Delta bonds tumble again on bankruptcy angst; Stanley-Martin, Cardtronics price upsized deals

By Paul Deckelman and Paul A. Harris

New York, Aug. 3 - Delta Air Lines Inc. bonds continued to be hammered down Wednesday by investors speculating that the chances that the troubled Atlanta-based Number-Three U.S. air carrier will be able to avoid filing for bankruptcy are dwindling down to somewhere between "slim" and "none." For a second straight session, the company's formerly high-flying 7.70% notes due 2005 were seen down more than 10 points during the session, coming much closer to where the company's other bonds are trading, as the capital structure continues to compress in apparent market anticipation of a filing soon.

Also being dragged lower for a second straight session were the bonds of Northwest Airlines Corp., which is somewhat more financially stable than Delta - but which also faces major challenges in the form of sky-high fuel prices, burdensome pension obligations, and a badly deteriorating labor situation.

Outside of the airlines, Calpine Corp, bonds were down anywhere from two to four points on the session, as the San Jose, Calif.-based power producer reported sharply increased second-quarter losses from year-ago levels, as well as results from a court case to which it is a party that amounted to less than the full victory that the company was seeking.

Overall the high-yield market was unchanged to slightly firmer on Wednesday, sources said.

One high yield syndicate official chalked the move up to strength in the Treasury market, with the 10-year up 10 ticks, yielding around 4.30%.

In the new-deal arena, the drive-by issuers who have dominated the proceedings over the last several sessions seemed to be taking a back seat on Wednesday, as a pair of scheduled calendar deals, from Cardtronics Inc. and Stanley-Martin Communities LLC, each upsized from their originally planned levels to meet healthy investor demand, were heard by syndicate sources to have priced during the session. Both priced at the tight end of talk and were reported to have been well received when they were freed for secondary dealings later in the day.

Cardtronics, Stanley-Martin price

With high yield having cranked out just under $2 billion during the first two sessions of the present week, Wednesday was something of a yawner at just $350 million.

However the executions as well as early reports on secondary trading suggest that both deals went well.

Cardtronics Inc., a Houston-based ATM operator, obtained an upsized $200 million from junk investors with its issue of 9¼% eight-year senior subordinated notes (Caa1/B-).

The deal, which had been increased from $150 million, priced at 99.305 to yield 9 3/8%, on the tight end of the 9½% area price talk.

Banc of America Securities ran the books for the debt refinancing transaction.

Also pricing was Stanley-Martin Communities LLC's upsized $150 million issue of 10-year senior subordinated notes (B3/B-), which came at par to yield 9¾%, again on the tight end of talk, this time for a yield of 9¾% to 10%.

Wachovia Securities ran the books for the debt refinancing and general corporate purposes deal from the Reston, Va.-based home builder.

Lifecare talks notes at 9% to 9¼%

Lifecare Holdings Inc. talked its $150 million offering of eight-year senior subordinated notes (Caa1/CCC+) at 9% to 9¼% on Wednesday.

Pricing is expected on Friday via Banc of America Securities and JP Morgan.

Elsewhere an informed source told Prospect News that the Basell Polyolefins' €1.1 billion equivalent offering of 10-year senior notes (B2/B-), will include a $600 million minimum dollar-denominated tranche, with the remainder coming in euro-denominated notes that carry the same credit ratings.

Both tranches of notes are talked at 8½% to 8¾% and are expected to price on Friday via Merrill Lynch & Co. and Credit Suisse First Boston.

Eye on the finish line

One high yield syndicate official, tallying Wednesday's $350 million and the nearly $2 billion that had priced during the Monday and Tuesday sessions, commented that the primary market activity level is not bad considering that high yield is wending its way through the Dog Days of summer.

The source said that the junk market appears to be "rolling on.

"August does not seem to have slowed anything down so far," the official remarked, adding that the level of activity seen through the middle of the present week is mainly a function of market conditions.

"People know they can still get deals done," the source added.

The official professed the expectation that the Aug. 11 week would be relatively quiet in comparison to the present week.

However, the source added, "Everyone who can get to the finish line before the [Labor Day] holiday seems to be trying to do so."

Fall for the big deals

The source also forecast that no $1 billion-plus transaction, known or unknown, will likely come before the fall.

"You think of deals like that as coming with roadshows," the official said. "And any roadshow starting now would easily carry well into the third week of August. So it's not likely."

The expected big deals include an unspecified portion of the Neiman Marcus Group Inc.'s $3.9 billion of debt financing, likely including senior secured notes, to support acquisition of the company by Texas Pacific Group and Warburg Pincus LLC.

Also Global Toys Acquisition LLC could show up with a chunk of junk to help fund the $6.6 billion Toys "R" Us Inc. acquisition by Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. and Vornado Realty Trust.

On Wednesday Prospect News obtained a notice of default on Toys 'R' Us-Delaware, Inc.'s 8¾% debentures, which was prompted by the company's failure to file financial information with indenture trustee Bank of New York.

An event of default will occur if the financials are not filed within 90 days of July 14.

A market source commented Wednesday afternoon that a default could cause problems with all the financing that the company has in place, as well as a potential new high-yield deal in September.

Cardtronics, Stanley-Martin up in trading

When the new Cardtronics 9¼% notes due 2013 were freed for aftermarket dealings, a secondary trader saw the bonds having moved smartly up to "a pretty tight market" of 102 bid, 102.125 offered from their 99.305 issue price earlier in the session; another trader saw those bonds at 102 bid, 102.5 offered.

The new Stanley-Martin Communities 9 ¾% notes due 2015, which priced earlier in the session at par, were also seen having risen nicely, to around the 102.5 bid, 103 offered area.

There was no such warm reception, on the other hand, for Sirius Satellite Radio Inc.'s new 9 5/8% notes due 2015, which priced late Tuesday at par as an upsized drive-by issue; on Wednesday, those bonds were "pretty much unchanged," a trader said, quoting them around par bid, 100.25 or 100.5 offered, "nothing. That one must have been priced right on the screws, because no one cares." Another trader saw those same bonds no better than perhaps 100.125.

Likewise, Domtar Inc.'s new 7 1/8% notes due 2015, which priced at 99.904 late Tuesday, also as a quickly shopped offering, traded no better than 99.875 bid during the day and went out at 99.75 bid, par offered, while another trader, quoting the bonds on spread, said the bid level was equivalent to 282 basis points over the comparable Treasury issue, and the offered level was 279 bps over, "straddling the issue spread" of 280 bps.

Delta plunges

Back among the existing issues, "Delta got crushed, Northwest was weaker, and Calpine was also a little bit weaker," a trader said.

He saw Delta's benchmark 7.70s "absolutely crushed. You're seeing compression across all of the unsecureds at this point."

He pegged the bonds - which "were in the 60s just two days ago" - as having fallen to 39.5 bid, 41.5 offered, a loss of 12 or 13 points on the day, and 22 points over the last two days.

He said that while it would appear that market participants finally believe that the end is near for Delta, "you always think so - but then the airlines have a way of miraculously pulling out of it," such as the way Delta itself barely tap-danced away from bankruptcy last fall by arranging $1 billion of new financing from General Electric and American Express.

This time, however, Delta may not be able to dodge the bullet.

"With oil where it is," above the $60 per barrel level for crude - a leading indicator of which direction jet fuel prices are headed - "I don't see what incentive they have to stay out [of Chapter 11] at this point. I mean they tried - but with the changes in the bankruptcy law that The Washington Post was talking about, and oil and everything - it's just bad news."

On Tuesday, the Post reported that Delta and/or Northwest might duck under the protection of the bankruptcy code sooner rather than later, since recently passed changes making the code less debtor-friendly than in the past are slated to take effect in mid-October.

Delta "got crushed yesterday [Tuesday] and got smothered today [Wednesday]," the trader said, with the 7.70s down 11 points at 39 bid, 42 offered, and the 10% notes due 2008, 7.90% notes due 2009 and 8.30% notes due 2029 all two points lower, at 22 bid, 24 offered, 20 bid, 22 offered and 18 bid, 20 offered, respectively.

Noting that the 7.70s had been dropping much more rapidly than the other bonds, he said "they will catch up - it will take a little while, but they will catch up," and all of the bonds will then trade on top of one another - a sure sign the market sees a bankruptcy filing coming.

Another trader saw the7.70s fall to 40 bid, 42 offered, from a wide 48 bid, 52 offered on Tuesday. The fall in the other bonds was "not as drastic," with its 8.30s some 1½ points lower at 17 bid, 19 offered.

Northwest also down

As for Northwest, the trader said, the Eagan, Minn.-based Number-Four U.S. air carrier "also caught the flu," and was down in sympathy with Delta for a second straight session.

He saw the 8 7/8% notes due 2006 down three points at 61 bid, as "the really short, short stuff for both Northwest and Delta really got beat up."

Another trader declared that "their unions absolutely hate their guts - you never know till the 11th hour, but you get the impression that the Northwest unions are like 'if we go down, we're taking you with us.' There's no good solution for the unions," which are faced with the prospect of big givebacks to Northwest - which now claims to have the highest labor costs of any of the "legacy carriers" and wants $1.1 billion of permanent concessions - or else seeing the airline crash-land in the bankruptcy courts, where the judge overseeing reorganization will have the power to void their negotiated contracts and impose a settlement, while the airline might try to dump their pensions in the lap of the federal government, as bankrupt United Airlines successfully did recently, much to the chagrin of UAL's unions.

"They're dead," he continued "They have no good option available. If they go on strike" - and the clock is ticking on a possible strike by the airlines mechanics any time after Aug. 20 - "then I gotta think they'll go BK."

He saw Northwest's 8 7/8s get as low as 61 bid before firming slightly off that nadir to end at 62.5 bid, 64.5 offered, still down about four points, though in "quite slow" trading.

He also saw the airline's 10% notes due 2009, which fell several points on Tuesday, "dropping four more points" Wednesday to 42.

Calpine a loser

Calpine, a trader said "got mushed in the morning - and I don't think they recovered much," after the company reported its wider loss, and after a Canadian court ordered Calpine to set aside some funds to make sure that some - though not all - of the holders of its Calpine Canada Energy Finance ULC bonds receive payment on their bonds at face value (see related stories elsewhere in this issue).

He quoted those bonds at least three points down, at 71 bid, 73 offered, while Calpine's 8½% notes due 2011 were "off three points" during the day before "gaining a little back" to close two points lower at 69 bid, 71 offered. All of the other Calpine bonds were down "across the board," with the exception of the 10½% notes due 2006, hanging in not much changed at 94.5 bid, 95.5 offered.

Another trader saw Calpine's 101/2s half a point lower at 95 bid, 95.5 offered. "It was funny," he opined, "the way they raced up yesterday [Tuesday], I don't know what the market was looking for - but they didn't get it."

With those 10½% notes scheduled to come due next year and thus trading at relatively high levels, "most of the action was in the longer unsecureds," he said, with Calpine's 8½% notes due 2011 - which he said had "also run up yesterday" - falling to 68.5 bid, 69.5 offered, well down from 72.5 bid of Tuesday.

Stater up on earnings

Also on the earnings front, Stater Bros. Holdings Inc.'s 8 1/8% notes due 2012 were seen better on the session, after the Colton, Calif.-based supermarket operator reported profits for the fiscal third quarter ended June 26 of $7.3 million, a sharp turnaround from the year-earlier loss of $5.9 million, which was largely due to labor troubles that affected the West Coast supermarket industry a year ago.

A trader saw those bonds at 102 bid, 103 offered, up from prior levels at par bid, 102 offered, while another trader saw them even better, at 102.5 bid, 103.5 offered.

A market source at another desk saw them better still, up as high as 103.5, which he pegged as 1½ points higher on the day.

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