Leap jumps on likely recovery valuation; Pegasus bonds tumble

By Paul Deckelman and Sara Rosenberg

New York, June 8 - Leap Wireless International Inc.'s bank debt continued its rally on Tuesday as investors remain optimistic about the San Diego-based telecommunications company's prospects once it emerges from Chapter 11.

On the downside, Pegasus Satellite Communications Inc.'s bonds - which had been seen firming on Friday and again on Monday as investors got comfortable with the idea that the Bala Cynwyd, Pa.-based satellite television programming distributor was now in bankruptcy - were quoted headed back southward on Tuesday.

Leap's bank debt leapt up to 116 bid, 117 offered Tuesday, a trader said, continuing a surge seen on Tuesday, when the paper zoomed to 113 bid, 115 offered, well up from previous levels around 110.

"People are redoing valuations on it," the trader said. "There are some comps that are being evaluated."

A consensus would seem to be forming that there is great equity value behind the name - and since bank debt holders will receive debt and equity in consideration for their positions as part of the Chapter 11 reorganization plan, the more equity value people attribute to the company, the better the bank debt trades.

The company has also been given a boost by the recent news that William Freeman had been appointed as chief executive officer of Leap's operating subsidiary, Cricket Communications Inc.

The well-respected Freeman - who previously was president of Verizon Public Communications Group, a business unit of Verizon Communications - will additionally assume a seat on Leap's board of directors when it emerges from bankruptcy and will be appointed as CEO of Leap when court approval has been obtained. Freeman will be succeeding Harvey P. White.

Pegasus falls

Elsewhere on the communications front, Pegasus bonds - which had firmed, along with the bankrupt company's shares, even in the wake of its Chapter 11 filing last Thursday evening - were on the downside Tuesday. A distressed-debt trader quoted the company's senior notes, such as its 9¾% notes due 2006 12 3/8% notes due 2006, 12½% notes due 2007 and 9 5/8% notes due 2005 - as all having slid to about 51 bid from prior bid levels around 55-56, while its junior 13½% notes due 2007 retreated to 15 bid, 17 offered from prior levels around 19 bid, 20 offered.

At another desk, the seniors were all quoted at around 49 bid, down from levels in a 55-56.5 context, while Pegasus' 131/2s were at 15, down from 18.5 earlier, and 12¾% notes due 2007 plunged to 10 bid from 20 previously.

"I didn't see any news on them - but obviously [the investors] didn't like something going on in court," the first trader said.

Nothing official had been released Tuesday - although there seemed to be a feeling that bondholder recovery could be less than previous bond price levels might justify.

In a recent research note, the Gimme Credit advisory service noted that the $675 per subscriber acquisition price DirecTV offered before Pegasus responded with its bankruptcy filing would be worth a total of around $750 million, which would cover the company's bank debt, which also rose in the wake of the filing, but falls short of covering its approximately $900 million of bond debt and about $300 million of preferred stock.

While acknowledging that the DirecTV offer might establish a floor price for Pegasus' main asset and that other higher bids might come in, Gimme Credit estimated that the current offer provides bondholders a recovery rate of approximately 40 cents to 45 cents on the dollar.

Owens Corning loans decline

Elsewhere, Owens Corning Inc.'s bank debt was down about 75 basis points to a point and traded actively, with levels seen at 76.5 bid, 77.5 offered by the end of the day, according to a trader. On Monday, the paper had been quoted flat around 77.5 bid, 78.5 offered, by a different trader.

On Monday, the company announced that an agreement in principle has been reached with asbestos creditors and the official representatives of pre-petition bondholders and trade creditors, according to a trader.

The company now has support for its plan of reorganization from all of its major creditor groups except for holders of pre-petition bank debt, according to a company news release.

The agreement provides that all holders of bonds, bank debt and senior trade debt will receive a recovery equal to 38.5% of their claims upon the company's successful emergence from Chapter 11. The recoveries of all creditors are based on certain agreed and assumed values and will be comprised of cash, debt and equity.

A trader marveled that even with the news that the Toledo, Ohio-based insulation maker's creditors will get 38.5% of their claims, Owens Corning's bonds were still trading around the 44 bid level, unchanged. When asked why they were still trading above the anticipated recovery level, he shrugged and asked rhetorically "why is the bank debt still trading at 75?"

USG unchanged

Also among the asbestos names, USG Corp.'s bank debt was pretty quiet, with levels remaining around 95.25 bid, 96.5 offered as news emerged that the Chicago-based sheetrock maker in Chapter 11 since July 25, 2001, now has the exclusive right to file a reorganization plan until Dec. 1.

The order also extends the company's exclusive right to solicit votes for a plan until Feb. 1.

USG's bonds were unchanged, its 11½% notes due 2009 steady at 115 bid, its 8½% notes at 104, and its 9 ¼% notes at 101.

HealthSouth bonds gain on deal

A market source saw HealthSouth Corp.'s bonds headed higher, its 6 7/8% notes due 2005 up 1½ points at 101 and its 8½% notes due 2008 likewise 1½ points better at 98.5. The Birmingham, Ala.-based provider of outpatient medical services announced that it had reached agreement with previous rebellious bondholders on granting the company default waivers, allowing it to continue its restructuring efforts without fear of a possible debt acceleration (see related story elsewhere in this issue).

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