American up after sidestepping bankruptcy; WestPoint Stevens falls on bank negotiations news

By Carlise Newman

Chicago, April 17 - American Airlines crept higher Thursday as the company felt the full effects of narrowly avoiding bankruptcy, a day after flight attendants voted to accept long-term cost cuts. American's bonds had soared Wednesday in anticipation of the vote and lifted the sector as a whole. Delta Airlines also gained in trading, after reporting a narrower-than-expected loss Thursday.

Fleming Companies Inc. was also seen stealing higher in distressed trade Thursday. HealthSouth Corp., mysteriously gaining in recent days, fell back somewhat on Thursday as trading wound down for the holidays. WestPoint Stevens Inc. dropped on news that the company is negotiating with its bank lenders.

AMR's 9% notes due 2012 gained a point Thursday, rising to 38.5 bid/40.5 offered as bankruptcy fears retreated slightly. That gain built on a sharp rise to 37.5 bid/39.5 offered Wednesday from around 27 bid/30 offered at Tuesday's close on expectations that the flight attendants would reverse their initial rejection of the cost savings.

Flight attendants were the last of American's labor groups to ratify cost-cutting plans that total about $1.8 billion per year from all groups. American has already cut $2 billion per year in structural costs.

The Association of Professional Flight Attendants said that "yes" votes totaled 10,761 while "no" votes totaled 9,652; another 592 votes were declared ineligible.

AMR had said it would have quickly filed for Chapter 11 protection from creditors if the flight attendants didn't agree to the concessions. The roughly $4 billion per year in cuts are expected to cut total operating costs by about 21%, reducing AMR's unit costs to levels competitive with other large U.S. airlines.

Atlanta-based Delta Airlines' gained Thursday after turning in a narrower-than-expected first-quarter loss that was still wider than last year. A trader quoted Delta's 6.65% notes due 2004 at 75.5, bid 76.5 offered, up a half-point from Wednesday's close when the bonds were seen at 75 bid/76 offered.

Excluding items, Delta reported a loss of $426 million, or $3.49 a share; the Thomson First Call estimate was for a loss of $3.51. Delta's revenue rose 1.7% to $3.16 billion from $3.1 billion in the year- earlier period.

"I saw a lot of the same stuff from this week coming across today: Fleming, HealthSouth, nothing too bold today," said a distressed debt trader.

Fleming's 9¼% notes due 2010 fell to 15 bid/17 offered Thursday, down a point from Wednesday, when the bonds were quoted at 16 bid/18 offered.

The grocery distributor said on Wednesday it is seeking court approval for $150 million in debtor-in-possession financing as it goes through bankruptcy reorganization. The financing includes $50 million the company received as a bridge loan on April 3. The lead lenders in the DIP financing package are Deutsche Bank Trust Co. Americas and JP Morgan Chase Bank..

"Really no liquidity today. It was all but dead," a trader said of Thursday's activity, weighted down by the Passover and Easter holidays.

HealthSouth's 7 5/8% notes due 2012 fell to 57 bid on Thursday after levels around 58 3/8 Wednesday, the trader said.

"Whomever put the 57 bid out there is just fishing around," he said.

The company's executives have been testifying all week as to whether they were told to falsify documents by the company's chief executive Richard Scrushy.

The Securities and Exchange Commission on March 19 charged Scrushy and HealthSouth, the nation's largest operator of rehabilitation hospitals and surgical clinics, of illegally boosting the company's profits by $1.4 billion since 1999. The figure has since ballooned to $2.5 billion dating back to 1994, according to charges filed by prosecutors in criminal cases against former HealthSouth executives.

A name not seen often, WestPoint Stevens, graced the desks in distressed debt trading Thursday. WestPoint Stevens 7 7/8% notes due 2005 fell to 23.5 bid/25.5 offered after opening Wednesday at 25 bid/27 offered, a trader said.

WestPoint Stevens said Wednesday it is negotiating with its bank lenders on amending covenants in its senior credit and second-lien facilities. The company said if the negotiations aren't successful its auditor would issue a going concern qualification in its audit report.

The company also said it had obtained a waiver, required because the outcome of the negotiations is material to the company's 10-K annual report for the year to Dec. 31, 2002. Until they are complete, WestPoint is delaying filing the report with the Securities and Exchange Commission. The waiver will extend to June 10 and will protect the company from defaults that could occur under its senior credit and second-lien facilities that could result from failing to file the 10-K report.

Additionally, another dormant issuance was seen in Thursday's trade. GlobalStar's 11 3/8% notes due 2004 re-emerged, seen at 7 1/8 bid/8 1/8 offered. The bonds have not been active as the company deals with financial woes after filing for Chapter 11 bankruptcy protection last year in February.

"Odd but true," the trader added. "It was a weird day for names like that to pop up."

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