, as with most other active issues, there was no news on which to pin the movement.

In distressed bank loans, Calpine Generating Co. LLC was in the camp ending the day on higher ground, along with Federal-Mogul Corp., while Huntsman Corp. bank paper was in the losers' camp.

Salton 12¼% rises to 61.5

Salton bonds posted losses for most of the past two weeks, following worsened quarterly results and news of breaking financing covenant thresholds, but the longer paper with the fatter coupon got a nibble Wednesday that pushed the 12¼% issue up about 2.5 points.

Salton bonds ticked up for a couple of sessions last week following a string of losses after the Lake Forest, Ill.-based maker of the George Foreman hotdog and hamburger grills and other small appliances took a beating on the earnings and financial covenants news.

On Wednesday, a distressed trader said the Salton 12¼% issue rose to trade at 61.5 from a level of 60 bid, 62 offered - where the issue had been sitting since almost a week ago. The Salton 10¾% notes due 2005 were not mentioned; that issue was seen at 65.5 bid, 67.5 offered late last week.

There was no news on Salton on the tape Wednesday, the trader said.

"It looks like someone may be taking a position [in Salton bonds] with the thinking that they will get an amendment with the banks and that paper would then go to par," he said. "There have been rumors off and on for several weeks in the market that there will ultimately be a bank bailout of the company."

Since reporting quarterly results in early May, Salton has been in talks with lenders to amend its credit agreements regarding covenant violations resulting from weakened financial measures. The company also retained Ernst & Young Corporate Finance LLC to help negotiate with lenders.

RCN bonds better by 2 points

As June 1 approaches - the deadline of the latest extension to RCN Corp.'s forbearance agreements with senior lenders and noteholders committee - RCN bonds ticked up a couple of points Wednesday, a distressed trader said. But, he added that all the bonds continue to hover around the 50 mark.

"All of these [RCN bonds] have just been see-sawing a point or two at a time, right above or below 50," intermittently for some time, the trader said. "This could be a vote of confidence that some sort of accord has been struck or just speculation."

Another dealer quoted RCN paper better by about 2 points at 51 bid, 53 offered.

Earlier this month, RCN's 10% notes due 2007 were at 52 bid, the 9.80% notes due 2008 at 52.5 bid, the 11% notes due 2008 at 51 bid, the 11 1/8% notes due 2007 at 52 bid and 10 1/8% notes due 2010 at 52.5 bid.

Princeton, N.J.-based RCN, which provides bundled cable, phone and internet services to consumers in the so-called "last mile" in seven of the top 10 major markets in the United States, has extended the forbearance agreements several times. The company has been working to restructure its debt for some time, and reported March 31 that it had cut its debtload by more than $1 billion in the last three years.

RCN previously missed payments on four of its bond issues and has said that if the bonds and its credit facilities were accelerated it would not have the cash to pay them all in full.

The company anticipates a bankruptcy filing that would involve a debt-for-equity swap.

Key investors in RCN, which was founded in 1997, are Level 3 Communications, Vulcan Ventures (Paul Allen), Walter Scott Jr. (including holdings of Red Basin LLC), Hicks Muse Tate & Furst and Wells Fargo, according to the company.

Pegasus bonds spring a leak

Pegasus bonds lost anywhere from 1 to 3 points Wednesday, which one distressed trader said could be a matter of faith being shaken among holders or someone making an opportunistic exit on recent gains in the paper.

There was no news in the name Wednesday after Pegasus earlier this week again cautioned investors in an SEC filing that it may be forced into bankruptcy due to the $62.6 million judgment against it in the lingering battle with DirecTV.

The Bala Cynwyd, Pa.-based rural satellite television broadcaster's 11¼% notes were quoted down about 1 to 2 points at 53 bid, 56 offered and the 13½% notes off by about 3 points at 20 bid, 24 offered.

Pegasus Communications shares, however, on Wednesday gained 35 cents, or 2.15%, to close at $16.60.

On Tuesday, distressed traders said Pegasus bonds were up anywhere from 3 to 5 points from recent lows. However, that was before the market got the news about the company's 8-K filing late Tuesday with the SEC containing details of the DirecTV judgment and yet another bankruptcy warning should it be unable to come up with funding and its creditors be unwilling to waive defaults.

Bankruptcy concerns have been floating around for weeks as a result of the breach of contract battle with DirecTV.

Late Monday, Moody's cut Pegasus' senior implied rating to Ca from Caa1 and the senior secured bank debt rating for subsidiary Pegasus Media & Communications to Caa1 from B3 to reflect recovery levels in the event of a default under its credit facilities and bonds due to the judgment.

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