Adelphia bonds tumble ahead of end of auction; Owens Corning bank debt firmer

By Paul Deckelman and Sara Rosenberg

New York, Jan. 28 - Adelphia Communications Corp. bonds were being quoted solidly lower on Friday for a second straight day on the downside - even as the bidding phase of the auction process to sell the bankrupt Greenwood Village, Colo.-based cable operator's assets moved toward an anticipated climax this coming week.

In the bank loan market, Owens Corning's paper was seen higher on the day, with the strengthening spurred on by noise about the company's substantive consolidation issue, a trader said. However, bond investors were skittish about the bonds of the bankrupt Toledo, Ohio-based insulation maker and those of other asbestos-challenged companies, as momentum for congressional action on a claim bill seemed stalled.

Adelphia's bonds were "a little weaker going into the auction." a trader said, quoting its 10¼% notes due 2011 at 91 bid, 92 offered, down half a point. "They were definitely soft throughout the day," he said, with limited buyers and not a lot of trading."

The company's 9 7/8% notes due 2007 were also seen half a point lower at 88 bid, while the 8 7/8% notes due 2007 of its Century Communications unit were a point down at 110.

A source at another desk had the bonds down even further, "all down a couple [of points] across the board." He quoted Adelphia's 10¼% notes due 2006 down as much as four points from recent levels at 86 bid, while its 7¾% notes due 2009 were off even further - 4½ points - to 83.5 bid. He saw the 9¼% notes that were to have matured in 2002 at 84, down more than three points on the day, while its 8 3/8% notes due 2007 were down a deuce at 108.5. And he pegged the 10¼% 2011 bonds at 91.25 bid, off 1¾ points from prior levels.

Even as the bonds were falling for a second straight session, its bank debt - as has been the case for most of the week - was trading around ahead of the end of the auction Monday, but that paper was mostly at unchanged levels, unlike the previous two sessions, where slight improvements were noticeable, with the Old Century paper quoted at 99.5 bid, par offered, a trader added.

Adelphia is pursuing a two-track strategy, soliciting bids from current cable operators and/or financial backers, while at the same time reserving the right to reject the bids and continue to reorganize in hopes of emerging from bankruptcy as an independent company three years after it first sought Chapter 11 protection.

The assets are worth somewhere between $17 billion and $20 billion. Among the bidders expected to put in offers by the final bid deadline on Monday are rival cable giants Time Warner Cable and Comcast Corp., which are expected to submit a join bid for all of the assets, and then, should they win, divvy them up between the two companies consistent with their existing service footprints, and then sell or trade off anything that neither company wants to other operators or financial investors.

Owens Corning loans gain

Owens Corning bank debt on Friday was being quoted firmer, at levels of 91 bid, 92½ offered, a trader said.

Just how much the paper was up on the day is hard to tell since "it was very unclear where it was all week," the trader remarked. "I thought it was around the 88 level," he added.

The substantive consolidation issue underpinning the bank debt has been a bone of contention among the different classes of creditors wrangling over what kind of returns they will get on their claims when the company finally emerges from years of bankruptcy litigation. Bank creditors claim priority for their stakes, which in Owens' case reflect loans taken out through different subsidiaries and guaranteed by the parent. Non-bank creditors have sought to essentially collapse the different entities into one consolidated entity and figure out the claims from there.

Owens Corning's bonds were meantime down, a trader said, in fact describing the whole asbestos sector as "melting down a little bit."

He saw its 7½% notes due 2018 finishing at 71 bid, 72 offered, well down from 74.5 bid, 75.5 offered previously, "on no movement [in Washington] and a perception it's going to be difficult to get an agreement on asbestos liability."

The chairman of the Senate Judiciary Committee, Sen. Arlen Specter (R.-Pa.), said earlier in the week that there would be a delay in introducing his proposal for a $140 billion industry and insurer-funded claims mechanism which would dispense awards to claimants proving asbestos-linked medical problems, while stemming the tide of future lawsuits like the ones that down Owens Corning and other such companies into bankruptcy in the first place.

He also saw "a similar kind of tradeoff" in Armstrong World Industries, with the bankrupt Lancaster, Pa.-based floorcovering maker's 9¾% notes due 2008 ending at 69 bid, 70 offered, down from 72.5 bid, 73.5 offered.

Tower unchanged

And "for the first time in a few sessions," he saw no movement in the 12% notes due 2013 of RJ Tower Corp., whose bonds had slid into the 50s from levels around 80 over the course of a week after the Novi, Mich.-based auto components maker warned of possible liquidity problems and Moody's Investors Service raised the possibility of a bankruptcy filing or other distressed restructuring scenario somewhere down the line.

Those bonds, which had fallen as low as 51 Thursday before bouncing off the lows to end in the 56 area, remained there, unchanged on the day.

Parent Tower Automotive Inc.'s convertibles continued to remain steady Friday, traders said, although there were bonds for sale following chatter in the high-yield ranks on Thursday of a big holder trying to unload the Novi, Mich.-based auto parts maker's bonds and speculation that there were problems with an upcoming interest payment on a euro-denominated bond issue.

The 5.75% convertible bonds were offered at 24.5 with no bids, unchanged from Thursday, one trader said. Likewise, the 6.75% convertible preferreds were steady at 3.5. Neither moved on Thursday, either.

Tower Automotive shares closed Friday down 2 cents, or 2.11%, at 93 cents.

"The noise coming off the junk bond desks is nothing new to us in converts - Tower Automotive is in trouble and all the coupons are at risk," said another convertible trader. "We aren't seeing any action in the convert paper right now, though."

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