Adelphia bank debt up on Time Warner buzz; Delta sloppy after US Air bankruptcy

By Paul Deckelman and Sara Rosenberg

New York, Sept. 13 - News that Time Warner Inc. had dropped out of the bidding for legendary Hollywood dream factory Metro-Goldwyn-Mayer Inc. had investors in the bank debt and bonds of Adelphia Communications Corp. dreaming a few dreams of their own - mostly along the lines of the communications giant possibly now turning its attentions away from MGM and toward the bankrupt Greenwood Village, Colo.-based cable operator.

Elsewhere, the news that U.S. Airways Group Inc. had filed for what distressed-debt industry wags refer to as "Chapter 22" - i.e. a second Chapter 11 filing - sent a cold chill through investors in the debt of other troubled airlines, notably Delta Air Lines Inc., since U.S. Air's inability to bounce back from its earlier bankruptcy and make it on its own - even with help from the federal government - may be a harbinger of bad things to come for Delta and other weak major airlines.

Adelphia's Century Communications unit's bank debt felt stronger Monday, traders said, as investors - egged on by the news that Time Warner's interest in MGM is now gone with the wind, and that entertainment giant Sony Corp. will instead buy the venerable studio, roaring lion logo and all.

That, so the theory goes, now frees Time Warner to direct its interest - and its considerable wallet - toward Adelphia, whose assets are expected to be put up for auction later this month. According to some industry observers, Adelphia - either sold whole or busted into its component parts - could be worth as much as $23 billion. Some of its assets are highly prized, such as its cable clusters in the metropolitan Los Angeles area.

Belief that Time Warner may once again be a potential buyer of Adelphia pushed the New Century paper up to 98 bid, 99 offered, while the Old Century paper was quoted at 98.5 bid, 99.5 offered, according to a trader, who said that both tranches were higher by about a point on the day.

However, on Friday a different trader had quoted the Century Old at 98.25 bid, 98.75 offered and the Century New at 98 bid, 98.5 offered. Based on those levels, the paper was only up about a quarter to a half a point on the day.

"There was news out today that Time Warner is out of the bid for MGM so that puts them back in the running for Adelphia or pieces of Adelphia," a trader said.

Time Warner announced the withdrawal of its bid for MGM on Monday morning because, as Dick Parsons, Time Warner's chairman and chief executive officer, explained in a news release, "unfortunately, Time Warner could not reach agreement with MGM at a price that would have represented a prudent use of our growing financial capacity.

"As we pledged to our shareholders, we approach every potential acquisition with strict financial discipline. We are confident that there are other capital allocation choices that will enable us to continue to build shareholder value," Parsons added in the release.

On the bond side of the ledger, a trader in distressed notes saw Adelphia "up a little, maybe about a point," quoting the company's 10¼% notes due 2011 at 93.5 bid, 94.5 offered, and its 10¼% notes due 2006 at 91 bid, 92 offered, up from 90 bid, 91 offered.

Adelphia's busted 6% convertible notes, he said, were about two points higher at 32 bid, 34 offered.

Another market source pegged its 9 7/8% notes due 2007 perhaps a point higher at 90.5 bid, while Century's 8¾% notes due 2007, which trade at a premium to the parent because holders are closer to the assets, were up more than a point to 108.5 bid.

Delta down sharply

In other distressed bond names, Delta "is down four or five points" from recent levels, a trader said, quoting the Atlanta-based air carrier's benchmark 7.70% notes due 2005 as having fallen to as low as 40 bid, 42 offered, before ending the session at 42 bid, 43 offered - still well down from 45 bid, 47 offered previously.

He saw Delta's 10% notes due 2008 as having dipped as low as 30 bid, 32 offered, from prior levels at 35 bid, 37 offered. Finally Monday, he said, those bonds went out at 32 bid, 33 offered.

The trader saw the 8.30% notes due 2029 continuing to languish at 25 bid, 27 offered, while its 7.90% notes due 2009 at 28 bid, 30 offered.

The 7.70s are off the most dramatically over recent sessions, he explained, because "the higher the price, the more it came down."

US Air's return flight into bankruptcy cast a pall over the struggling industry, since it serves as an object warning of what can happen to a major old-line legacy carrier beset by high labor and pension costs, high fuel costs and cut-throat competition from the other old-line carriers trying to each grab as much of the shrinking pie of their market as possible - while upstart carriers like Jet Blue are making the non-discount pie smaller and smaller with every passing month.

Perhaps with an eye on US Air's situation - and following its own admission of failure Friday to get secured bondholders to go along with indenture changes that were seen as crucial to any effort to restructure the airline's $20 billion debt load out of court - Delta said on Monday it was meeting with bankruptcy lawyers to prepare - just in case the carrier needs to file for bankruptcy protection.

However, chief executive officer Gerald Grinstein said that recent talks with its pilots on the airline's demand for further wage-cut concessions and on the issue of early pilot retirements give him hope that a pilot agreement can be reached later this week.

Mirant loans stronger

Back among bank debt investors, Mirant Corp.'s 2003 bank debt was seen stronger in Monday's market, traders said, with the Atlanta-based energy company's paper quoted at 60 bid, 61 offered, up about a quarter to half a point on the day, although on no specific news.

And another energy name, Houston-based Reliant Energy Inc., was active throughout market hours, with its term loan trading in the 100.25 bid, 100.75 context, unchanged on the day, a trader added.

Meanwhile, levels on Atkins Nutritionals Inc.'s bank debt were somewhat unclear in Monday's market, as quotes were being discussed all over the place. That caused investors to spend their time trying to sort out fact from fiction.

The first-lien paper is thought to be in the 80 bid to 83 offered area and the second-lien paper is thought to be in the 60s, according to a trader.

"Some are saying mid-to-high 70s [on the first-lien] but I don't think that's the case," the trader said.

By comparison, at the start of last week, the first-lien bank debt was in the mid-to-high 80s area and the first-lien paper was in the low 80s, the trader added.

The fall has been influenced by meetings that have been taking place between Atkins - a Ronkonkoma, N.Y. -based provider of food, nutritional and information products for controlled carbohydrate lifestyles - and its bank lenders regarding concerns about financial numbers. The most recent meeting occurred this past Friday.

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