Leap bank debt leaps; asbestos bonds firmer despite D.C. deadlock

By Paul Deckelman and Sara Rosenberg

New York, April 26 - Leap Wireless International Inc.'s bank debt rallied quite a bit on Monday with the paper moving higher by three points, traders said, with market speculation about creditors' likely recovery when the San Diego-based telecommunications company completes its Chapter 11 reorganization seen as the probable catalyst.

Elsewhere, the bonds of Federal-Mogul Corp. and other bankrupt companies with asbestos issues were quoted up solidly, even though the Senate failed on Thursday to okay a procedural effort to bring a long-waited asbestos settlement bill closer to passage. And Trico Marine Services Inc.'s bonds continued their recent retreat.

Leap Wireless's bank debt was quoted bid as high as 101.5, well up from opening bids around 98.5, various traders said.

There was no specific news pushing the paper higher; however, there's lots of speculation out there as to why the loans are rallying to such great heights, beyond the usual praise market players have for the company's performance and its ability to keep adding subscribers to its network.

"[Someone] traded a big block, so a lot of paper cleared out," one trader said.

"People think there's equity value there," a second trader asserted. And, since bank debt holders will receive debt and equity in consideration for their positions as part of the eventual Chapter 11 reorganization plan, the more equity value people attribute to the company, the better the bank debt trades, another trader explained.

Leap, its Cricket Communications Inc. operating unit and substantially all of their subsidiaries sought protection from the company's creditors in April 2003.

"I heard the recovery value of the bank debt may be as high as 110 based on equity value," yet another trader said. "That could be hearsay and based on a very quick analysis but it might be worth playing around in."

Leap's over-the-counter bulletin board- traded shares are almost without value, although Monday's dealings saw them rise $0.003 (11.54%) to $0.029.

Adelphia loans trade but unchanged

Adelphia Communications Corp.'s bank debt was seen trading around a little bit on Monday, in line with Friday's levels, ending the roughly one-point rally that began late last week in reaction to news that the bankrupt Greenwood Village, Colo.-based cable operator is considering a sale of part of the company - or perhaps even all of it - as a possible alternative to continuing reorganizing and continuing to operate independently.

Adelphia's Old Century paper was quoted at 97.5 bid, 98.5 offered, while its New Century paper was quoted at 97 bid, 98 offered, a bank debt trader said.

Adelphia bonds up

However, Adelphia's bonds - which had firmed smartly last week on the notion that the company might be broken up or sold whole - continued to strengthen, bond market sources said.

One source quoted Adelphia's 10 7/8% notes due 2010 as having improved to 108 bid from prior levels at 106.75 bid, and he saw the company's 10¼% notes due 2011 half a point better at 109.5.

A trader saw those same bonds as high as 110 bid, 111 offered, up a point on the session.

Adelphia's 9 7/8% notes due 2007 were being quoted up nearly a point on the session at 106.75 bid, while its Century Communications unit's 8 7/8% notes due 2007 were half a point up at 112.5 bid.

At another desk, a trader noted that Adelphia's bonds "all seemed to be better. They were bid for," but added that "there's not many bonds for sale."

It was his opinion that "the unsecured creditors are basically forcing the company to reevaluate their plan, and they may in fact end up putting the company up for sale, and it could be for as much as $20 billion," quoting a figure mentioned in Friday's Wall Street Journal and other accounts, "which would give the unsecured creditors a substantially larger stake, which obviously means the bonds are much more valuable. Everything was up, and they're waiting to hear news on that situation."

However, he reiterated that he had seen the Adelphia bonds "all bid for, but no bonds were offered."

A trader in distressed bonds - who dryly noted that Adelphia's regular junk bonds were now trading at way too lofty levels, well above par, to be of interest at his shop, said that he had seen Adelphia's convertible bonds "up a little from last week," in the mid-50s.

Adelphia - which sought Chapter 11 protection last spring amid a giant-sized accounting scandal involving alleged irregular borrowing against company assets by company founder John Rigas and members of his family - said on Thursday that the possible sale of part or even all of the company would be explored as part of a plan of reorganization, although management also reiterated its preference of having Adelphia remain an independent company following reorganization, and its intention of trying to pursue that option, even while exploring the idea of a sale.

Bondholders and other creditors as well as equity holders have objected to the company plan on the grounds that breaking Adelphia up by selling its assets - or the whole company - would likely yield a greater recovery to its creditors than the company plan to swap much of its billions of dollars in debt for cash and equity in a restructured, independent company. The latter plan would value Adelphia at about $17 billion, while dissident bondholders and other creditors believe a breakup could yield as much as $20 billion.

Adelphia is the fifth-largest cable operator in the U.S.; larger industry players who might be interested in acquiring its assets through the bankruptcy courts are said to include Time-Warner, Cox Communications, and, possibly, Comcast.

Also in the communications sphere, Pegasus Satellite's 12 3/8% notes due 2006 were seen having crept up two points to 70 bid, although there was no fresh news out on the company, a unit of Bala Cynwyd, Pa.-based TV programming distributor Pegasus Communications. On Friday, the company's 13½% notes due 2007 lost three points to 55 bid.

Trico off again

Outside of communications, Trico Marine Services' 8 7/8% notes due 2012 continued to list badly, the bonds falling to levels as low as 42 bid, 43 offered, a trader said, "down a few [points]" from Friday's levels around 44.5 bid, while a market source at another desk agreed that the bonds were "still getting hit."

Trico's 8 7/8s were quoted as low as 41.5 bid, down about three points on the session. While the bonds of the Houma, La.-based provider of marine services to the offshore oil drilling industry were getting pushed lower, the company's Nasdaq-traded shares were positively tanking, down 33 cents (30.56%) to 75 cents on volume of 3.7 million shares, about eight times the usual turnover.

Winn-Dixie rises

On the upside, traders saw Winn-Dixie Stores Inc.'s bonds "up a little from last week," one said, ahead of Friday's scheduled release of the latest quarterly numbers by the troubled Jacksonville, Fla.-based supermarket chain.

The trader quoted its 8 7/8% notes at 93 bid and its 8.182% notes at 79 bid, 81 offered, both "up a little from a couple of days ago."

Winn-Dixie is "continuing to improve, going into Friday's numbers," another trader said, seeing the 8 7/8s as high as 93.25 bid.

Apparent noteholder optimism about the upcoming results is significant, since it was an unexpected quarterly loss which Winn-Dixie reported just three months ago that was the catalyst for knocking the company's bonds down from previous levels above par to levels all the way down in the low 80s, before the bonds began creeping back up and recovering some of their lost ground on news of company efforts to find equity investors, and speculation that its controlling shareholders, the Davis family, might alternatively take Winn-Dixie private.

Asbestos names better

A trader saw Federal-Mogul's 7½% notes scheduled to come due later this year as having firmed to 29 bid, 30 offered from the bankrupt Southfield, Mich.-based auto parts maker's prior levels around 26 bid, 27 offered.

Indeed, "there was an up move in all the asbestos guys," he said, quoting bankrupt Toledo, Ohio-based insulation maker Owens-Corning's 7½% notes due 2018 as having moved up to 43.5 bid, 44.5 offered from prior levels at 41 bid, 42 offered, and bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s 6½% notes due 2005 up two points at 53.5 bid, 54.5 offered.

"I don't understand it at all myself," he said of the rise in the asbestos bonds, even in the face of the Senate's failure last Thursday to end debate on a bill that would set up a $124 billion payout fund that asbestos claimants could tap - in return for foregoing the right to sue companies that made or used asbestos, once widely used as fireproofing but now considered a carcinogen.

A flood of asbestos-related lawsuits drove Federal-Mogul, Owens-Corning, Armstrong and dozens of other companies to seek Chapter 11.

The bill's opponents refused to let the bill come up for a floor vote, contending that it provided an inadequate mechanism for addressing the claims.

"Everything I saw said the bill had at best a 20% chance of passage, so I was very surprised" to see the bonds rise.

The leaders of the Republican and Democratic factions in the Senate were scheduled to begin last-ditch talks Monday on coming up with some kind of bill, with the help of a mediator, but the likelihood that such a bill acceptable to both sides might emerge in the bitterly partisan, highly politicized election-year atmosphere before Congress breaks for its summer recess several weeks from now, is considered at this point by many experts and other observers to be a long-shot.

Still, the trader said, "maybe somebody wired in to Washington knows something - because the bonds went up."

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