Adelphia bonds "bouncing back"; Refco bank debt, bonds climb as buyers for unit emerge

By Paul Deckelman and Sara Rosenberg

New York, Oct. 24 - Adelphia Communications Corp.'s bonds were being quoted at higher levels Monday, traders said, although nobody had an explanation for the upside move.

Elsewhere, Refco Inc.'s bonds zoomed anywhere from 10 to 12 points, as a number of potential buyers for the company's valuable futures operation emerged.

Adelphia "looked like it was bouncing back," one market source said, quoting the Greenwood Village, Colo.-based cabler's 10 7/8% notes due 2010 at 69 bid, up three points, while the 10¼% senior notes due 2011 were at 72 bid, up from 70.5.

"It's just more buyers, no real news," said another trader, who quoted the bonds at around the same level.

But the biggest move in the junk bond and bank debt markets Monday was Refco. Its bank debt continued to gain some ground on Monday as a number of new bidders emerged for its key futures brokerage business.

That bank paper was quoted anywhere between the 94 bid, 96.25 offered range, with some placing the paper at 95.25 bid, 96.25 offered and some calling it 94 bid, 96 offered, according to various traders. By comparison, on Friday the bank debt was being quoted in the 92 bid, 94 offered type of range.

The company's 9% notes due 2012 meantime "really jumped up," a market source said, quoting those bonds as having soared up to 70.75 bid from Friday's closing levels around 59 bid.

A trader at another desk saw those bonds get as good as 70 bid, 72 offered, well up from 58 bid, 60 offered Friday, and said that trading had been very active. Another trader saw a 10-point jump to 71.5 bid, 72 offered, while another saw "a solid 10-point lift" to the bonds, which he quoted a little lower than the others at 68 bid, 70 offered.

Refco "was probably the only big mover on the day," the latter trader said. "I really don't think much else of importance happened."

Refco filed for bankruptcy at the start of last week, and at the same time, announced that it had struck a deal to sell its futures business for about $768 million to an investor group that includes J.C. Flowers & Co. LLC, The Enstar Group, Inc., Silver Point Capital, MatlinPatterson Global Advisers LLC and Texas Pacific Group.

But things became more complicated last week when Interactive Brokers, an options trading and brokerage firm, trumped the Flowers offer with its own $791 million bid, which included no breakup fee. The prospect of a bidding war for the unit drove the bonds as high as 60, about double their prior lows.

Over the weekend, more potential buyers were being talked about in news reports and some of them stepped forward at a Monday hearing before the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan.

By late Monday, the roster of potential acquirers, besides Flowers and Interactive Brokers, included Dubai Investment Group LLC, acting in concert with California supermarket tycoon Ron Burkle's Yucaipa Cos. LLC, through DIGL Inc.; futures brokerage firm Man Financial; Marathon Asset Management LLC; Apollo Capital Management LLC.; as well as Merrill Lynch & Co., acting in concert with Warburg Pincus LLC and Susquehanna.

The Dubai Investment Group/Yucaipa bid reportedly totaled $828 million, with no breakup fee. Interactive Brokers in response upped its own bid to $858 million from $791 million. The sizes of the other prospective bids were not immediately publicized - but whatever they were, the bidding apparently got too rich for J.C. Flowers, which on Monday afternoon withdrew its bid, following judge Robert Drain's efforts to get Flowers to drastically scale back its break-up fee.

According to Refco lawyers, an auction for the futures unit will take place on Nov. 9, with bids due five days before that, and a hearing on the sale will be held the day after the auction.

Refco, which maintains huge commodities and futures trading units, filed for bankruptcy on Oct. 17, driven into Chapter 11 by the exploding scandal, revealed a week earlier, that revolved around a bad $430 million loan hidden deep in the balance sheet, allegedly disguised so as not to interfere with the company's initial public offering this past summer. Although then chairman and chief executive officer Phillip R. Bennett repaid the loan, he was ousted from his executive positions, and indicted by federal prosecutors for alleged securities fraud.

The cascade of bad news hammered the company's bonds down over the course of several sessions to as low as around 30 bid, well down from levels as high as 108, before the scandal came to light, but the bonds had bounced off that low after it reached a tentative agreement to sell its futures trading unit to the Flowers-led buyout group.

Mirant bonds lower

Apart from Refco, traders said not too much was going on in the distressed precincts.

A trader saw Mirant Corp.'s bonds pushed down 1½ points on the session, with the bankrupt Atlanta-based power producer's 7.40% notes that were to have come due last year falling two points to 116. bid, while its 7.90% notes due 2009 eased to 118.5 bid, down from 120 bid.

Another trader had the 7.40s a point lower at 120 bid, 122 offered, while the 7.90s also a point down, at 119 bid, 121 offered. Also down a point were Mirant's convertible notes, its 2½% converts due 2021 dipping to 102 bid, 103 offered, while its 5¾% converts due 2007 at 113 bid, 114 offered.

Bonds of bankrupt asbestos- challenged companies like Armstrong World Industries and Owens Corning were seen down about two points, to bid levels in the 76-77 area for Owens Corning, and to 69 bid, 71 offered for Armstrong's 6-handle bonds and to 73 bid, 75 offered, for its 9-handle notes.

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