Interstate Bakeries bank paper roiled by disclosures; Adelphia bonds firm as new suitors seen

By Paul Deckelman and Sara Rosenberg

New York, Aug. 30 - There was a lot of interest in Interstate Bakeries Corp.'s bank debt, on both distressed and par desks, as investors were trying to digest news of a second 10-K filing delay and trying to figure out just where the paper should be quoted.

In distressed bond trading, Adelphia Communications Corp. notes were being quoted about a point or two higher, with traders mentioning news reports indicating that other suitors besides cable giants Comcast Corp. and Time Warner Cable might emerge to bid on some of the bankrupt Greenwood Village, Colo.-based cable operator's assets when a court-supervised auction of Adelphia - either whole or in parts - is conducted sometime next month.

Interstate Bakeries - the nation's largest wholesale baker, best known for such famous brand names as Wonder Bread, Hostess Twinkies and Drake's Cakes - said Monday that it missed its Friday deadline for filing its 10-K annual report for the fiscal year ended May 29 with the Securities and Exchange Commission.

News that the company had not met the filing deadline, and other potential negatives it outlined in its news release announcing the delay, caused the Kansas City, Mo.-based cake maker's stock to swoon precipitously, the New York Stock Exchange-traded shares plummeting $3.34 (42.48%) to $4.56 on volume of 7.6 million - more than 16 times the usual turnover.

It also caused some dismay in the bank debt market, where traders tried to get a fix on where its paper should be trading - a task made more difficult by both the many uncertainties surrounding the company, as well as there being not enough people present in this pre-holiday week to actually get solid market reaction for the purpose of estimating levels.

"We're still trying to figure that one out. The news is still being digested," one trader said regarding Interstate Bakeries' bank debt levels, adding that he wouldn't even speculate on levels since at this point they probably wouldn't be accurate.

"It was in the low 98s prior to them postponing their 10-K again," a second trader said. "I would imagine 97, 98 now - [but] you have to have more people in to see how they react."

Interstate said that it is currently in talks with representatives of the agent bank under its senior secured credit facility regarding the situation.

Besides announcing the delayed 10-K, the company also said that it had retained the well-known turnaround firm of Alvarez & Marsal to pursue an effective business strategy going forward.

Interstate said in a news release that the delays that kept it from filing the 10-K on time resulted from initial data entry and training deficiencies in Interstate Bakeries' newly implemented financial reporting systems, as well as uncertainty regarding anticipated fiscal 2005 first quarter results, uncertainty as to whether the company will be in compliance with covenants in its senior secured credit facility agreement during fiscal 2005, and the possibility that the report of its independent auditors with respect to the fiscal 2004 financial statements might contain a "going concern" paragraph.

Friday's filing deadline was the second that Interstate Bakeries had been unable to meet; the company had previously received an extension to Friday for the filing because of delays in finalizing its audited financial statements arising from the previously announced investigation of the manner for setting workers' compensation reserves and other reserves.

Delta unchanged

Elsewhere, traders said they saw "absolutely" no movement in the bonds of Delta Air Lines Inc., which had recently been bouncing around in reaction to the troubled Atlanta-based airline's efforts to begin lining up an out-of-court restructuring of a portion of its $20 billion debt by seeking holder consents to proposed indenture changes - and the rebuff that holders of much of that portion, consisting of bonds secured by liens against Delta's planes, have so far given the company

Delta's benchmark 7.70% notes due 2005 continued to hover around the 45 bid area at which they finished last week, while its 8.30% bonds due 2029 were still around 27-28 bid. The airline operator's 7.90% notes due 2009 stayed at 31 bid, 33 offered.

Adelphia bonds gain

With few names really doing anything Monday in the high yield bond market, outside of quote levels on United Rentals Inc.'s bonds falling a dramatic five to six points after the Greenwich, Conn.-based equipment rental company said it was under SEC scrutiny, and then bouncing off their lows to end down about two to four points, traders noted that Adelphia Communications' bonds seemed better, and one or two cited news reports indicating that several heretofore unmentioned bidders could potentially step forward to bid on parts of Adelphia when its assets are auctioned off next month.

A trader pegged Adelphia's 10¼% notes due 2011 two points better at 94 bid, while another trader saw the 10¼% notes in a 93 bid, 94 offered context, "up a bit from last week's 91-92 range." He quoted Adelphia's 9 3/8% notes due 2009 at 89.5 bid, 90.5 offered, also a little better than recently.

At another desk, Adelphia's 9 7/8% notes due 2007 were a point better at 90, while its Century Communications Corp. unit's 8 7/8% notes due 2007 were likewise a point up.

But another trader dismissed the whole thing, opining that "Adelphia may have some new suitors - but it didn't have much effect on its bonds. "

Reuters and The Wall Street Journal were reporting that among those who might step forward to make a bid from some of Adelphia's assets are such industry pioneers as William Bresnan, who ran the biggest U.S. cable operator in the early 1970s and who is now the president of the eponymous cabler Bresnan Communications. Also mentioned in this context were Jerald Kent, the co-founder of Charter Communications, and Steven Simmons. According to the news reports, all are working with deep-pocketed equity partners, and any one or more of them might make a bid for some Adelphia assets that might complement their current holdings.

Such bids would be in addition to bids expected from such huge operators as Comcast, Time Warner Cable and, possibly, Cox Communications.

Waste Services stuck in mid-80s

Waste Services Inc.'s 9½% notes due 2014 - which had been sold at par back on April 26 - were being quoted languishing in a "mid-80s context, around 86 bid, 87 offered," a trader said, after having gradually sunk to present levels from their issue price in the ensuing four months.

Traders did not see any recent notable movement in the bonds, owing to its relative illiquidity ($160 million) and the extremely non-glamorous industry the company is in.

The Burlington, Ont.-solid waste disposal company - formerly known as Capital Environmental Resource Inc. - last week announced that it had received a waiver from its senior lenders, good through Oct. 5, of non-compliance with certain financial covenants contained in its senior credit agreement. The company said that sometime before the waiver expires, it intends to negotiate permanent revisions to the credit facility.

It said that during the interim period, the company's access to the revolving credit facility will be limited to $10 million in excess of the amounts currently outstanding.

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