Adelphia down as waiver deadline nears, cash crunch looms; CMS firms on asset-sale plans

By Paul Deckelman and Paul A. Harris

New York, May 29 - Time appeared to be running out for the beleaguered Adelphia Communications Corp. on Wednesday, as it negotiated desperately with its lenders on a covenant violation waiver ahead of a Thursday deadline and sought to quickly raise much-needed cash; the company's bonds were lower and its stock swooned in the face of its deteriorating situation. On the upside, CMS Energy Corp.'s debt jumped on the news that it would shed its oil and gas exploration and production assets.

Meanwhile the primary was generally quiet with the only news being the emergence of talk on Asbury Automotive Group, Inc.'s upcoming offering.

Adelphia's bonds "were going up and down," said a trader, who saw its 10-handle bonds (such as Adelphia's 10¼% and 10 7/8% notes) finishing "lower than they were [Wednesday] morning." He saw them open around 76 bid, then fall as low as 72 bid before settling at around 73.5.

At another desk, the 101/4s were quoted as having fallen to 74.5 bid from 77.5, while the 10 7/8s were likewise down three points on the day at 73.5.

A trader saw Adelphia's 9 7/8% notes due 2005 "hanging in there, with not much change," in the 70-72 bid area, while Adelphia unit Arahova Communications Inc.'s 8 7/8% notes due 2007 were off as much as five points on the session, finishing around 72.

The Coudersport, Pa.-based cable television system operator's Nasdaq-traded shares meanwhile tumbled 84 cents (42%) to $1.16, even hitting a new intraday low of $1.09.

Adelphia was facing the expiration Thursday of a 30-day grace period under its bank covenants, in the wake of its failure to file a 2001 financial report on time, and without a waiver of the resulting default, it could be forced to immediately pony up $7 billion it doesn't have, which would likely push the company into a Chapter 11 filing.

Meantime, Wednesday's Wall Street Journal reported that the embattled Number-6 U.S. cabler would be "facing a severe cash crisis in the next two weeks," and was scurrying around to either raise $1 billion from private equity firms or sell off assets to meet its needs. The Journal said the debt-burdened Adelphia "has been negotiating round the clock over the past few days" in hopes of striking a deal with rival cable operator Charter Communications Inc. to sell systems in metropolitan Los Angeles and several Southern states, with a total subscriber base of about one million, to Charter for as much as $3.4 billion. It was at the same time trying to get the Blackstone Group and Apollo Capital to invest as much as $1 billion in the company.

But the Journal said that "the threat of legal liabilities is likely to complicate or block any deal," with Adelphia under legal assault by disgruntled shareholders, and under scrutiny by the Securities and Exchange Commission and federal grand juries in New York and Pennsylvania, in the wake of revelations of extensive self-dealing transactions between Adelphia and its founding Rigas family, which last week was forced to relinquish control of the company board and give up multiple executive posts held by Family members.

The day's other significant mover was CMS Energy, which announced plans to sell its oil and gas exploration and production business, CMS Oil & Gas Co. The Dearborn, Mich.-based power producer and trader did not say how much it hoped to realize from such a sale, which would mark the company's exit from the energy exploration and production sector.

CMS has so far raised about $2.4 billion via asset sales, securitizations and liquified natural gas monetization en route to its target of raising $2.9 billion from asset sales by the end of the year. Earlier this month, it sold its Consumers Energy Co.'s transmission system to Trans-Elect Inc. for $290 million.

The latest planned divestiture did not thrill shareholders, who dropped the company's stock 49 cents (2.64%) in New York Stock Exchange trading, to $18.05. But bondholders put their stamp of approval on the plan, as the company's notes rose about two to three points across the board, a market source said.

He quoted the company's 7½% notes due 2009 as having pushed up to about 92.5 bid, its 8.90% notes due 2008 as having risen from 96 to 99 and its 8½% notes due 2011 as having firmed to 97 bid from prior levels around 94. At another desk, the 71/2s were quoted as having traded as high as 95.5 during the session.

CMS "has made a real turnaround, a real run" of late. He noted that the company's 9 7/8% notes due 2007 had hovered above 110 bid two weeks ago or so, but then careened downward to the 86-88 area on revelations that CMS and several other power producing and trading companies had artificially inflated their trading volume statistics over the past two years with dozens of bogus "round trip trades" in which the companies sold power contracts back and forth at the same prices, producing no economic benefit to either side but making both look far busier than they really were (and making the whole market appear far more liquid than it really was). That caused the securities of CMS and industry rivals such as Dynegy Inc. to reel, and led to the resignations of several CMS executives, including chairman William McCormick. The company also said an independent panel would probe the trades, and it would re-state results for the past two years to eliminate their bottom-line impact on revenues and profits.

With the company apparently acting quickly to get its affairs back in order, the bonds bounced off their lows and "worked their way back into the mid 90s," the trader said. The debt continued to firm over the last few sessions, pushing to 103 bid/105 offered at Wednesday's close. "They could have been down 30 0r 40 points, and you come back from vacation and you think you're down two."

The trader saw retailing names as "a little softer," noting that Saks Inc., which had been "running up as of late" seemed to be coming off its recent peaks. He saw the store chain's 7 3/8% notes due 2009 softening a bit, to about the 85 bid/88 offered area from prior levels at the end of last week around 86 bid/89 offered. "They had run up several points in the past week or so," he said. The easing was mostly due to "a level of liquidity. People are taking some profits, not that anything fundamental has changed with the names" in the retailing sector. He saw Saks' 8¼% notes due 2008 , which had gotten as good as 102 bid/103 offered a week ago, now trading around 98 bid/par offered. "You see some softness there, but still really good value in that type of stuff."

Great Atlantic & Pacific Tea Co. continued to struggle Wednesday in the wake of the sharp slide in its shares and bonds seen Tuesday after the Montvale, N.J.-based supermarket operator - owner of the widely known A&P chain - said that an accounting review would force it to delay the filing of its financial report for the fiscal year ended Feb. 23.

Although "everybody still needs to buy milk and oranges," the trader said, "any kind of news now abut delayed earnings [data] is like a kiss of death."

He saw the grocery giant's 7¾% notes - which on Tuesday had fallen to 96 bid/97 offered from Friday's 100.25 bid/100.5 offered - "getting beaten up" and eroding to 93 bid, about the same level its 7.70% notes went down to. However, A&P's shares, which on Tuesday had nosedived 16.06%, bounced off their lows and ended Wednesday's New York Stock Exchange dealings up $2.20 (10.44%) to finish at $23.27.

Atlas Air Holdings Worldwide's bonds and shares ran into turbulence and lost altitude Wednesday, after the Purchase, N.Y.-based air freight carrier announced that the federal National Mediation Board released the airline and its 718 pilots and engineers from mediated negotiations related to a labor agreement, and the crewmembers rejected the board's offer of binding arbitration.

That starts the clock on a 30-day strike countdown. Although the two parties now go into a mandated "cooling off period" during which they might still negotiate their differences, the union members can strike at 12:01 a.m. ET on June 28.

Atlas' 10¾% notes due 2005 - not an issue one sees a lot of - were being quoted at 63 bid, about 10 points under its prior levels. Its shares fell $1.97 (17.54%) in NYSE dealings Wednesday, to $9.26, the biggest decline in five years. Volume was 1.1 million shares, about four times the usual turnover.

One primary market source dubbed Wednesday "a quiet day in high yield," as the only news that was heard was price talk of 9 1/8%-9 3/8% on Asbury Automotive's $200 million of 10-year senior subordinated notes (B3/B), via Goldman Sachs & Co.

The Stamford, Conn.-based company was the largest privately-owned dealership group in the U.S. before going public in March 2002.

Wal-Mart chauffeured Asbury into the headlines of the financial pages on April 24 when it announced that it would lease properties adjacent to five of its Supercenters to Asbury's Price 1 Auto Stores.

The venture is set to launch in Houston in June and will be test-marketed there for six months.

Asbury Automotive Group's deal is expected to price Friday. The proceeds will be used to repay bank debt.

Two other offerings are positioned on the forward calendar for Friday pricings.

Medford, N.Y.-based H&E Equipment Services will use the $275 million it plans to raise through an offering of 10-year senior secured notes (B3/B) to fund the merger of Head & Engquist Equipment LLC with ICM Equipment Co. LLC by sponsor Bruckman, Rosser, Sherrill. Credit Suisse First Boston and Banc of America Securities are joint bookrunners on the H&E deal.

And Wyndham International, the Dallas-based upscale lodging firm, will doubtless engender some attention around the market with its $750 million of six-year senior secured notes (Caa1/B-) that are also set to price Friday.

Wyndham is the fifth company to bring a Caa1/B- rated deal in recent weeks. Wyndham joins aaiPharma, Inc. whose $175 million of eight-year senior subordinated notes (Caa1/B-) yielded 11 1/8% on March 27, Pliant Corp. whose $100 million of eight-year senior subordinated notes (Caa1/B-) priced with a 12 1/8% yield on April 5, and Venetian Casino Resort, LLC/Las Vegas Sands, Inc. whose $850 million of eight-year second mortgage notes (Caa1/B-) yielded 11% on May 22.

In addition to those three, Wyndham also joins PCA International, Inc. whose $200 million of seven-year senior notes (Caa1/B-) were talked 12¼%-12½% on April 22. On April 26 a market source told Prospect News that PCA, which had offered 5% warrants to investors, had postponed its deal.

By the close of Wednesday's session no price talk had been heard on Wyndham, according to a market source. JP Morgan and Bear Stearns are joint bookrunners.

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