Delta dragged down by renewed bankruptcy fears; auto supplier bank debt better

By Paul Deckelman and Sara Rosenberg

New York, Aug. 2 - Renewed investor fears that Delta Air Lines Inc. may be forced into Chapter 11 sooner rather than later caused the troubled Atlanta-based airline operator's bonds to plunge Tuesday, particularly its formerly high-flying flagship 7.70% notes slated to come due in December; those bonds were seen down more than 10 points on the session. Northwest Airlines Inc. notes were hit turbulence in Deltas' wake, and were seen down a point or so on the day.

Going in the opposite direction, though, were automotive supplier names, which caught the attention of bank debt investors, as strong July sales numbers were released by the top three auto companies, pushing names like Federal-Mogul Corp. higher in trading.

Federal-Mogul's term loan B bank debt was up about half a point on Tuesday, with the bankrupt Southfield, Mich.-based auto parts maker's paper closing out the session at 91.25 bid, 92 offered, according to a trader.

Surprisingly, however, despite the good sector news, Collins & Aikman Corp.'s bank debt actually headed lower during the session.

The bankrupt Troy, Mich.-based automotive interior components manufacturer's paper lost about a point during the day, closing out the session at 79.5 bid, 80.5 offered, the trader added.

A trader in distressed bonds meanwhile said that Collins & Aikman's 10¾% senior notes due 2011 were on the upside, firming two points to 28 bid, 29 offered.

He also saw Tower Automotive Inc.'s 12% notes due 2013 two points higher at 85 bid, 87 offered. It was the third straight gain for the bankrupt Novi, Mich.-based automotive frame maker's bonds, which had firmed smartly over the prior two sessions after the company released good June operating results, with revenues rising to $188.01 million from $177.89 million in May, and cash and cash equivalents as of June 30 standing at $5.76 million, up from $2.86 million at the end of May.

The bond trader also saw better performance from the bonds of Linwood, Pa.-based foam rubber products maker Foamex International; its senior notes were a point better at 87 bid, 89 offered, while its subordinated 13½% notes, slated to come due later this month, rose to 49 bid from 43 bid, 45 offered, and its subordinated 9 7/8% notes were seen fours point better at 31 bid, 33 offered, whether because of the good news from Detroit's "Big Three" carmakers, or just because of a generally firmer tone seen in the junk bond market.

On Tuesday, Ford Motor Co., announced that its total July sales were up 29% versus 2004, General Motors Corp. said its total July sales were up 20% from last year and Chrysler Group, a unit of DaimlerChrysler, reported that its total July sales were up 32% over 2004. All three carmakers had spurred sales with "employee discount" incentives similar to the ones GM offered in June, which shot sales up an eye-popping 41%. Chrysler also tried to spur sales by bringing auto industry icon Lee Iacocca - the face of Chrysler back in the 70s and the 80s - out of retirement to appear in his old company's ubiquitous new commercials, reprising his trademark slogan, "if you can find a better car [than Chrysler] - buy it!"

Delta plummets

Elsewhere, Delta Air Lines Inc.'s bonds were seen rapidly descending, pulled earthward by renewed bankruptcy fears about the troubled Number-Three U.S. airline carrier, and rival Northwest's bonds were also lower, partly on sector sympathy, and partly because some of that bankruptcy buzz is also swirling around Eagan, Minn.-based Northwest, the fourth-largest U.S. airline operator.

A trader called Delta's benchmark 7.70% notes due 2005 "a complete disaster." He quoted those bonds as trading in the lower 50s, down about 12 to 14 points on the day, "but no real market," before ending at an estimated 50 bid, 54 offered, a "pretty ugly result."

He said that "people were looking for offers in short protection, and there were none to be found."

He also saw the company's 10% notes due 2008 down five points at 24 bid, 25 offered, while its 7.90% notes due 2009 were three points lower at 22 bid, 23 offered, and its 8.30% notes due 2029 were off 2½ points at the end of the day at 20.5 bid, 21.5 offered.

Another trader saw the 7.70s 10 points lower on the session at 53 bid, 55 offered, while the 10s had lost four points to 24 bid, 26 offered, the 7.90s were also four points off, at 22 bid, 24 offered, and the 8.30s were at 20 bid, 22 offered, down two points on the session.

In the convertibles market, Delta's 8% converts due 2023 slid between six and seven points on the day to 22 bid, 23 offered, from a level on Monday of about 29, traders said.

The New York Stock Exchange-traded shares underlying those Delta converts were meantime down 44 cents (14.81%), to $2.53 - a 43-year low. Volume of 17.7 million shares was more than triple the norm.

The bonds and shares began swooning amid renewed speculation that Delta - which insists that it is trying to avoid such a fate - might have to declare bankruptcy, pushed into the courts by a combination of high fuel costs, mounting pension obligations and heavy debt burdens.

Those fears gained more currency last week when the airline's chief executive officer, Gerald Grinstein, said in a company memo to his employees that Delta's current transformation plan, which includes cutting annual costs by $5 billion by the end of next year, just won't be enough to save the struggling carrier - not without Washington's help on moderating the pension costs and an easing of fuel costs.

The bankruptcy talk sprang up anew Tuesday, after The Washington Post carried an article suggesting that either or both Delta and Northwest - which is also burdened with big pension costs and is being eaten alive by escalating fuel costs - might have to seek court protection and might do so as early as mid-September in order to have a case already before the courts before a more restrictive, less debtor-friendly federal bankruptcy law takes effect the following month.

The first trader said that the prospect that Delta and/or Northwest might choose to file sooner rather than later because of the change in the law "is not any news. They've said this [bankruptcy speculation] a million times. I've seen the story repeated plenty of times - and it's a crap shoot. Sometimes it doesn't do anything to the market, and sometimes, people start chattering and the bottom falls out of it - and that's what happened today.

"There's no [new] news - just renewed bankruptcy fears, that was the only catalyst. [Airline] stocks started tumbling, and then bonds started going down as a result of going back and forth, and people were tripping all over each other to try and hit bids."

He said that Delta was "the main driver, and that finally Northwest down at the end of the day."

He saw Northwest's 8 7/8% notes due 2006 down two points at 66 bid, 67 offered, while its 10% notes due 2009 were down a point, "all because of Delta." However, there was no contagion to the other airline names, he said, with American Airlines parent AMR Corp.'s bonds and Continental Airlines Inc.'s quiet and unchanged.

Another trader saw Northwest off "on sympathy pains" with Delta, seeing the 8 7/8s, the 10s and the Northwest 9 7/8% notes due 2007 all off two points across the board, at closing levels of 66 bid, 68 offered, 43 bid, 47 offered, and 51 bid, 53 offered, respectively.

United firm

The already bankrupt United Airlines' bonds were seen about a half point higher, a trader said, at 17.25 bid, 17.75 offered.

Another trader saw the bonds holding steady around the 17 level, to which they had risen over several sessions mostly last week, after corporate parent UAL Corp. reported better operating numbers for June.

On Tuesday, UAL announced that it would delay filing its long-awaited bankruptcy plan, which could well throw a wrench into CEO Glen Tilton's previous projections that Elk Grove Village, Ill.-based United, the second-largest U.S. carrier after American, would emerge from bankruptcy later this year.

The carrier said its creditors' committee wanted more time to scrutinize its bankruptcy documentation, and a spokesperson admitted that it was possible now that the bankruptcy - which began in December 2002 - might stretch into the beginning of next year.

A trader said this is "no big deal.

"This story has been going on forever," he said. "What's another couple of months to exit bankruptcy? Everyone expects it to get delayed, so it doesn't make a difference."

aaiPharma up again

Speaking of "old news," another trader said, aaiPharma Inc.'s 11% notes due 2010 pushed higher Tuesday to 95 bid, 97 offered, from prior levels at 92, even though the only news out about the bankrupt Wilmington, N.C. -based drug manufacturer is now almost two weeks old - that the company had successfully sold its pharmaceuticals division" for $209 million, more money than it anticipated.

"The sale is old news," he declared. The company filed an 8-K form with the Securities and Exchange Commission on Friday, describing the closing of the sale of the unit to Xanodyne Pharmaceuticals Inc., "also old news," the trader said.

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