Buy- and sell-side junk pros attribute last week's 4-5 point price drop on cable company United Pan-Europe Communications (Caa1/B-) bonds to concerns over whether the European cable operator will receive the expected E1billion rights issue from its U.S. parent, Liberty Media. Bids on UPC 11.25% of '09 fell from $67.5 to $62.5, after a UPC conference call last Tuesday in which a senior Liberty executive announced that the issue was not finalized, but would be announced in the next five to 10 days. Pros expect the issue to go ahead as planned, returning the price to where it was before the call. They believe Liberty chairman John Malone will prefer the ownership interest that accompanies an equity or, possibly, a convertible deal.
A less likely outcome, according to David Allen, high-yield cable and media analyst at Morgan Stanley Dean Witter, is that the Liberty will fund UPC through a straight debt offering, or still less likely, that it won't fund UPC at all. For the most part, Allen is confident that UPC will receive the promised funds.
Jerry Paul, portfolio manager at Invesco Funds, and James Didden, a high-yield credit analyst at money manager J&W. Seligman, are convinced Liberty will fork over the money one way or another. Didden sees a slight possibility that it will come in the form of debt, which he acknowledges would be seen as an indication that Liberty lacks confidence in UPC's prospects, possibly causing the bond price to drop further. Both buysiders hold some of the bonds, and Didden says Seligman even picked up a bit more prior to the conference call. He won't speculate on what he'll do when the funding situation becomes clearer.