UAL bonds continue to firm as loss narrows; RCN off slightly

By Paul Deckelman and Paul A. Harris

New York, March 2 - United Airlines bonds were seen up around a point to levels "as good as 18.5," a trader said, as the bankrupt Elk Grove Village, Ill.-based airline's parent, UAL Corp., released its 2003 results and its projections for this year.

UAL's loss from operations was $1.4 billion in 2003, half of the $2.8 billion of operations losses seen in 2002. UAL's net loss for 2003 was $2.8 billion ($27.36 per share), a narrower loss than the year-earlier deficit of $3.2 billion ($53.55 per share) in 2002.

UAL said that its 2003 results include special charges of $178 million in operating expenses, including curtailment charges, and $251 million in non-operating expenses. Additionally, the non-operating income/expense category includes $300 million in government compensation and $158 million in gains from the sale of investments, as well as $1.2 billion in reorganization expenses related to the company's 2002 bankruptcy filing.

It said that its 2003 results "reflect significant reductions in expenses achieved through the restructuring process, particularly in salaries and related costs and aircraft-related expenses, such as aircraft rent expense and depreciation and amortization. We anticipate that our 2004 mainline unit cost will be lower than 2003 as we continue to benefit from our restructuring and business transformation initiatives. We do not, however, expect total mainline expense to decline in 2004 (versus 2003) to the same degree that was achieved in 2003 as compared to 2002."

UAL's bonds have lately been on a firming trend, on investor hopes that the carrier might soon release its plan of reorganization; last week, they were trading around 16, and even that was well up from the levels around 11-12 seen late in 2003.

On Feb. 20, a judge gave UAL a 30-day extension, until April 7, of the early-March deadline on its exclusive period for filing a reorganization plan. UAL shares meanwhile, after peaking at $3.70 on Monday - a higher level than they held before United slid into bankruptcy in December 2002 - have lost considerable altitude over the past two sessions, as investors have come to accept the realization that their shares will likely be rendered worthless under the plan when it finally emerges. UAL's over-the-counter-traded shares were down 67.5 cents Tuesday (19.09%) to $2.86, on volume of more than 15 million shares, nearly five times the usual turnover.

RCN down

Elsewhere, traders said that RCN Corp.'s notes were lower, even though the Princeton, N.J.-based telecommunications company said on Monday that it had gotten an extension from its lenders that will give it more time to forge a consensual bankruptcy reorganization plan.

RCN said that its lenders and its bondholders' committee agreed not to declare RCN in default on interest payments due on certain debt until March 15. Talks continue in the meantime.

The extension prevents the other debtholders from immediately requesting payment on their obligations, accelerating RCN's debt payments. The beleaguered company said it would have insufficient cash to cover those costs.

Even with the extension, however, its bonds continue to have difficulty. RCN's 10% notes due 2007, which had fallen to 55.25 bid from 56.5 on Monday, remained at that lower level on Tuesday.

On the upside, High Voltage Engineering's 10½% notes scheduled to mature on Aug. 15 were seen up as much as four points on the session at 28 bid.

Adelphia plan debated

Adelphia Communications Corp. bonds were seen "roughly unchanged," a trader said, quoting the Greenwood Village, Colo.-based cabler's 10¼% notes due 2011 at 99.5 bid, 100.5 offered.

The company's bank debt was also little changed, although there was plenty of talk among bank debt investors about the company's recently unveiled reorganization plan, which is being challenged by some of Adelphia's pre-petition lenders. They particularly don't like that the company intends to keep aside a sizable escrow fund, rather than immediately distributing those funds to lenders and other creditors.

Also, Adelphia has legal actions pending against some lenders who it said aided ousted company founder John Rigas and some of his family members in co-borrowing schemes which allegedly drained several billions of dollars from the company's coffers and led to its bankruptcy. Proceeds from the suits against the Rigases, those lenders and former auditors Deloitte & Touche will go into a lawsuit trust, interests in which will be given to some of the creditors lower down on the Adelphia pecking order, under the plan.

A market source told Prospect News that "the bondholders were belly-aching that the banks should be held complicit with the Rigases, because they were sending money out of Adelphia and into the pockets of the Rigases. And therefore the banks ought to get equitable subordination, or something like that.

"That claim is seen as being a little on the specious side - classic reaching by the bondholders," he said.

The source continued that provisions under the reorganization plan for the banks to all get paid out of an escrow account while the litigation on that issue is outstanding, "really annoyed the non-agent lenders. They have organized a group - which seems to be getting bigger - of people who want to become a force in the Adelphia bankruptcy; they're people who seem to be saying 'We shouldn't be treated like the lenders because we didn't do anything wrong.'"

The source said that it now appears that this group now represents over $3 billion. "That would be a pretty big and a pretty interesting committee. And it might change the timing and the pace of everything," he said.

The source further pointed out that last week, "Adelphia bank loans dipped somewhat when that particular little wrinkle came out. I think everybody was hoping that the judge would shove that lawsuit aside, at the very least, for the non-agent lenders."

The market source said that "the thinking is that because of all these contentious issues, Adelphia now might not come out [of Chapter 11] for many months, perhaps even the end of the year."

He said that "it's not the normal course of things because bondholders are always saying that the banks did something wrong, which should prevent the banks from getting any interest. The banks consistently win those arguments because they are usually reasonably careful. For a judge to leave all the banks in limbo, with an escrow account - as if the [Adelphia] litigation had some credibility, is interesting."

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