Pathe Communications Corp. sued a dissident bondholders group to stop it from declaring default on two classes of the company's outstanding debt, a Pathe spokesman said yesterday.
Los Angeles-based Pathe, which last November acquired MGM-UA Communications Co. for an estimated $1.3 billion, filed suit in Delaware Chancery Court Tuesday against Magten Asset Management Corp. and Grace Brothers Limited, Pathe spokesman Greg F. Romano said. The bondholders group contends that Pathe violated terms of the bonds' indenture agreement when it sold some assets in connection with its merger with MGM-UA Communications.
Magten and Grace claim to hold or represent holders of more than 25% of Pathe's 8 7/8% convertible senior subordinated debentures due April 15, 2001, and 12 7/8% senior subordinated debentures due April 15,2001, he said. Pathe and Magten are incorporated in Delaware, he said.
Under the terms of the indenture, holders representing more than 25% of the outstanding bonds were permitted to declare a default if violations of the indenture occurred, Mr. Romano said. The group sent a letter about a month ago to Pathe outlining the alleged violations and Pathe had 30 days to remedy the situation, he said, or the bondholders could then declare default.
A total of $34.885 million of those securities remain outstanding, Mr. Romano said.
The alleged default occurred when Pathe sold certain subsidiaries to another subsidiary, MGM-Pathe Communications, on Nov. 1, 1990, following its acquisition by Pathe, Mr. Romano said. MGM-Pathe was then known as MGM/UA Communications.
The bondholders group claims the transactions violate Article 5 of the indenture, which applies to transfer of assets, Mr. Romano said. Because Pathe violated the indenture, the bonds should be accelerated, or paid off early, he said.
But Pathe denies violating the indenture and wants the court to block the group from any further action, Mr. Romano said.
Talton Embry, a managing director at Magten, an investment management company, said his group believes Pathe violated the indenture covenants, but declined to provide specific details.
"I don't want to go into this over the telephone," he said.
Grace Brothers could not be reached for comment.
After a morning upswing, highgrade corporate bonds sold off a bit and then rebounded to finish largely unchanged, traders said. High-yield bonds were flat with little activity. Chrysler Corp.'s bonds were well bid and finished a few points higher, one trader added.
Among yesterday's high-grade debt issuers was GTE Corp., which issued $300 million of 8 3/4% debentures due 2021. The noncallable debentures were priced at 99.357 to yield 8.81% or 92 basis points over comparable Treasuries. Moody's rates the debentures A3, while Standard & Poor's rates them A-minus. Merrill Lynch & Co. lead managed the transaction.
GTE plans to use the proceeds to reduce short-term debt, primarily commercial paper, a company source said. A desire to reduce such debt coupled with an attractive market environment led the company to issue yesterday, he said.
Wells Fargo & Co. issued $200 million of 8.2% notes due 1996. The noncallable notes were priced at par to yield 143 basis points over comparable Treasuries. Moody's rates the notes A2, while Standard & Poor's assigns an A-minus. Goldman lead managed the offering.
Florida Power Corp. issued $150 million of 8.625% first mortgage bonds due 2021. Noncallable for five years, the bonds were priced at 98.75 to yield 8.743%, or 86 basis points over comparable Treasuries. Moody's rates them Aa3, while Standard & Poor's assigns them an AA-minus rating. Salomon won competitive bidding to underwrite the offering.
Federal Farm Credit Banks issued $100 million of 6.21% notes due 1994. Noncallable for a year, the notes were priced at par to yield 15 basis points over comparable Treasuries. Lehman Brothers was sole manager of the offering.
Also yesterday, Georgia Power Co. announced it would redeem all $100 million of its outstanding 10 1/2% first mortgage bonds due 2009. The company will redeem the bonds at the regular redemption price of 106.16% of the principal amount plus accrued interest to the redemption date, a company release said.
Georgia Power also announced that an underwriting group led by Morgan Stanley & Co. submitted the winning bid for its $100 million offering of new Class A preferred stock.
In yesterday's ratings actions, Standard & Poor's Corp. downgraded Delta Air Lines Inc.'s rating on $2.2 billion of senior debt to BBB-plus from A-minus, an agency release said. Standard & Poor's also lowered its ratings on Delta's $950 million of equipment trust certificates to A-minus from A. It removed all issues from CreditWatch where they were placed Aug. 16.
Standard & Poor's affirmed the airline's A-2 commercial paper rating. The rating outlook is stable.