Leap bank debt continues to jump; Trico bonds seen higher but trading flat

By Paul Deckelman and Sara Rosenberg

New York, June 16 - There seems to be no bounds for Leap Wireless International Inc.'s leap, as the San Diego-based telecommunications operator's bank debt was seen higher by a couple of points on Wednesday. The bank debt has recently been boosted by positive investor sentiment about the company's prospects once it emerges from Chapter 11 - with the current bank debt holders then owning most of the revamped company's equity.

Elsewhere, a trader in distressed bonds said that Trico Marine Services Inc.'s bonds were trading at nominally higher levels, but said they were now trading without interest, after the company's announcement late Tuesday that it had decided not to make the scheduled May 15 interest payment on its 8 7/8% senior notes due 2012 within the 30-day grace period that began when it first missed making the coupon.

Leap Wireless' bank debt was seen with trades taking place as high as 126.375. By day's end, traders were quoting the paper at 126 bid, 127 offered.

Leap has recently soared. By comparison with Wednesday's levels the bank debt ended last week's trading on Thursday at about 121 bid - and finished at 110 a week before that.

Many in the market have been citing new valuations as the primary driver behind the recent surge, with a generally held belief that there is great equity value behind the company's name. Bank debt holders will get equity along with some new debt as part of the Chapter 11 reorganization plan, so the more equity value people attribute to the company the better the bank debt trades.

But there seemed to be more than just valuations driving Leap's debt on Wednesday; a trader said that besides valuations, "numbers are supposed to come out shortly - and people expect them to be really good."

Since the company is operating under court protection, "they put out monthly numbers," a second trader added, unlike non-reorganizing companies which report quarterly. "One of the things driving their paper is their constant outperformance," the trader added.

Bondholders, further down the food chain from the bank debt holders and not likely to get very much out of the restructured company's presumably stronger equity, have failed to follow Leap's bank debt up; the company's zero-coupon discount junk bonds due 2010 were unchanged at 13.5 bid, while its 12½% notes due 2010 held steady at 16.5.

Pegasus steady

Also among communications names, Pegasus Satellite Communications Inc.'s bonds "were pretty much unchanged," a market source said, a day after the bankrupt Bala Cynwyd, Pa.-based satellite television programming distributor sued former business associate DirecTV Group Inc. and the National Rural Telecommunications Cooperative, a TV distribution industry group of which Pegasus had been the largest member. Pegasus said that DirecTV, whose programming Pegasus distributes - for now - to its 1.1 million mostly rural customers, and NRTC had conspired to steal its customers and "destroy" Pegasus, whose bankruptcy filing last month was part of its ongoing legal war with DirecTV.

On Wednesday Pegasus' 9¾% notes due 2006 were seen unchanged at 45 bid, the source said, while its 9 5/8% notes due 2008 were likewise unchanged at 45. He pegged Pegasus' 13½% junior bonds due 2007 at 11.25 bid and saw its 12¾% notes due 2007 way down, languishing at just five cents on the dollar.

Adelphia Communications Inc. bonds were seen little changed in Wednesday's dealings, with the bankrupt Greenwood Village, Colo.-based cable operator's 10 7/8% notes due 2010 perhaps a quarter point better at 104.25, while its other bonds, like the 10¼% notes due 2006, were unchanged, the 101/4s hanging in at 102.

A trader did see movement in RCN Corp.'s bonds, quoting the bankrupt Princeton, N.J.-based telecom operator's bonds, such as its 9.80% notes due 2008, at better levels.

"They've just been movin' up," he declared, quoting the notes at 59 bid, 60 offered, up from 56 bid, 58 offered, and from 52 bid, 54 offered at the beginning of the week, although he did not see any news out on the company.

Trico jumps higher

Outside of the communications area, the trader did see considerable movement, following news, in Trico Marine's 8 7/8% notes, quoting them as having moved up to 60 bid 61, offered from nominal levels about 10 points lower. But the trader said that having defaulted on the coupon payment by not paying the roughly $11 million of interest on the $250 million of bonds within the 30-day grace period, the company's bonds were now trading flat, or without accrued interest, while they had been trading with interest previously.

Trico, a Houma, La.-based provider of marine services to the offshore energy drilling industry, said the non-payment of the coupon by the time the grace period expired constitutes a default, "which gives rise to cross-default provisions under certain other agreements."

Trico said it continues to analyze its financial restructuring alternatives, and is continuing to hold discussions with financial and legal advisors to an ad hoc committee of noteholders, and with other creditors.

The company said it "intends to make timely payments to all employees, suppliers and vendors."

J.L. French better, Salton lower

The trader also saw movement in the bonds of J.L. French Automotive Casting Inc., quoting the Sheboygan, Wisc.-based automotive component's 11½% notes due 2009 as having pushed all the way up to 69 bid, 71 offered from prior levels in the mid to lower 60s, although he was unaware of any fresh news out on the company. At another desk, the French bonds were seen up a considerably more sedate two points to about the 63 bid level.

Salton Inc.'s bonds, which had jumped about five or six points on Tuesday after the Lake Forest, Ill.-based small appliance maker had announced a revised credit facility agreement that gives it more covenant flexibility and about $30 million more of borrowing capacity, were seen having eased from Tuesday's highs, with the company's 10¾% notes due 2005 dipping to 85 bid and its 12¼% notes due 2008 easing to 75, both a point lower on the day.

Delta steady to lower

Delta Air Lines Inc.'s bonds were seen generally unchanged to down a point, after the Atlanta-based air carrier's chairman, Gerald Grinstein, told a Merrill Lynch & Co. transportation conference that the carrier could not continue to exist as it does now without serious changes in its operations and overall cost structure. But Grinstein also reiterated that the company does not anticipate a Chapter 11 filing, except as a very last resort (see related article elsewhere in this issue).

A trader dismissed the Delta chairman's statement as essentially nothing new and quoted Delta's 7.70% notes due 2005 a point lower at 58.5 bid, 60.5 offered, while its 8.30% notes due 2029 were "still in that same 38-40 context." He characterized Delta's long-running face-off with its pilot's union on the size of concessions the captains will make as "a big game of chicken."

Horizon loans up again

Back among bank debt investors, Horizon Natural Resources' paper continued its upward momentum, ending the day higher by about two points with quotes of 50 bid, 52 offered, according to a trader.

The recent rally in the Ashland, Ky.-based steam coal producer's bank debt has mainly been attributed to the increased bid for the company that was announced at the start of this week.

A W.L. Ross-led group of holders of a majority of Horizon Natural Resources' second-lien notes raised their bid for the company to $277.35 million on Monday from $240 million previously.

After that, Deutsche Bank, the unsecured creditors committee and other creditors withdrew their earlier objections and supported the designation of the Ross group as the preferred bidder.

On Tuesday, the bidding procedures for the company's assets were approved by the U.S. Bankruptcy Court for the Eastern District of Kentucky.

The auction is scheduled for Aug. 17.

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