Bank of New England slides on lawsuit settlement; Adelphia bank debt better

By Paul Deckelman and Sara Rosenberg

New York, Jan. 26 - Fourteen years after Bank of New England Corp. went belly up, the legal battle over whether the failed Boston bank's auditor had done its job properly finally came to a conclusion - one that shocked holders of its distressed bonds, which fell sharply on the news Wednesday.

In distressed bank loan dealings, Adelphia Communications Corp.'s debt traded around during the session at levels that were higher by about a quarter of the point on the day, as the bankrupt Greenwood Village, Colo.-based cable operator put out decent monthly numbers and the market was abuzz with speculation about bids on the company's assets, since the deadline for those bids is next week

Bank of New England's 8¾% notes and floating-rate notes were seen having tumbled to 11 bid, 12 offered from prior levels around 26 bid, 28 offered on news of the settlement.

That settlement ends a marathon legal battle, stretching back to the bank's collapse in the early 1990s, that pitted the company's bankruptcy trustee against its former auditors, Ernst & Young, with trustee Ben Branch contending in Boston federal court that E&Y had done a poor job in overseeing the banking company's finances before it went insolvent; the accounting firm contended that it had done nothing improper and could not be blamed for the debacle.

"Bank of New England was really the big mover," a trader said. "It took the cake for today [Wednesday].

"They settled the lawsuit for way below" what everyone was expecting. "The entire Street was in the high 20s as an idea where they should settle out, and in fact it turned out to be 15 points below what everyone expected and they took it on the chin on that one."

The bonds "started the day at 26-28; then the news came out, and the bids ran for the hills, and that was the end of that," he continued. "It was very disappointing."

Another trader had the Bank of New England bonds even higher before the news came out, at 28 bid, 29 offered, and saw them drop into the 12 bid, 13 offered range. He too called it the biggest mover.

"After waiting and fighting for four years [the trustee] settled for peanuts," the trader said.

In bank loan trading, Adelphia's revolver was quoted at 98.25 bid, 99 offered and the Century Old paper was quoted at 99 bid, 99.75 offered, a trader said.

Late Tuesday, Adelphia released monthly numbers that included a net income of $69.7 million for December, against a loss of $72.9 million a year earlier.

Cash and cash equivalents for the end of 2004 stood at $338.3 million, up 37% on the year.

Earlier this month, Adelphia announced that it was extending its deadline for final bids on its assets till the end of January to give all of the bidders who had expressed interest in its cable systems more time to come up with their final offers. It had originally set a deadline for those bids at mid-month, but said that the response to its asset sale had been so great that in order to accommodate it, the company would use the full month of January to conduct due diligence on the offers.

Adelphia's assets are worth an estimated $17 billion to $20 billion. The company 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.

Adelphia's bonds were meantime seen up about a point or two on the session, with its 10¼% notes due 2011 having pushed as high as 96 bid, 97 offered before dropping back to 94 bid, 95 offered, a trader said, still up two points from Tuesday's finish at 92 bid, 94 offered.

He saw the company's 10¼% notes due 2006 and its busted convertible notes likewise up about two points apiece, going out at 90 bid, 91 offered and 16 bid, 17 offered, respectively. At another desk, a market source pegged the 2011 bonds up a point on the session at 94.5, having seen them Tuesday at 93.5, somewhat higher than the trader did. He also saw its 7¾% notes due 2009 and 7 7/8% notes due 2009 both up a point, at 88 bid and 86 bid, respectively.

Mirant loans active

Another name active in the distressed loan market was Mirant Corp.'s MAGI debt, which was quoted at 106.75 bid, 107.75 offered, up about a quarter of a point on the day, for no particular reason, the trader added.

The bankrupt Atlanta-based power generating company's 2003 paper wasn't really trading around, and levels stayed unchanged at 71.5 bid, 72.5 offered, the trader added.

DS Waters plunges

DS Waters of America LP's bank debt had a tumultuous day, with levels dropping by a couple of points in the morning - and then regaining some losses by late day - on news that parent company, Groupe Danone, would be writing down a charge for its investment in DS Waters.

DS Waters, a joint venture formed by Groupe Danone and Suntory Ltd., saw its bank debt plummet all the way to 91 bid, 92 offered from 95 bid, 96 offered immediately after Danone announced that it would incur a charge of approximately €450 million in its 2004 consolidated accounts in relation to its holding in DS Waters, according to a trader.

"These guys are writing off the investment so it doesn't look like they'll continue to support the company," the trader explained. "It may be a sign that the parent is walking away from the company."

By late day though, the paper did regain some ground, heading up to 93 bid, 94 offered - making the total loss for the day about two points, the trader added.

Danone said that the one-time charge consists of an impairment of its holding in DS Waters and a provision for its related commitment to Suntory.

Among factors leading to this impairment decision on its DS Waters holding, Danone cited slower volume growth patterns for the home and office delivery industry, an increasingly aggressive pricing environment on home and office delivery and faster than expected erosion of cooler rental revenues, the news release said.

As was announced last October, Danone expects to have a solution regarding the long-term strategy for its holding in DS Waters,an Atlanta-based home and office water delivery service company, by the end of the first half of 2005.

Tower steady

Back among the bond investors, RJ Tower Corp.'s 12% notes due 2013, which had swung crazily down to the mid 50s from prior levels around 79.5 over several sessions, and then were seen coming back a little to around the 58-59 bid level on Wednesday, were unchanged at that 58 bid, 59 offered level, a trader said, although another, who had seen the bonds bid at 59, called them off a point at 58.

The Novi, Mich.-based automotive components company's bonds, and its shares, took a wrong turn last Thursday, when the company warned that longer-than-expected holiday-time slowdowns by its carmaker customers would put a dent in its liquidity to the tune of as much as $40 million in the quarter, forcing it to dig into its cash reserves.

That in turn caused both Standard & Poor's and Moody's Investors Services to downgrade its ratings by multiple notches, with Moody's using the dreaded "B-word" - bankruptcy - in discussing possible outcomes for the company. That sparked a wave of investor speculation earlier in the week. The company did not return several calls from Prospect News seeking comment.

Asbestos bonds lower

Bonds of bankrupt asbestos-challenged companies were retreating Wednesday, after the head of the Senate Judiciary Committee said that introduction of a bill to establish a payment mechanism for asbestos medical claims while capping company liability would be delayed. Sen. Arlen Specter (R.-Pa.) said that the bill would be delayed while senators discuss how to handle claims of injury arising from exposure to another industrial mineral, silica. Specter had originally hoped to have an asbestos bill introduced, debated and approved by the end of the month.

Specter said his interest is preventing asbestos cases that would be covered by the claims mechanism then being "repackaged" as silica cases and going to court, since there is no claims mechanism pending for the silica cases. "That's not solving the problem," he was quoted in news reports as having said, adding that he was seeking to keep claimants from being "compensated twice" for the same claim.

News of the delay pushed bankrupt Toledo, Ohio-based insulation maker Owens Corning's bonds down to 75 bid, 77 offered from 77 bid, 78 offered previously, while bankrupt Lancaster, Pa.-based floorcovering producer Armstrong World Industries Inc.'s bonds eased to 71 bid, 73 offered from 73 bid, 75 offered. Bankrupt Chicago-based building products manufacturer USG Corp's bonds retreated to 130 bid from previous levels at 132.

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