WorldCom lightens up after government ban on contracts; Hollywood Shreveport dives

By Carlise Newman and Paul Deckelman

Chicago, Aug. 1 - Not a day passed this past week in distressed trading when WorldCom Inc. wasn't mentioned and Friday was no exception.

WorldCom suffered another setback on Thursday when the General Services Administration said the bankrupt telephone company could no longer compete for new U.S. government contracts after finding it lacked proper internal controls and business ethics.

The bonds swung lower just before the close of trading Thursday, and traders anticipated a very weak open; however, they opened at 251/4, which was Thursday's closing level.

A trader said that "a big block" of bonds traded at 25 bid early in the day. At Friday's close, the bonds were at 25¼ bid, 25¾ offered.

"The prices weren't at all what we were expecting. I thought the bonds would open really weak, move around a bit, and then close at the morning's levels ahead of the weekend. There was relatively little movement," a trader said.

The MCI notes closed Thursday at 68½ bid, 69½ offered, and closed Friday higher at 70½ bid.

The GSA said it would review whether the temporary ban on WorldCom should be extended for up to three years.

The GSA agency said its investigation found the Ashburn, Va.-based company had not adequately addressed its material accounting and business ethics weaknesses.

WorldCom said the decision does not affect its existing government contracts, which draw in about $1 billion in revenue annually. The company has 30 days to respond to GSA, though it can ask for an extension.

Meanwhile, Hollywood Casino Shreveport's bonds dropped several points Friday after the company's parent said it did not make the payments on its notes (see story elsewhere in this issue). The 13% notes due 2006 fell 7 or 8 points to 58 bid, a trader said.

HCS I Inc., the managing general partner of Hollywood Casino Shreveport, said Hollywood Casino Shreveport will not make the Aug. 1 interest payments of $12.3 million owing on the 13% notes due 2006 and the 13% first mortgage notes due 2006 issued by Hollywood Casino Shreveport and Shreveport Capital Corp. Hollywood Casino Shreveport is already in default on the notes for failing to make a repurchase offer.

Elsewhere, Global Crossing was active on Friday.

"The bonds were actively traded on the street within 3-4 contexts," a trader said.

Two U.S. senators on Thursday urged the government to stop a company owned by an arm of the Singapore government from purchasing a majority stake in bankrupt Global Crossing.

The Committee on Foreign Investment in the United States has been reviewing whether the deal would threaten U.S. national security.

Global Crossing filed for bankruptcy in January 2002 after buckling under $12.4 billion in debt and a sagging telecommunications market.

The panel is expected to make its recommendation by early September; after that President George W. Bush would have 15 days to render the final decision.

The Pentagon has been concerned about foreign ownership of a company that runs critical infrastructure. Global Crossing operates high-speed fiber optic telecommunications networks in 27 countries.

UAL Corp., absent from many distressed desks for some time, was trading lower after posting a huge loss as revenue dropped 18 %.

UAL's 9¾% notes due 2021, dropped two points to 8 bid, 9 offered, a trader said.

"That issue has been trading under 10 cents on the dollar for some time now," he observed.

Including $300 million in government aid, UAL said its second-quarter loss was $623 million on an 18% decline in revenue to $3.1 billion. That compared with a loss of $341 million in the year-ago period.

The company has said it plans to exit from Chapter 11 bankruptcy protection by late this year or early 2004.

Excluding the government aid and charges of $447 million in special items, UAL said its loss was $476 million, or $4.79 per share.

UAL, parent of United Airlines Corp., said it posted positive operating cash flow of $2 million per day in the quarter, excluding the $300 million in government reimbursement and a $365 million income tax refund the company received during the quarter.

Its cash increased to $2.3 billion, including $684 million in restricted cash.

In addition, United said that in June for the fifth straight month it satisfied the covenants of its debtor-in-possession financing required by bankruptcy lenders.

"The second quarter began as a severe challenge for United and the industry as a whole, but we saw a particularly positive trend as we moved through the period," said Glenn Tilton, chairman and chief executive officer, in a news release.

Conseco Inc. was "firmer," on Friday after it said its unsecured creditors and holders of its trust originated preferred securities holders will support an amended plan of reorganization.

Conseco's extended bonds were up "about 2 to 2½ points" to 66½ bid, 67½ offered, while its unextended bonds were up a point to 37½ bid.

If the court approves the settlement, Conseco said it plans to file a fifth amended plan of reorganization that incorporates the settlement terms and will reflect a $3.8 billion company value.

St. Louis wire manufacturer International Wire Group's 11¾% notes due 2005 were down 3 points to 61 bid, after having risen ½ point on Thursday.

Big losers for the week include restaurant operator Denny's Corp. Its 11¼% notes due 2008 fell to 61 offered from 68 offered on Monday.

In addition, satellite operator Loral Space & Communications, which filed for bankruptcy in mid-July, saw its 9½% notes dip to 25 bid, 27 offered from 29 bid, 30½ offered on Monday.

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