Delta bonds continue firming; Meridian Auto bank debt softer

By Paul Deckelman and Sara Rosenberg

New York, May 27- Delta Air Lines Inc. bonds were once again seen higher Friday, as the troubled Atlanta-based air carrier's shares kept pushing upward despite a rise in crude oil prices - usually considered a harbinger of higher jet fuel prices down the line.

In the bank debt market, Meridian Automotive Systems Inc.'s pre-Chapter 11 paper seemed a bit softer on Friday, traders said.

Delta - whose bonds had firmed smartly on Thursday - finished out Friday's abbreviated pre-holiday session with its benchmark 7.70% notes due 2005 "holding yesterday's levels," one trader in distressed bonds said. "I don't think they moved much - but there wasn't much movement in anything."

He saw those notes at 81.5 bid, while its 8.30% notes due 2029 were at 29, and its 7.90% notes due 2009 were at 38 bid, 39 offered, "pretty much where they were."

At another desk, however, Delta's bonds were "a little stronger," a trader said, with the 7.70s up about a point in his estimation, at 82.5 bid, 84.5 offered.

A market source at another shop saw the 8.30s move up to 28.75 bid from prior levels of 26.75, while its 9¾% notes due 2021 firmed to 28.25 bid from 27, its 7.90s advanced to 37.5 bid from 35.25, and the 7.70s finished at 81.5, up from 80 previously.

Yet another trader pegged the 7.70s up two points on the session to 81.5 bid, 82.5 offered, while seeing the 7.90s perhaps ¾ point better at 36.75 bid, 37.75 offered.

Delta's New York Stock Exchange-traded shares - which jumped 15% on Thursday - tacked on another 12 cents (3.10%) to end at $3.99, capping a 25% rise for the week from $3.27 at last Monday's opening. Volume of 10.5 million shares was about triple the norm.

Even though the company remains debt-laden and liquidity challenged, and oil prices continue to edge back up, approaching $52 per barrel on Friday, Delta has been leading the airline sector's shares and bonds higher over the past few sessions, apparently benefiting from the confluence of a number of factors including short-covering of oversold positions, and some cautious optimism about the airline industry's prospects this summer. The main airline industry trade group, the Air Transport Association, said during the week that it expects a 4.1% increase in summer travel this year, with approximately 200 million passengers taking to the skies, and equity analysts for Prudential and for Bear Stearns had some bullish comments out about industry leader AMR Corp.'s prospects for making a profit over the next two quarters, which could be interpreted as better sentiment towards the airline industry as a whole.

And while there was a firming trend towards the end of the week in crude oil prices - considered a reliable barometer of the future direction of jet fuel prices - Delta seemed to shrug it off, even as prices on the New York Mercantile Exchange for light, sweet crude of July delivery rose as high as $52 Friday before settling at $51.85 a barrel, up 84 cents on the day.

Investment-oriented internet bulletin boards noted a trade publication story indicating that after not having had any fuel price hedges in place for a number of months, Delta plans to institute a short-term physical hedging program to hedge against rising costs on an estimated 10% of its June fuel needs.

A trader also noted a market rumor which surfaced earlier in the week that Delta might be trying to line up some $300 million of new second-lien financing, probably through GE Capital Corp., which, along with American Express Co., loaned Delta a billion dollars last year.

However, bank debt market sources said they had seen no indication that any such financing was in the works.

Northwest Airlines Corp.'s 7 7/8% notes due 2008 were seen up half a point to 50.5 bid. The Eagan, Minn.-based carrier, looking for ways to cut costs, said it will stop offering free pretzels to passengers on its domestic flights. It figures to save $2 million a year.

Meridian loans keep sinking

Apart from the airlines, Meridian Automotive's pre-Chapter 11 bank debt was heard to have eased, with its first-lien paper quoted at 85 bid, 89 offered, down from Thursday's closing levels of 87 bid, 90 offered, according to a trader.

However, the trader went on to explain that it's kind of hard to pinpoint levels, since the paper has been all over the place since buzz began that the proposed debtor-in-possession financing facility was struggling in syndication and then was pulled.

Earlier in the week, the first-lien paper had been quoted at 98 bid, par offered but the bank debt fell off considerably in Wednesday's session on the negative buzz to 92 bid, 95 offered.

The DIP, which launched about two weeks ago, consisted of a $175 million revolving tranche A with an interest rate of Libor plus 250 basis points and a $200 million term loan B with an interest rate of Libor plus 350 bps.

Maturity was going to be the earliest of 18 months from the date of filing, 45 days after the entry of the interim DIP if the final DIP order has not been made, confirmation of a plan of reorganization or the acceleration of the loans in accordance with the DIP agreement.

And, proceeds were going to be used to repay the company's first-lien debt.

But according to various market sources, the $375 million DIP was pulled because of disappointing numbers.

On Thursday evening, Meridian clarified the issue a little bit by putting out a news release saying that it has received approval from the U.S. Bankruptcy Court for the District of Delaware to extend interim access to $30 million of its DIP through June 30.

The Dearborn, Mich.-based supplier of front- and rear-end modules and other auto components explained that its request to extend the interim access was the result of ongoing discussions with its lending group regarding revisions to its 2005 operating forecasts. These revisions were driven by recent reductions in production volumes by original equipment manufacturers.

Autocam drops

Also in the automotive sphere, a market source saw Autocam Corp.'s normally virtually unnoticed 10 7/8% notes due 2014 as having fallen to 55 bid, well down from recent levels in the upper 60s. But no negative news was seen out on the Kentwood, Mich.-based auto components supplier that would explain the sharp decline.

Collins & Aikman edges up

Traders meantime saw Collins & Aikman Products Co.'s bonds either unchanged to slightly higher, although no fresh news was seen out on the bankrupt Troy, Mich.-based auto components maker.

Its 10¾% senior notes due 2011 were seen up a point at around 42 bid, 43 offered, while its 12 7/8% notes due 2012 languished around five cents on the dollar.

Salton gains

Small appliance-maker Salton Inc.'s bonds were quoted higher, despite a lack of fresh news about the Lake Forest, Ill.-based company.

Salton's 10¾% notes slated to come due in December jumped four points to 44.5 bid, according to a trader, while its 12¼% notes due 2008 gained a point to end at 39.5.

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