Allegiance Telecom's bank debt changed hands in the 993/8-995/8 context this week as the company's assets went to auction last week as a part of the company's bankruptcy proceedings. The bank debt has been ticking up toward par because lenders are expected to receive 100 cents on the dollar for their claims. The bank debt is also offering returns above 7%, under the assumption that it will be taken out this summer, noted one trader.
Qwest Communications International and XO Communications have emerged as the two companies that are in the running for Allegiance. Qwest was the stalking horse bidder in the process, offering $300 million in cash and a $90 million in convertible debt. The $300 million and cash on Allegiance's balance sheet would be directed to pay down the company's bank debt under the Qwest purchase scenario. XO had to top that offer to be considered in the auction. There are also murmurs that XO could be buying up some of Allegiance debt.
Bids for the company were due last Wednesday and the auction was held at the offices of Kirkland & Ellis, counsel for Allegiance, in New York last Thursday. At one point a list of possible suitors also included Corvis Corp.,Sprint Corp. and Level 3 Communications. The winner of the auction is expected to be announced before a hearing on Thursday. At that hearing, Allegiance is set to appeal to the bankruptcy court to confirm the winner of the auction. Andrew Albrecht, v.p., investor relations and corporate development at Allegiance, declined to comment.