Pegasus bank loan active, though stable; bonds gyrate ahead of filing; Northern Oil up

By Paul Deckelman and Sara Rosenberg

New York, June 2 - Pegasus Media & Communications Inc.'s term loan D traded actively on Wednesday - hours before the Bala Cynwyd, Pa.-based distributor of satellite television programming sought protection under Chapter 11, seeking to prevent the National Rural Telecommunications Cooperative and DirecTV from terminating the company's exclusive right to distribute DirecTV's programming to customers in its service area.

Earlier in the day Pegasus had been given notice by the NRTC terminating Pegasus' exclusive distribution arrangements. Pegasus at the time said it was mulling its options but clearly indicated that it would not take the action lying down. The company announced the Chapter 11 filing several hours after the financial markets had closed.

Pegasus Satellite Communications Inc.'s bonds, meantime, gyrated sharply before ending higher on the day in nominal terms, although traders said the bonds were now trading flat, or without the accrued interest - in apparent anticipation of the bankruptcy filing - so that levels aren't fully comparable to where they were on Tuesday, when they were still trading with interest.

DirecTV made a cash offer to Pegasus-payable in either a lump sum or in monthly payments - if Pegasus were to agree to an orderly transfer of its subscribers to DirecTV, to be completed before Aug. 31.

With that news out on the tape, the company's tranche D loan was quoted at 99.25 bid, 99.75 offered, basically unchanged on the day, when compared against the 99.25 bid, 100.25 offered level where the paper went out on Tuesday, according to a trader.

"[This] offer on the table would imply par recovery for all the bank debt," the trader added.

Pegasus Satellite's bank debt, however, was not seen quoted in the secondary, with the trader explaining that the term loan D was active since it is more liquid than the Satellite debt.

The company's bonds, meantime "were on a roller-coaster!" in the words of one trader.

Another said that Pegasus' bonds "saw the most action [Wednesday]," quoting the company's 11¼% notes due 2010 as having opened at 48 bid, 50 offered, and now trading flat. In nominal terms, that was actually up slightly from their Tuesday close around 46 bid, 48 offered, although the trader said that since they had previously been trading with several points worth of interest, but now were not, the levels are not really comparable.

He saw those bonds trade up to 54 bid, "and then they melted down," back down to 48. But the bonds finished the day at 55.5 bid, 56.5 offered.

"They were very volatile," he continued, "because there was a lot of news out on them. I don't know how actively traded they really were, but there were a lot of markets, a lot of quotes. They were a moving target."

He said he really hadn't seen much of the other Pegasus bonds; only the 11¼%, at a size of $340 million, is really liquid enough to have a lot of investor interest. "The others are mostly less than $100 [million]."

He said that the Pegasus 13½% notes due 2007 were at 19 bid, 21 offered, about the levels they held on Tuesday and "I didn't see any trades in them."

At another desk, a market source saw the 11¼% notes opening at 51 bid and ending at 56.5 bid, the same as the 12½% notes due 2007 and 12 3/8% notes due 2006. He saw the 131/2s jump from 19 bid to 23, and pegged Pegasus' 9 5/8% notes due 2005 and 9¾% notes due 2006 at 56.5 bid, up from 53.

A trader in distressed bonds saw most of the company's issues, such as the 12 3/8%, 9¾% and 11¼% notes going from 55 to 46, then back up to 55, back down to 48 and finally to 55-56 at the close "all trading the same now." The 131/2s, he said, "got up to 22-26, and then traded at 16 and were staying down there."

He said the 131/2s didn't advance because "people are beginning to realize that they're junior - and they're not going to get what the other [holders] are going to get - if they get what they think they're going to get."

Speaking before news of the bankruptcy filing was released, he said that ultimately, "it all depends on whether [Pegasus] actually sells to DirecTV, and what the price is. "DTV is going to bid for their subscribers, pay for their subscribers - and then be done with them."

The two companies have been at odds for quite some time, with Pegasus feeling that DirecTV is being high-handed and undervalues its subscribers, and DirecTV contending that Pegasus' subscribers aren't worth anywhere near what Pegasus thinks they are worth.

On Wednesday, DirecTV and NRTC announced that they had agreed to end the NRTC's exclusive DirecTV service distribution contract with Pegasus and other NRTC members, effective immediately. The NRTC and DirecTV have further agreed to enter into a new relationship that will provide NRTC members other than Pegasus - which has engaged in protracted litigation against DirecTV- with an opportunity to continue to participate as non-exclusive DirecTV retailers and service providers.

"We believe that terminating the NRTC's exclusive distribution agreement is in the best interest of consumers and all parties involved," said Steve Cox, executive vice president, sales, distribution and business development, DirecTV Inc., in a company news release. "With the settlement of the disputes with the NRTC and its members last year by mutual agreement and the subsequent successful conclusion of DirecTV's litigation with NRTC affiliate Pegasus, the time was right for the NRTC and DirecTV to reach this new agreement.

"Management of both the NRTC and DirecTV recognized that creating an artificial divide between rural America and the rest of the country for distribution of some DirecTV services made the DirecTV service less competitive with other multichannel video providers," Cox continued in the release.

"Furthermore, we have seen the number of subscribers to DirecTV services in territories covered by the NRTC agreement steadily decline - primarily in Pegasus territories - in the last few years. We believe the termination of the old distribution arrangement will allow DirecTV and NRTC to reverse this trend and compete more effectively in rural America. This can only be beneficial to consumers."

Pegasus sharply disagreed.

"We are still evaluating the notice purporting to terminate our agreements and a related cash offer, which we received this morning with no prior notification," said Ted S. Lodge, president and chief operating officer of Pegasus Satellite Television, in a company news release responding to DirecTV's and NRTC's actions.

"We categorically reject DirecTV's DIRECTV's and NRTC's assertion that they can terminate our agreements, and intend to vigorously protect our rights. We believe the strong arm tactics demonstrated by these actions today further evidence both the true value of our assets and the very strong desire of DirecTV and NRTC to take value away from our stakeholders."

In announcing the bankruptcy filing, Pegasus chairman and chief executive officer Mark Pagon said that his company intends to take "all appropriate actions necessary to prevent NRTC and DirecTV from implementing this latest scheme to deprive our stakeholders of the substantial value that we have successfully created in our satellite television business since 1994. It is with the greatest reluctance that we have concluded that Pegasus Satellite Television must seek the protection of Chapter 11 in order to protect our customers, employees, business partners, creditors and owners - while we seek affirmation of our rights. We intend to pursue a resolution of these matters as expeditiously as possible."

Wednesday's bankruptcy filing comes as a surprise to very few in the market. Bankruptcy buzz started circulating last month after DirecTV won a judgment of $51.5 million, plus interest, at the end of a long legal battle between the two companies. That's money that Pegasus said it didn't have, leading market participants to speculate that a Chapter 11 filing by or before June 8 was almost certain.

DirecTV later said that Judge Lourdes Baird of the U.S. District Court for the Central District of California had entered a judgment in favor of DirecTV, Inc. against Pegasus Satellite Television, Inc. and Golden Sky Systems, Inc. (Pegasus) totaling some $62.6 million, which includes prejudgment interest. DirecTV is also entitled to recover its legal costs.

Airlines down

Elsewhere, a trader in distressed bonds saw the airlines "down two points" across the board, with Delta Air Lines Inc.'s 7.70% notes due 2005 dipping to 59 bid. However, he said that he "hadn't seen much trading" in the Atlanta-based air carrier's paper, "and we haven't traded it much."

Another trader saw the 7.70s hanging in around the same 60 bid, 61 offered level they held on Tuesday evening, while still another trader though Delta was a bit better, with its 8.30% notes due 2029 at 39.5 bid, 40.5 offered, up a point on the day.

Northwest Airlines Corp.'s 7 7/8% notes due 2008 were meanwhile seen off two points on the session at 64 bid.

Northern Oil gains

A market source said that there was "nothing really crazy going on, no big moves, although he did see Northern Oil's 10% notes due 2005 firm up to 53 bid from prior levels around 45, citing apparent progress in its reorganization. But a trader elsewhere said that while he had gotten a few inquiries on it, "I didn't see anything. Nobody was volunteering anything, what with what's going on in oil prices."

In general, he said, "nobody wants to do anything. They're all scared. PGTV was trading a lot"- but that was it.

Home Products trades

He did see some activity, however, in Home Products International Inc.'s 9 5/8% notes, noting that the bonds moved after the Chicago-based housewares maker announced that a group led by the company's chairman and chief executive officer, James R. Tennant, would take the company private.

The bonds, he said, had been at 78 bid, 80 offered, and while there was a buyer around at 80, "they're not offered any more."

He said "nobody seems to know whether there is or there isn't a change-of-control put" on the issue.

Mirant Corp. debt continued to "hang in there" after trading down a bit on Tuesday," the trader said. The Atlanta-based merchant power company - whose bonds and bank debt have been roiled lately on investor reaction to its recently released financials - seemed to stabilize Wednesday. He saw parent Mirant Corp.'s bonds, such as its 7.40% and 7.90% notes, at around the same 52 bid, 53 offered level at which they had gone home Tuesday, while Mirant Americas Generating Inc.'s 7 5/8% and 8½% notes at about 71-71.5 bid.

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