Pegasus bonds continue rise on DirecTV news; Mirant bank debt firms

By Paul Deckelman and Sara Rosenberg

New York, Aug. 3 - Pegasus Satellite Communications Inc.'s bonds were up some two to three points on the session for a second consecutive day Tuesday, pushed up by the news that the bankrupt Bala Cynwyd, Pa.-based satellite television programming distributor has agreed to sell its assets to former partner -and recent corporate enemy - DirecTV Group Inc.

In the bank debt field, Mirant Corp.'s 2003 paper moved a quarter of a point higher on the day but actually strengthened by about a half a point to a point in morning hours before softening slightly in the afternoon, according to traders. They attributed the positive momentum to overall good earnings in the energy sector.

By late day, one trader had the restructuring Atlanta energy company's paper quoted at 57.5 bid, 58.5 offered, while another trader saw the paper quoted at 57.25 bid, 58.25 offered.

"Good energy numbers have been coming out, like Dynegy," the first trader said.

"Earnings have been pretty robust in the sector as a whole," the second said. "Delayed reaction. There hasn't been a lot of liquidity recently. Accounts have been away or not paying attention."

Also in that energy sector, Dynegy Inc. released second quarter numbers that included net income of $10 million and two cents per diluted share compared with a net loss of $290 million ($1 a share loss) last year.

Furthermore, the Houston energy company revised its 2004 earnings guidance to three to eight cents per share, up from the previous guidance estimate of a loss of between 12 cents and 20 cents per share.

Pegasus keeps climbing

Back among the bond investors, Pegasus "was the star performer," a trader said, quoting the company's 1¼% notes due 2010 as having moved up to 63.5 bid from prior levels at 60 bid, 61.5 offered. Those bonds had also risen a like amount in Monday's dealings.

"All of them went up," he said of the company's other senior paper, all recently in the upper 50s and now in the lower 60s.

On top of that, he saw the Loral Orion 10% notes due 2006 having pushed up to 76.5 bid from prior levels at 75. There was no specific news out on the bankrupt New York-based satellite communications company he said - just that "everyone in that [satellite communications] sector picked up."

A trader at another shop saw the 111/4s at 62.75 bid, up more than two points on the day, and pegged Pegasus' 12 3/8% notes due 2006 at 62 along with its 12½% notes due 2007, both up two points from prior levels.

DirecTV, which had been Pegasus' content provider partner until the two companies had a falling out over the value of Pegasus' 1.1 million mostly rural customers to DirecTV, has agreed to buy out its bankrupt rival for $875 million in cash plus forgiveness of a $63 million legal judgment it won against Pegasus earlier this year.

That $938 million total is well above the $675 million that it had offered Pegasus on more or less a take-it-or leave-it basis in late May, when it announced that it was ending Pegasus's exclusive right to distribute DTV in its service territories - a major blow to Pegasus in the long-running legal battle between the two companies, that ultimately pushed Pegasus into a June 2 bankruptcy filing in order to protect its exclusive distribution rights and other assets.

A trader agreed with the assessment that the whole two-month long tango in the bankruptcy court between the two companies was all about pushing DirecTV to up its price, "at which they were successful."

Terms of the agreement call for DirecTV to purchase Pegasus Satellite Communications' satellite television assets for a total of $938 million, $875 million of it in cash, plus certain adjustments to be made at closing, and to dismiss all litigation concerning Pegasus Satellite's distribution of DirecTV services and Pegasus Satellite's bankruptcy.

Furthermore, Pegasus Communications Inc., another unit of non-bankrupt parent Pegasus Communications Corp., has agreed to purchase Pegasus Satellite's broadcast television stations subject to higher and better offers.

The sale of the satellite television assets and the settlement with DirecTV, as well as the sale of the broadcast television stations are subject to bankruptcy court approval and applicable antitrust filings and approvals.

Marshall W. Pagon, Pegasus Satellite's chief executive officer, declared that the agreements "enable a final resolution to five years of litigation between Pegasus Satellite, DIRECTV and the [National Rural Telecommunications Cooperative] concerning Pegasus's right to distribute DIRECTV, through a sale of Pegasus Satellite's satellite television assets to DIRECTV for $938 million. They also reflect a consensus between Pegasus Satellite and its creditors on the disposition of Pegasus Satellite's broadcast television stations to Pegasus Communications. We believe that this will allow Pegasus Satellite's bankruptcy to be resolved quickly and with the least continued risk to creditors."

Delta down again

Elsewhere, Delta Airlines Inc. bonds continued to fade, as the airline industry hit turbulence, buffeted by intensified terrorism concerns - even though the assumed target seems to be U.S. financial institutions rather than airlines - and sky high fuel prices.

A trader quoted the Atlanta-based carrier's 8.30% notes due 2029 down a point at 34.5 bid, 35.5 offered, while another trader saw Delta's 7.70% notes due 2005 at 55 bid, 57 offered, likewise down a point. However, the second trader said that he had not seen movement in any other airline paper, even that of bankrupt UAL Corp., continuing to languish down around 8 bid.

At another desk, however Continental Airlines' 8% notes due 2005 were down half a point at 89, while Northwest Airlines Corp.'s 7 7/8% notes due 2008 were likewise a half point down at 67 bid.

Fuel prices could well go still higher. OPEC said Tuesday that Saudi Arabia's planned quota increase, of 500,000 barrels daily, to 10 million barrels, cannot be implemented immediately - pushing crude oil prices to their all-time high close at $44.15 per barrel in NYMEX dealings. Increases in crude prices ultimately translate down the line into higher prices for distillates - such as jet fuel.

Delta's convertibles were a little weaker than its peers in the airline sector, losing 1 to 2 points, but traders said the issues were not very busy. Volume was not even average in the stock either, with the shares ending lower by 4.74%, or 24 cents, to close out the session at $4.82.

"The common stock is finally realizing what bondholders have experienced," said a sellside trader. "The common will be $1 shortly."

It is sort of a situation where those holding the bonds are just holding on. The typical thinking in these types of situations, one buyside source commented, is that if Delta files bankruptcy then there would be the typical bankruptcy bidders step in, albeit at much lower levels than where the bonds are trading now.

"The converts are really the same, still a tad lower," the sellside trader said, "but the common will crap out soon. Any fix of the company will require a debt renegotiation."

That might not be much better than in a bankruptcy case, the buyside source said, because all the other bonds would be "re-fixed" too.

If you are holding, then you may as well "sit out the storm," as the buyside source put it.

The sellside trader, too, said he would advise holding on, asserting Delta's convertible bonds "will turn out probably worth 60 in our opinion."

Thus, he believes buying or holding the converts in the 40s to 50s would be smart. He added, though, that he prefers the Delta 8% converts as opposed to the 2.875% converts, because "if all works out on the positive side their yield to put is a grand slam."

Key to Delta's survival, though admittedly even by the company not a total salvation, is the pilot wage concessions.

"It seems like the pilot union wants to drag out the inevitable [salary and wage decline] for as long as they can, but in the end something will have to give," the buyside source said. "I believe once everyone understands the significance of what's at stake and how these concessions impact their future, there may not be as much counter-productivity and maybe, just maybe, a positive resolution."

In any event, Delta is aiming to come up with a plan by the end of August.

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