Adelphia bank debt, bonds lower on re-org plan problems; Curative Health takes turn for the worse

By Paul Deckelman and Sara Rosenberg

New York , Sept. 29 - Adelphia Communications Corp.'s bonds were seen solidly lower Thursday and its bank debt was also weaker by about a quarter of a point, as investors are looking at the recently filed third amended plan of reorganization with the feeling that there are still some kinks to work out.

A trader said that Curative Health Services Inc.'s bonds were down about eight points on the session amid investor worries that the Hauppauge, N.Y.-based health services company could be on the hook for as much as $38 million, a potential obligation arising out of a dispute between California health authorities and three retail pharmacies there.

Adelphia's 10¼% notes due 2006, which finished at 78 bid, 80 offered on Wednesday, opened Thursday's session way down at 70 bid, 72 offered, said a trader in distressed bonds. He saw the bankrupt Greenwood Village, Colo.-based cable operator's notes firm a little off their lows to end at 73 bid, 75 offered, still down five points on the day.

The trader saw the 10¼% notes due 2011 drop from Wednesday's 80 bid, 82 offered to 74 bid, 76 offered at the opening Thursday, before finally settling at 77 bid, 79 offered, down three points on the session.

Another trader called the Adelphia bonds "down a lot," with shorter-dated issues, such as the 10¼% notes due 2006 at 74 bid, 76 offered, '07 '08 '09 and '10 notes at 75 bid, 77 offered, and bonds for 2011 and out at 76 bid, 77 offered, all down five points on the session.

A market source meantime saw the 9 7/8% notes due 2007 four points lower at 76 bid, while the 8 7/8% notes due 2007 of Adelphia's Century Communications Corp. subsidiary were down nearly two points at around the 108 level.

In bank debt dealings, Adelphi's Century Old and Century New bank debt were quoted at 98.75 bid, 99.5 offered, according to a trader.

"The plan came out and it still looks like it's got a little hair on it. There's no change to the treatment of the bank debt, it just looks like there are still a lot of issues to be worked out," the trader explained.

A market source said that with Adelphia anxious to have its pending sale to Time Warner all wrapped up by about mid-2006, the company will put proceeds into a reserve account, so that disputes between contending parties won't throw a roadblock up for the whole deal - but by doing that, investors are worried that this will only prolong those intra-company disputes.

Adelphi meantime said the latest version of its plan reflects continued progress on resolving the various issues.

Adelphia also said that significant negotiations are expected to continue that will result in material changes.

Charter dips

Also in the cable sphere, Charter Communications Inc.'s bonds were seen a bit lower, after Standard & Poor's lowered the bonds of the St. Louis-based cable operator's Charter Communications Holdings to SD - "selective default" - status, following the completion of the company's massive exchange offer for much of its debt. Charter announced the official closing of the offer on Wednesday, with the holders of some 81% of the CCH 2009, 2010, 2011 and 2012 bonds exchanged them for new debt having longer maturities - which S&P considers tantamount to a default.

Charter's zero-coupon notes due 2011 were seen off half a point to a point, around 73.5 bid.

Curative Health plunges

A trader said that Curative Health's 10¾% notes due 2011 slid about eight points to 63 bid, 65 offered, after an analyst "put out a piece on them saying the bonds should really be priced in the mid 40s" - which his own shop "has been saying for the last couple of weeks."

He said that the company's bonds began falling after the California state Department of Health Services said that the state had been overcharged for shipments of a clotting factor drug "and they're basically going after these three pharmacies that sold the stuff," which was supplied to them by two Curative subsidiaries.

"Curative has a relationship with these guys, and apparently [the pharmacies] have been indemnified [against claims] - so Curative is facing potentially being on the hook for the $38 million that the State of California says it's owed.

"The bonds are obviously down and likely to be going a lot lower, because there's no way that Curative can pay that. They don't even have $1 million, let alone $38 million. So the likelihood of them making their next coupon [payment], which is Nov. 1, is slim, and the likelihood is that they'll file [for bankruptcy]. The laws change Oct. 17, so people are sort of speculating that management will try to get in under that wire."

Curative said on Wednesday that it "plans to work closely with the three independent retail pharmacies to appeal any assessments resulting from the [state] audits. The company believes the allegations asserted by DHS against the pharmacies are without merit, and the company expects the pharmacies to vigorously defend against these allegations through administrative and judicial proceedings. The company is also aware that other similar retail pharmacy relationships in California are being audited by DHS."

Curative also cautioned that it is aware that the three drugstores "may assert claims for indemnification from the company's subsidiaries for any liabilities resulting from the audits. Based on facts and circumstances known to date, the company believes some amount of monetary loss is reasonably possible if the pharmacies assert and prevail on indemnification claims. While the company is unable to estimate the range of potential loss due to the uncertainty of various issues involved in this matter, it does not believe the loss will exceed $38 million."

Mirant keeps gaining

Elsewhere, Mirant Corp.'s bank debt continued to rally Thursday on positive sentiment towards potential consolidation in the sector, with levels moving higher by about 1½ points.

Mirant's 2003 paper was quoted at 109 bid, 110 offered, according to a trader, compared to previous levels of 107.5 bid, 108.5 offered.

And the bankrupt Atlanta-based energy company's 2004 paper was quoted at 107.75 bid, 108.25 offered, the trader said, compared to previous levels of 106.5 bid, 107.25 offered.

Mirant's bonds were meantime seen up about two to three points across the board, its 7.40% notes that were to have come due last year jumping to 120 bid, 122 offered from 117 bid, 119 offered previously, and its 7.90% notes due 2009 firming to 121 bid, 123 bid, up from 118 bid, 120 offered.

Mirant's convertible notes were also up, with its 2½% notes due 2021 two points better at 103 bid, 105 offered, and its 5¾% notes due 2007 also up a deuce at 113 bid, 115 offered.

Mirant's notes, convertibles and bank debt have been steadily rising over the past week after the company filed its amended plan of reorganization and accompanying disclosure statement, moving a step closer to concluding its long-running bankruptcy proceedings.

On top of that, various news outlets reported Wednesday that NRG Energy Inc. is in advanced discussions to buy Texas Genco in a deal expected to be valued at $5 billion or more.

On the heels of these reports, Mirant's bank debt jumped up by a good three points, as investors liked the valuation that the NRG/Texas Genco acquisition was given.

Prior to the merger talk, Mirant's '03 paper was quoted at 104.25 bid, 105.25 offered and the '04 paper was quoted at 103.25 bid, 104.25 offered.

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