Pegasus bonds better following court ruling; Horizon bank debt jumps

By Paul Deckelman and Sara Rosenberg

New York, June 14 - Pegasus Satellite Communications Inc. debt was seen higher in light trading Monday, after junk players had a long weekend during which to try to digest the meaning of Thursday's court ruling in Pegasus's ongoing struggle with corporate rival DirecTV Group Inc..

Meantime, Horizon Natural Resources' bank debt traded at 48 on Monday, up considerably from Thursday's levels around 43 bid, 44 offered, a trader said.

"I've heard that people think a disclosure statement will come out where the numbers are anticipated to be more positive," the trader said.

Also on Monday, The WL Ross-led group of holders of a majority of Horizon Natural Resources' second lien notes raised their bid for the company to $277.35 million from $240 million, according to a press release.

In response to this action, Deutsche Bank, the unsecured creditors committee and other creditors withdrew their earlier objections and supported the designation of the Ross Group as the preferred bidder for the assets of the Ashland, Ky.-based producer of steam coal.

"We are delighted that judge Howard has designated us as the preferred bidder and that the auction is on an appropriately fast track. We look forward to completing the acquisition promptly and restoring these coal mining properties to normal operations," said Wilbur Ross, chairman of WL Ross, in the release.

If another bidder prevails at the auction scheduled for August 17, the Ross group will get a breakup fee of $7.2 million.

Horizon represents the latest gambit in Ross's steady pursuit of a far-flung empire of industrial companies, cobbled together from the ruins of companies that fell upon hard times and were forced to restructure.

Earlier this springs, Ross' Cleveland-based International Steel Group - itself assembled from the assets of what used to be such well-known steelmakers as Bethlehem Steel Corp. and LTV Corp., was successful in its efforts to acquire the assets of Weirton Steel out of bankruptcy, despite a last-ditch effort by the West Virginia-based steelmaker's bondholders to mount a last-minute rival offer.

Pegasus debt higher

Pegasus' bonds were seen by a trader in distressed securities as having traded up to around the 46 bid, 47 offered mark Monday, from Thursday's levels at 43 bid, 45 offered. There was no trading Friday, with the U.S. financial markets all closed.

The trader said the Bala Cynwyd, Pa.-based satellite television programming distributor's bonds were all "up two or three points, depending on their coupon."

Most of the Pegasus senior bonds have lately been trading in the 40s, with the exception of its 13½% subordinated notes due 2007, which currently languish in the teens.

On Friday, the U.S. Bankruptcy Court in Portland, Me., issued a half-a-loaf decision - thwarting Pegasus' efforts to stop DirecTV from trying to poach on Pegasus' territory, but also ordering that DirecTV cannot use Pegasus' subscriber data to try to woo away its1.1 million customers.

Pegasus has for some months been locked in a multi-faceted legal dispute with DirecTV, whose satellite programming Pegasus distributes to its predominantly rural customer base. Pegasus and El Segundo, Calif.-based DirectTV have feuded over the value of the Pegasus subscribers to DirecTV.

In late May, after a court socked Pegasus with a $62.5 million judgment, including interest costs, arising out of a breach-of contract suit, DirecTV and the National Rural Telecommunications Cooperative - a group of program distributors serving rural areas, with Pegasus as its largest member - announced an end to NRTC's and Pegasus' exclusive rights to distribute DirecTV's programming in their respective territories, effective Aug. 31. While DirecTV said it was willing to offer NRTC members other than Pegasus the chance to continue to serve their territories on a non-exclusive basis, it gave Pegasus no such option and merely handed Pegasus a take-it-or-leave it offer to buy its subscribers for $675 a head, or about $750 million total - enough perhaps to pay Pegasus' bond debt, but not its other obligations.

Pegasus denounced this as a high-handed attempt by DirecTV to steal its customers, claiming DirecTV and NRTC had no right to unilaterally terminate Pegasus' rights. It sought Chapter 11 protection in a June 2 filing to preserve its rights to exclusively distribute DirecTV. The latter company fought back by trying to go over Pegasus' head and directly approaching potential customers in markets Pegasus serves - and the U.S. Bankruptcy Court in Portland Maine rejected Pegasus' attempt to keep DirecTV from doing so but also put curbs on how DirecTV can accomplish this. Both sides were claiming a victory following the judge's order.

Telewest rises

Also in the communications sphere, Telewest Communications' 9 5/8% notes due 2006 were seen up as much as a point at 57 bid, although at another desk the United Kingdom-based telecommunications and cable operator's bonds were seen unchanged at 56.

There was no fresh news out on the company, which is currently restructuring, but which has been mentioned from some weeks as a possible acquisition target of rival Brit broadbander NTL Corp.

On Monday, Telewest's shares were seen having jumped 45 cents (15.66%) to $3.32, although on very light volume of about 2,000 shares - twice the norm.

And a trader saw RCN Corp.'s bonds having moved up to 56 bid, 57 offered from prior levels around 53 bid, 54 offered, despite the lack of fresh news about the bankrupt Princeton, N.J. -based telecommunications company.

Salton holds steady

Outside of the communications constellation, news that Salton Inc. had obtained a pledge of forbearance from its lenders - meaning they will hold off at least till September 30 on taking any action to accelerate its debt or take other measures against the troubled Lake Forest, Ill.-based small appliance maker - did not much help the company's debt, with a market observer pegging the 12¼% notes due 2008 at 69 and its 10 ¾% notes due 2005 at 79 bid, both unchanged on the day.

A trader said that the bonds, which were in his view "still hovering" around those levels, were again trading with accrued interest, with investors apparently feeling that some sort of agreement curing the company's covenant violation and liquidity problems could be near.

A trader saw the bonds of bankrupt Toledo, Ohio-based insulation maker Owens Corning, such as its 7% notes due 2009, as having firmed to 46 bid from prior levels around 43.5. He also saw the bonds of Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc. - like Owens Corning, forced into bankruptcy by a flood of asbestos liability lawsuits - such as its 9¾% notes due 2008 as having firmed to 57.75 bid from 56 previously, in line with a recent firming in the debt of asbestos-challenged companies.

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