Delta convertibles up but quiet; traders see airline paper diving; Tower Auto weak; DoubleClick loses 1 point

By Ronda Fears

Nashville, Nov. 1 - With the U.S. presidential election looming, traders said the convertible market was rather quiet even for a Monday. There were some fairly nice gains mentioned in the airline sector as oil prices eased again, including Delta Air Lines Inc., but traders said they see more trouble on the horizon for the entire group and many are prepared to start moving that paper lower soon.

In addition to oil continuing to decline, Delta said on Monday that General Electric Co.'s GE Commercial Finance has agreed to provide it $500 million of financing, another positive step in its struggle to avoid bankruptcy.

Meanwhile, crude futures dropped another $1.63 to $50.13 a barrel, the lowest point in almost a month. But the high prices for crude oil and fuel byproducts have been elevated for an extended period, causing airlines to hike ticket prices, so market players expect it will hamper holiday travel plans and, thus, earnings.

"Summer travel, holiday travel, all travel has been affected by the high oil prices," said a buyside trader. "The airlines are in trouble beyond that, but this is not helping."

A sellside trader said, "Start watching Continental, AMR and Northwest now, one of those will be the next story" of disaster in the airline industry.

Elsewhere in the secondary market, DoubleCLick Inc. holders were busy trying to stave off a short squeeze on news the company has hired Lazard Freres & Co. to explore strategic options, including the possible sale of all or part of the company, a recapitalization, an extraordinary dividend, a share repurchase, or a spinoff.

DoubleClick hires Lazard

Online advertising firm DoubleClick announced hiring Lazard late Sunday, and the news sent its stock soaring, which one sellside trader mostly attributed to short covering "as the Google effect will boost the value of this company."

DoubleClick's 0% convertible due 2023 fell 1 point on the news to 87.125 bid, 87.625 offered, while the underlying stock jumped nearly 12%, or 76 cents, to $7.12.

"Since Google, they can probably pitch this name for more money," the trader said. "At least people think they could get more now than before Google."

Google Inc. went public in August with the stock priced at $85 a share; the stock closed Monday at $196.03, up $5.39, or 2.83%.

Last week, DoubleClick reported third-quarter earnings rose to 12 cents a share from the prior year's 4 cents a share, and revenue rose 8% to $81 million.

Tower tumbles as banks balk

Some snags have come up in Tower Automotive's efforts to get a bigger secured accounts receivables facility, but sources in the bank loan market tell Prospect News that it's not dead yet.

A convertible trader said he thought the company was having trouble with getting the full amount it is wanting, $200 million. Early last week, the auto parts and components maker approached lenders with an amendment to its credit facility that would allow for a $200 million accounts receivable securitization facility, up from a $50 million limit under its current credit agreement.

The proposal has various components to it. Some were approved and some weren't, although that means the amendment did not pass, a bank loan source said. But, the amendment hasn't altogether gone away. Tower is still talking to lenders to see what can be worked out, the source said.

Sources expect Tower will probably tweak its proposal until it passes.

At stake for convertible players is the first coupon payment on the new Tower 5.75% convertibles, which is due Nov. 15.

The 5.75s lost about 2 points to 46 bid. Tower shares dropped 9 cents, or 6%, to $1.40 on Monday.

Tower's plan to increase the size of the securitization basket in response to U.S. Big Three automakers, which are eliminating early payment programs with many suppliers.

Delta quietly adds 2 points

Trading in Delta's convertibles was described as quiet Monday, although the Atlanta-based carrier announced another big financing package aimed to boost sentiment and helping keep the company out of bankruptcy.

Lower oil prices didn't hurt, either, but traders said the market is still very skeptical that Delta can escape bankruptcy.

Delta's 8% converts were quoted at 47.875 bid, 48 offered and the 2.875% converts at 50.75 bid, 50.875 offered, both up about 1 point, but traders said there was little traffic in the paper.

Delta shares gained a dime, or 1.83%, to $5.55.

All of Delta's securities saw a sharp run-up last week on a string of events, not the least of which was a tentative wage concession agreement that matched the company's target of $1 billion and up to $100 million of financing from American Express Co.

As with the AmEx deal, the GE financing is contingent on a number of things.

"If, and I stress if, Delta can escape bankruptcy long run, and I am very skeptical, this is one wounded puppy for years to come, with nothing but speculators for shareholders," said a buyside convertible trader.

A sellside trader said that while oil prices have eased, "right now I don't think a whole lot of people have bought into the crude decline yet. That's just one part of Delta's problems."

The airline still has pending a debt exchange offer of $680 million for $1.56 billion, which expires Nov. 14.

Traders see air paper lower

Even with lower oil prices, several traders said other airlines that have had close calls, such as American Airlines Inc. parent AMR's brush with bankruptcy last year, may find themselves again in dire straits.

"AMR tried to fix itself outside bankruptcy and even though it's been a year, the jury is still out. It is definitely having a tough time of it and probably the extended run-up in fuel prices didn't help," said a holder of the AMR convertibles.

"Two majors [United Airlines and US Airways] are trying to do it inside bankruptcy and their lack of success, from the outside looking in at least, suggests that it is bloody difficult to put all the pieces together to create a success story of a legacy carrier even with the bankruptcy tool box."

Traders said they are ready to market airline paper lower pretty much across the board, but particularly the big carriers like AMR, Continental and Northwest. On that, one sellside trader said, there could be some buyers step in, particularly if oil continued to slide.

Northwest also has gotten tentative wage concession from its union pilots, plus other salary reductions, and last week that allowed the company to restructure its bank facilities, but also with some contingencies. Northwest's $975 million bank facility is due to launch this Wednesday.

"Everybody is putting the squeeze on these airlines," the sellside trader said. "It doesn't take much imagination to see that all the pushing is going on because people are nervous, especially the banks. And when they start pushing everyone gets real nervous about their position."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.