Airlines and energy gain; HealthSouth falls but advances to opening levels; Kmart higher

By Carlise Newman

Chicago, April 28 - The old standbys energy and airlines encountered sporadic activity Monday, with American Airlines parent AMR Corp. rising several points as the company reaches firmer ground. Delta Airlines and Continental Airlines rose vicariously. Energy companies Calpine Corp. and Mirant Corp. were also on the upside.

AMR's bonds have steadily rising in recent days as the company averted bankruptcy by a hair after its flight attendants agreed on Friday to a concessions deal. The 9% notes due 2012 rose to 43 bid/46 offered, according to a trader, after being last seen Friday at 35 bid/37 offered.

"AMR went a little crazy today, just on increased confidence probably. It was the first day in a long time where there was no major announcement," said the trader.

The decision from the Association of Professional Flight Attendants to accept a revised proposal from AMR helped end a tumultuous week at the carrier that included the resignation of chief executive Don Carty, appointment of a successor, and an earnings report that showed AMR lost over $1 billion in the first quarter.

Carty resigned under pressure on Thursday after employees rebelled over what they said was his failure to inform them of executive bonuses and pensions before they voted on concessions.

The other two major unions at American - the Allied Pilots Association and Transport Workers Union, which represents ground workers and mechanics - said on Thursday they agreed to certify their votes on wage concessions after the company agreed to a new incentive plan, reduce the terms of the deal to five years from almost six years, and allow the contracts to be open for renegotiation after three years.

The flight attendants union agreed on Friday to accept concessions with the same new terms.

Houston-based Continental's 8% notes due 2005 were quoted at 65 bid/68 offered, compared to 63 bid/66 offered Friday, roused by AMR's surge. Atlanta-based Delta Airlines' 6.65% notes due 2004 were seen bid at 82 and offered at 83, up one point from Friday's action.

Elsewhere, "energy paper was better," a distressed debt trader said. Arlington, Va.-based energy company Calpine's 8½% notes due 2011 were seen bid at 66 and offered at 68, after having seen levels of 64 bid/65 offered last Thursday. Atlanta energy company Mirant's 9 1/8% bonds due 2013 were quoted at 61 bid/63 offered, a point higher than Friday.

Other debt was seen moving for various reasons. HealthSouth's 7 5/8% notes due 2012 opened at 59 bid/60 offered, fell back "a point or two" and rose to meet opening levels by the session's end. The bonds had been seen at similar levels Friday.

"There was really no news to cause the move. People thought there was news, but found out there was not so they moved back up," said a trader.

The only fresh news out on HealthSouth was a report in the Wall Street Journal that the company's accounting firm, KPMG LLP, is now included in the fraud investigation into the company.

The Journal, citing sources familiar with the matter, reported that federal investigators are starting to ask questions about the tax work provided to HealthSouth by accounting and tax firm KPMG.

HealthSouth's auditor, Ernst & Young LLP, has already received subpoenas from the Justice Department and the Securities and Exchange Commission.

Ernst & Young, which was fired by the company after the accounting scandal erupted, has said it is cooperating. Plea agreements have stated the fraud was conducted to hide it from HealthSouth's outside auditor.

Prosecutors from the Justice Department and attorneys from the SEC have said that HealthSouth overstated profits by at least $2.5 billion since 1997. The plot included the use of fictitious assets and fake invoices, according to documents and court testimony.

The forbearance on HealthSouth's $1.25 billion credit facility expires May 1.

HealthSouth is a Birmingham, Ala.-based hospital operator.

Kmart Corp., back on the desks in recent weeks as the company heads toward emerging from bankruptcy, was moderately active Monday as well. The Troy, Mich.-based discount retailer's 9 3/8% notes due 2006 were quoted rising a point to 21 bid/22 offered, from levels last week of 20 bid/21 offered.

Last week, after four days of hearings and negotiations to resolve a number of objections, the company's reorganization plan was approved by the court, and the retailer said it hopes to exit bankruptcy earlier than expected on May 5.

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