NorthWestern Corp.'s secured bonds have risen over the last nine weeks in expectation that the utility will emerge quickly from bankruptcy. The bonds, which were trading in the low 70s on Sept. 15, when the Sioux Falls, S.D.,-based company filed for Chapter 11 bankruptcy protection, were trading in the low 90s last week, says a debt trader. For example, the 7 7/8% notes of '07 were trading at 72 5/8 in early August but last week were trading in the 90-92 range.
The strong showing reflects senior note holders' support for management's restructuring plan, according to the trader. In September, NorthWestern's creditors committee publicly supported the company's plan to transform unsecured debt into equity, and since then little has happened to scare off traders. "This means that they will probably get out of bankruptcy in a year or year-and-a-half as opposed to two years," he notes.
But the recent rise in NorthWestern bonds might actually complicate the restructuring process if it gives rise to a stockholders committee. "Shareholders might look at these bond prices and believe there's enough money for equity compensation," says the trader. If such a committee were to be formed, developing consensus among creditors for the company's restructuring plan could prove difficult.
Robert Schrum, a spokesman at NorthWestern, says the U.S. trustee overseeing the bankruptcy, Roberta DeAngelis, has not appointed an equity committee, nor does he think she will. "We've heard nothing of that so far," he says, "and I'd like to point out that we've made it clear that the common stock has no value." DeAngelis could not be reached by press time.