Airline bonds continue descent on oil prices; Ford leads autos lower

By Paul Deckelman and Sara Rosenberg

New York, July 14 - Airline bonds continued to spiral earthward on Friday - particularly the bankrupt Delta Air Lines Inc. and Northwest Airlines Corp. - pulled down by investor anxiety over rising crude oil prices - a reliable indicator of future price trends for jet fuel. Crude prices soared to over $78 a barrel as the conflict between Israel, Lebanon and the Palestinians in Gaza widened.

Automotive names were also generally lower, both in the bank debt market, where Collins & Aikman Corp.'s paper fell about two points, and in the junk bond market, led by Ford Motor Co.'s bonds, after Moody's Investors Service downgraded the ratings for the Number-Two domestic carmaker and its Ford Motor Credit Co. financing arm.

Adelphia Communications Corp.'s bonds were better, in apparent belated reaction to Thursday's news that the Federal Communications Commission, as expected, overwhelmingly approved the planned purchase of the bankrupt Greenwood Village, Colo.-based cable operator's assets by Comcast Corp. and Time Warner Cable.

As the Middle Eastern conflict widened, including rocket barrages from Hezbollah forces in Lebanon that forced many Israelis to head for their basement bomb shelters and continued Israeli attacks on the airport in Beirut and other Lebanese infrastructure targets, world crude prices got as high as $78.40 per barrel in Friday's dealings on the New York Mercantile Exchange, before moderating a little to still close at a new nominal record high mark of $77.03, up 33 cents from the previous record, set Thursday. Friday's price was up 4% on the week.

That sent some airline investors reaching for their parachutes, since fluctuations in crude prices point to higher jet fuel prices over the horizon - with several carriers, notably Delta and Northwest, already in bankruptcy largely because of sky-high fuel prices even before this latest spike, several others just out of Chapter 11, like US Airways and United Airlines, and still others in the industry trying to avoid a similar fate.

A trader saw bankrupt Atlanta-based Number-Three U.S. carrier Delta's bonds down about 2 points across the board on the session, with its 8.30% notes due 2029 at 25.5 bid, 26.5 offered, which he said was also a 3 point drop for the week as a whole. He also saw Northwest, the bankrupt Eagan, Minn.-based Number-Four domestic airline, likewise down a deuce, at 46 bid, 47 offered.

The trader also saw Fort Worth, Tex.-based AMR Corp. - parent of the world's largest commercial carrier, American Airlines - lower as well, with its 9% notes due 2012 off 1 point to 98 bid, 99 offered.

Other traders meantime only saw Northwest and Delta off a point each on the day.

Ford leads autos down

Back on solid ground, the automotive issues were mostly lower, towed down by Ford, after its ratings were downgraded by Moody's.

Ford's benchmark issue, its 7.45% notes due 2031, dipped to 71 bid, 72 offered, a trader said, a loss of a point, after Moody's cut the carmaker's ratings. The agency lowered Ford's own corporate family and senior unsecured ratings two notches to B2 from Ba3 previously and lowered the Ford Credit senior unsecured rating a notch to Ba3 from Ba2. All of the ratings have a negative outlook.

The downgrade "reflects Moody's expectation that the company's performance in North America will face considerable additional stress due to high fuel prices and the resulting shift in consumer preference away from the very profitable SUV segment," the agency said in its downgrade message.

Moody's noted that during the first six months of this year, Ford's sales of mid-size SUVs fell by 24.7% and sales of large SUVs declined by 32.1%. "Despite the fact that solid market acceptance of Ford's new mid-size and full-size cars has helped maintain U.S. market share above 18%, the dramatic shift away from the SUV segment undermines prospects that Ford's Way Forward restructuring program will materially strengthen its weak credit metrics before 2008," Moody's warned.

The agency further cautioned that besides the market shift away from SUVs, Ford faces "considerable challenges in other areas," including implementing its extensive Way Forward restructuring initiative, reversing the chronically poor performance of Jaguar, contending with the ongoing erosion of its domestic supplier base, addressing the growing competitiveness and share gains of Asian manufacturers, and preparing for the renegotiation of its UAW contract in late 2007.

Moody's did acknowledge that while Thursday's decision by Ford's board of directors to cut both the company's dividend and their own director fees by half - the annual dividend will decline to about $350 million from $700 million - "will have minimal impact on Ford's cash flow," the move "may contribute [to] the constructive character of the dialogue with the UAW."

Another trader was quoting the Ford Motor Credit 7% notes due 2013 down ½ point at 85.75 bid, 86.25 offered - but pointed out that those levels were from the morning and he had not seen any levels on the credit after the Moody's news hit the tape.

Visteon lower

He saw the bonds of former Ford subsidiary Visteon Corp. easier, with the Van Buren Township, Mich.-based automotive components supplier's 8¼% notes due 2010 at 91 bid, 91.75 offered, a loss of a point on the day. That movement, he said, had occurred "in the afternoon," after the Moody's announcement came out. However, he pegged the company's 7% notes due 2014 unchanged at 81 bid, 82 offered.

GM slips

The trader meantime saw General Motors Corp.'s flagship issue, the 8 3/8% notes due 2033, unchanged at 79.25 bid, and its General Motors Acceptance Corp. 8% notes due 2031 half a point lower at 94.75 bid, 95.25 offered.

News of Ford's ratings cut by Moody's apparently overshadowed whatever interest there was in the thin market in Friday's scheduled face-to-face talks between GM boss G. Richard "Rick" Wagoner and Carlos Ghosn, the chief executive officer of both French carmaker Renault SA and its 44% owned alliance partner, Nissan Motor Co. The two auto chieftains were to meet in Detroit to talk about the possibility of bringing GM into the Renault-Nissan alliance, and about Renault and Nissan possibly taking a sizable equity stake in GM. As of Friday evening, there was no news out on the outcome of the Wagoner-Ghosn talks.

Prior to his meeting with Wagoner, Ghosn again said Friday that contrary to speculation in the media and in some financial circles, he has absolutely no interest in taking Wagoner's position as head of GM in the event the three companies do partner up.

Delphi, Dana mixed

A trader saw bankrupt former GM subsidiary Delphi Corp.'s bonds all over the lot, with the Troy, Mich.-based automotive electronics maker's 6.55% notes coming due this year at 83.5 bid, 84.5 offered, up ¼ point, its 6½% notes due 2013 unchanged at 78 bid, 79 offered, and its 7 1/8% notes due 2029 down ¼ point at 78 bid, 79 offered.

He also saw varying levels for the bonds of bankrupt Toledo, Ohio-based auto components maker Dana Corp. Its 6½% notes due 2008 were up a point, he said, at 84 bid, 85 offered, while its 5.85% notes due 2015 was down nearly a full point at 75.25 bid, 75.75 offered. Dana's 7% notes due 2028 were unchanged at 78 bid, 78.5 offered, proving he said, that "there is no rhyme or reason to this stuff."

Collins & Aikman keeps dropping

Collins & Aikman's 10¾% notes due 2011 fell to 23.5 bid, 23.5 offered, which a trader said was down 2 points on the session and 7 on the week. That quick collapse followed an equally hasty rise in the bonds the previous week, when there was all kinds of speculation that financier Wilbur Ross or some other buyer might step forward to make a bid for the bankrupt Troy-based auto interior components maker. "Clearly, somebody knows something," he said, cynically.

In the bank loan market, Collins paper dropped off by about 2 points on Friday, with some sources attributing the fall to private side information.

The debt closed out the day quoted at 92 bid, 93 offered, down from Thursday's closing levels of 94 bid, 94.5 offered, a trader said.

On Friday, news did emerge that the company obtained a two-month extension to its exclusive periods to file a plan of reorganization and solicit votes on the plan, however, sources seemed to think this had little do with bank debt's performance.

Adelphia higher

Adelphia's bonds were seen firmer as the market digested the news of Thursday's approval of its pending sale to Time Warner Cable and Comcast Corp. at a price of $17 billion-plus.

A trader saw its 10¼% notes due 2011 get as good as 58.5 bid before closing up a point on the day at 58 bid, 59 offered.

And he saw the 9½% notes due 2008 of Adelphia's Century Communications unit having arched up to 100.5 bid, before going home at 99.75 bid, 100.75 offered, also up a point.

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