Adelphia bank debt fizzles, but bonds sizzle; Tembec rebounds on S&P move

By Paul Deckelman and Sara Rosenberg

New York, June 22- Adelphia Communications Corp.'s bank debt was slightly weaker to unchanged on Thursday, after the judge handling the Greenwood Village, Colo.-based cable operator's bankruptcy case posted some settlement guidelines on Wednesday evening, traders said.

But Adelphia's bonds were hot, even if its bank debt was not. Traders in the junk market saw the company's notes up anywhere from three to five points after a pair of conference calls at which a proposal for settling its nagging inter-creditor disputes was discussed.

Apart from Adelphia, which was seen as the major mover in bond dealings, traders saw Tembec Industries Inc.'s recently weakened bonds somewhat improved after Standard & Poor's affirmed its current rating.

A market source saw the Montreal-based forest products company's 8½% notes due 2011 a point better at 50 bid. At another desk, a source saw those bonds up two points at 51 bid, while its 8 5/8% notes due 2009 firmed to 52.375, well up from 51 the previous day.

Standard & Poor's said it affirmed its CCC- corporate credit and senior unsecured debt ratings on Tembec and its corporate parent, Tembec Inc., although it gave the rating a negative outlook.

At the same time, the ratings were removed from CreditWatch with positive implications, where they were placed April 28, following the announcement that the Canadian and U.S. governments had reached a framework deal for a settlement of the softwood lumber dispute that would include a refund of about 80% of the duties paid.

Tembec stands to get about C$317 million in tariff refunds. But investors had been bearish prior to Thursday, fearing that Canadian lawmakers could adjourn for the summer without having ratified the tariff refund agreement. Tembec's bonds had fallen into the upper 40s before bouncing off those lows Thursday to move back into the 50s.

Adelphia loans soft

Adelphia's bank debt was seen doing little more than treading water on Thursday, traders in that market said, with one of them declaring: "There's a lot of fatigue. People are just tired of the situation and they didn't say [loan guys] would get par recoveries in the guidelines," he said, explaining why the bank debt felt softer.

Adelphia's TCI and Parnassos bank debt closed out the day quoted at 98 bid, 99 offered - down about a quarter- to a half-a point, depending on the trader asked.

And, Adelphia's Century Old and Century New bank debt closed out the day quoted at 95.5 bid, 96.5 offered, unchanged to down about a quarter of a point depending on who was asked.

Adelphia bonds strong

It was quite a different story among junk bond denizens, traders there said.

"Most of the focus was on Adelphia today [Thursday]," one trader said, quoting the company's 10¼% notes due 2011 at 55.5 bid, 56.5 offered, which he saw as up "at least three points."

Other issues seen up multiple points included the 10 7/8% notes due 2010 at 51.5 bid, 52.5 offered, and its 9 3/8% notes due 2009 at 53 bid, 53.5 offered. A source at another desk saw the company's 9 7/8% notes due 2007 three points better at 52 bid.

Traders said that Adelphi's bonds had first firmed by about a point or two on Wednesday as word made the rounds of the market that there would be a late-afternoon conference call that day that included the company and representatives of the various creditor groups.

A trader said that there was another such conference call Thursday morning, essentially a continuation of the previous one, at which the proposed settlement was further discussed, and the bonds rose even more solidly on Thursday morning.

"It looks like they agreed to a settlement proposal," he said, in observing the rise in the notes, "so maybe we got some closure."

"I think people were working through the impact of that term sheet, saying its positive for the seniors [bonds issued by Adelphia] and positive for the Centurys [bonds issued by Adelphia's Century Communications Corp. subsidiary] as well, relative to recent trading levels," said Robert Konefal, the media and telecommunications analyst for Imperial Capital LLC, of Beverly Hills, Calif.

However, Konefal noted that the proposed settlement is by no means a done deal, at least not yet. "There are a couple of moving parts here," he cautioned.

"Importantly, the ad hoc committee for the Adelphia seniors has not signed onto this term sheet as well" as of late Thursday afternoon, he noted.

"I think there was a flurry of activity [in the Adelphia bonds] earlier in the day," which he said drove the levels up in the early going, but after that, "caution started to set" in as bond investors market grew concerned that with the ad hoc senior committee not actually on board yet, "there might be at least some risk that this term sheet doesn't go through."

He said that as of Thursday afternoon they hadn't said yes - but they hadn't said no either. There is no deadline by which the committee must take a position one way or the other.

Last month, Adelphia asked the U.S. Bankruptcy Court for the Southern District of New York to approve an expedited sale process, under which it might be able to proceed with the sale of most of its assets to Time Warner and Comcast, even before its bankruptcy plan was approved by its creditors and confirmed by the court. Such a sale without a confirmed reorganization plan in place would be allowable under section 363 of the Bankruptcy Code.

Meanwhile, Adelphia would sell to Comcast its majority interest in two joint ventures with that company - Century-TCI and Parnassos. That sale would occur at the same time as a separate plan of reorganization for those particular entities would take effect. Adelphia late Wednesday agreed to a set of confirmation guidelines for its amended joint venture plan of reorganization, under which proceeds from the sale of the joint ventures must be distributed to joint venture debtors Parnassos and Century-TCI to pay all joint venture creditors.

The parties had originally been racing against a "drop dead" deadline of July 31 by which the company's assets would have to be sold to Time Warner and Comcast.

Under the modified plan approved by the judge earlier this month, the deadline for the joint venture sale, for which a confirmed plan is necessary, was extended by a month to Aug. 31. The sale of the majority of the company's assets would meantime be going forward separately under section 363.

The modified plan was drawn up due to lack of progress in settlement discussions and concerns that the existing plan might not be confirmed. It breaks the transaction into two parts and extends the deadline for confirmation for the joint venture plan to Aug. 31.

Imperial's Konefal indicated that Adelphia is likely to need more time than that current Aug. 31 deadline in order to put through the plan proposed in the term sheet. It is possible that Time Warner and Comcast may take issue with granting this further extension, and concessions may be sought. However, the amount of time is not likely to be that significant, he said.

"There are a couple of pieces to the term sheet proposal that would still not assure everything," he said. "But broadly speaking, the idea would be to settle a huge issue - the inter-creditor dispute - and basically move a lot of the transaction to a reasonable time frame, around the end of the third quarter or so, as opposed to holding back a lot of the proceeds and fight it out in court."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.