WorldCom, Adelphia take center stage as loan prices drop on latest developments

By Sara Rosenberg

New York, May 15 - In the secondary all eyes were once again focused on WorldCom Inc. and Adelphia Communications Corp., both of which experienced softer prices on their bank loan paper Wednesday.

WorldCom's June 2002 paper traded around 95, a trader said, slightly lower than Tuesday's bid of 96½ and offer of 971/2. The drop was in response to the announcement that the company intends to draw down its $2.65 billion credit facility. WorldCom is taking this action to preserve its term-out option under the facility until June 2003, a company press release said.

Adelphia's bank loan paper traded anywhere from the mid-80s to low-90s, depending on the particular facility, the trader said. On Wednesday, the Adelphia Century loan traded at 92, compared to Tuesday's level of 95. The reduction in price was not surprising given the amount of troubling news that was released.

It started with John Rigas, Adelphia founder, chairman, president and chief executive officer announcing that he was stepping down Wednesday. Erland Kailbourne has succeeded him as chairman and interim CEO, a company press release said.

Next came the Nasdaq Stock Market's halt on Adelphia's trading until a request for additional information is satisfied. A hearing is scheduled for Thursday to decide whether or not Adelphia will be delisted from the Nasdaq due to the delay in filing the annual report.

If Adelphia is delisted, that will constitute a default on its convertibles, the trader said. Now the question is whether it will be loan holders who call in the default or bond holders, the trader added.

As if the resigning CEO and halted trading was not enough, Standard and Poor's downgraded Adelphia's bank debt to CCC and put it on Watch Negative from B-. And, Moody's Investors Service announced that Adelphia's ratings were downgraded again and left on review for further possible downgrade. The senior secured bank debt was lowered to B1 from Ba3.

"The downgrade reflects our belief that we may not be fully aware of all potential issues surrounding the company's financial affairs, as suggested by the press release issued by the company today and specifically the commencement of an internal investigation into the circumstances surrounding the delayed filing of its requisite 10-K," Moody's said in its announcement.

"While we believe that the banks are likely to again waive the reporting requirement for some interim period of time, and that it would not necessarily be in the best interest of convertible subordinated noteholders to actually put their securities back to the company, in the absence of gaining renewed access to existing bank lines and/or some alternative source of liquidity on a large scale the company will likely run out of cash very soon, perhaps as early as today if and when its $50 million interest payment is made.

"When coupled with the growing list of potential default triggers, and all of the cross-default and cross-acceleration language universally embedded in the various governing documents for the financial instruments that we rate, we now believe that the prospect of a potential bankruptcy filing is more likely and may ultimately be unavoidable."

And, to add to Adelphia's obstacles, the company is currently trying to sell assets, the trader noted but then asked, rhetorically, who will buy the assets without the financials. On May 8, the company announced its financial advisors - Salomon Smith Barney, Credit Suisse First Boston and Banc of America Securities - were authorized to solicit formal offers for certain cable assets. The systems that may be sold include Southern California, Florida, Virginia and Southeast.

In primary activity, Columbia House Co. held a second bank meeting Wednesday in New York for its new $175 million credit facility. The first bank meeting was held Monday in Los Angeles for West Coast investors, a syndicate source said. UBS Warburg and Bank of America are co-leads on the deal.

The loan, which is secured by all assets, consists of a $30 million five-year revolver with an interest rate of Libor plus 450 basis points and a $145 million five-year term with an interest rate of Libor plus 450 basis points. Proceeds combined with sponsored contributed equity will held fund the leveraged buyout by Blackstone Group.

Columbia House is a New York, N.Y. direct marketer of music and videos.

Coming up Thursday, Herbalife International Inc. is scheduled to hold a bank meeting its new $190 million credit facility. UBS Warburg is sole lead on the deal.

The loan consists of a $25 million five-year revolver with an interest rate of Libor plus 375 basis points and a $165 million six-year term loan B with an interest rate of Libor plus 400 basis points, according to a syndicate source. Proceeds will be used to help finance the leveraged buyout by Whitney & Co. LLC and Golden Gate Capital Inc.

Herbalife, headquartered in Los Angeles, Calif., is a network marketing company that sells weight management products, nutritional supplements and personal care products.

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