Trico Marine gains as oil play; Charter lower; aaiPharma recovery levels encouraging

By Ronda Fears

New York, Oct. 7 - As oil hit $53 a barrel briefly Thursday, traders said distressed paper of oil and gas names like Trico Marine Services Inc. became a precious commodity in the sense of finding a bargain as most bonds in that space have richened sharply along with oil and gas prices.

Trico Marine's 8 7/8% notes were at 47 bid, 48 offered Thursday, a distressed trader said, having gained about 2.5 points this week.

Oil prices were propping up the bonds despite general hurricane damage to drilling rigs in the Gulf of Mexico recently, although the status of Trico Marine's operations there was not known. The Houma, La.-based company provides transportation to offshore oilfield workers in the Gulf of Mexico, the North Sea and Latin America.

On Thursday, oil prices reached $53 before dropping back to settle at $52.67, still up 65 cents. Hobbled output in the Gulf of Mexico, the threat of violence in Nigeria and general tensions in the Middle East that have disrupted oil shipments continued to push oil prices higher.

Trico Marine is planning a pre-packaged bankruptcy filing in which the 8 7/8% noteholders would get all of the reorganized company's stock. The stock was off a penny Thursday to 13 cents.

Elsewhere in the distressed debt arena, aaiPharma Inc. continued to firm on talk of asset sales.

Charter Communications Inc., however, slipped a little after the company gave a peek at third quarter numbers, which were a disappointment on some levels. Charter's bonds at the holding company level were off by a half-point or so and basically unchanged at the operating company level. Its convertibles were off about a quarter-point to a half-point, too.

Tower Automotive Inc. bonds were pulling back as well.

Charter figures upset, not fatal

Charter's numbers on the tape Thursday - a glance at its forecast for third-quarter revenue - were disappointing but not fatal, an analyst said. The actual numbers will show more about the St. Louis cable company's operations, which he said would be interesting in the wake of the chief operating officer's exit.

"The numbers are disappointing. Are they fatal? No," said Carl Blake, bond analyst at Friedman Billings Ramsey. "With the departure of the COO, you'd expect the numbers to be weak in third quarter. But operating expenses remain high. And there seems to be uncertainty as to strategy and executive management's commitment to strategy."

With the top-level management changes at Charter, he said the company and its strategy seem "rudderless."

Charter forecast revenues to be up 7.5%, after factoring out the sales of several cable systems in the past year, Charter said, with actual revenue expected to be up 3%.

Revenue growth was primarily offset by increased programming, customer care and service-related expenditures, resulting in compression of the adjusted EBITDA margin. Adjusted EBITDA is seen flat on a comparable basis and down 3% to 5% on an actual basis.

Charter forecast a third-quarter loss of 55,000 to 60,000 basic cable subscribers on a comparable basis, compared with a loss of 11,000 subscribers a year ago.

While there was a gain in basic cable subscribers, or analog subscriptions, Blake said the numbers were expected to be much better because the third quarter is historically good for cable companies.

aaiPharma firms by 2.5 points

aaiPharma just "keeps feeling better," said a distressed debt trader, with the Wilmington, N.C.-based pharmaceuticals maker's bonds still recovering from the plunge last week after skipping a coupon payment.

The 11½% senior subordinated notes due 2010 on Thursday added about 2.5 points, another trader said, who closed them at 72½ bid, 74 offered. The issue was seen as good as 71 bid, 72 offered on Wednesday, having firmed up over the past couple of days from prior levels around 67 bid, 68 offered.

aaiPharma's move to explore possible asset sales has fueled the comeback as well as estimated recovery levels, sources said.

"We did a liquidation valuation and come up with these being paid off in full," said a sellside analyst.

The company - which said just last week that it would not be able to make the scheduled Oct. 1 interest payment on the notes and would have to seek relief from its noteholders - said Wednesday that it has retained Rothschild Inc. to assist its management in its ongoing evaluation of potential asset divestitures.

aaiPharma keen to trials focus

"I think they will sell off the drugs, pay down the debt and run this as a CRO [clinical research organization]," the sellside analyst said.

That might be a very timely and a prudent move.

With all the recent controversy about drug trials - the use of Pfizer's arthritis drug Celebrex on a long-term basis being examined on Thursday, for example - observers said it seems that independent drug trial services would be a premium service in the pharmaceutical market. Another example might be the AtheroGenics Inc. story, in which the company's report of a successful Phase II trial of a heart treatment has been questioned.

aaiPharma said that it is evaluating a potential simplification of its operating structure by divesting businesses and assets that it may determine are no longer strategic to its long-term business plan.

"A successful conclusion to this process, if pursued, will enable management to refocus and devote all of its attentions to positioning the company for profitable growth," stated Dr. Ludo Reynders, aaiPharma's president and chief executive officer, in a news release Wednesday.

Tower bonds could weaken

Tower Automotive Inc. convertibles continued to gear down Thursday. In fact they haven't skipped a beat in a steady decline since the Novi, Mich.-based auto parts maker warned of a larger-than-expected quarterly loss on Monday, although the corresponding junk bonds in that name had bounced back on Wednesday. The bounce in the junk bonds, indeed, may have been premature, according to a bond analyst who said the credit could see further weakness.

The R.J. Tower junk bonds reversed course and were said to have lost 1 to 2 points on Thursday. The R.J. Towers had dropped precipitously on the news initially but bounced back Wednesday by around 4 points to a bid of 78. Tower Automotive's 5.75% convertibles have steadily skidded since the news hit the tape and were pegged Thursday in the 68.75 bid area, down from a level of 74 at the beginning of the week.

Tower shares Thursday fell 12 cents, or 6.25% to $1.80.

"Given its liquidity and the fact that it has no major debt maturities until 2009, Tower shouldn't implode like Intermet. Its financial results should improve once the new business kicks in and steel prices decline, and if launch costs come down," said GimmeCredit analyst Shelly Lombard in a report Thursday.

Tower on rocky road yet

Intermet Corp., which makes chassis and the like, warned about a steep third quarter loss in mid-September. That put it into a default on its bank covenants and about 10 days later the company filed bankruptcy. Tower Automotive may not necessarily be on the road to bankruptcy, but the analyst said its path may get rockier before it smoothes out.

"Even so, this company [Tower Automotive] is going to be cash flow negative for a while and financial results will look lousy for the next two quarters at least," Lombard said. "The bonds offer a juicy 15% current yield but we wouldn't be buyers just yet. Given current market sentiment about the automotive industry, these bonds could get even cheaper."

Intermet's bonds, the 9¾% notes due 2009, were hovering in the low 40s on Thursday, a trader said.

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