Levels on the bank debt of former DSL-provider NorthPoint Communications have surged roughly 50 points over the last month on news of a settlement that could slide $175 million to bank debt holders. Pricing for NorthPoint's $40 million term loan jumped from a bid-ask spread of 60 to 62 to a bid-ask spread of 95 to 96 last month, according to LoanX. The paper continued to climb, jumping above par on Sept. 30 to the 106-108 level, and when LMW went to press it was quoted at 108 to 110. The company filed for Chapter 11 in January 2001 and has since moved into Chapter 7 liquidation.
Kenneth Brown, attorney for E. Lynn Schoenmann, the Chapter 7 trustee, said that the pop in the bank debt came as a result of the litigation that was recently settled withVerizon Communications. The settlement called for approximately $175 million to be awarded to the company. The secured lenders have taken the position that they are entitled to the proceeds from that litigation to cover both accrued interest and principle, Brown explained. An attorney for the secured lenders could not be reached by press time.
Bankruptcy filings show that on Sept. 3 a motion was made to pay creditor CIBC World Markets, as agent for pre-petition secured lenders, with anticipated proceeds from the settlement. As of Sept. 26, bankruptcy court documents showed that the motion to pay CIBC in the sum of $175 million from the settlement would be approved by Oct. 4 unless bondholders either purchased all the claims from CIBC or tendered the amount to pay those claims in full.