Delta bonds surrender Wednesday gains; Reliant Energy bank paper firmer

By Paul Deckelman and Sara Rosenberg

New York, Sept. 9 - Delta Air Lines Inc.'s bonds - which had taken flight on Wednesday after the troubled Atlanta-based airline company publicly outlined its long-awaited turnaround plan - were seen coming back down to earth on Thursday, surrendering the gains they had notched the previous session.

In bank loan trading, Reliant' Energy Inc.'s term loan and revolving credit facility paper were seen about a quarter of a point stronger on the day, with active trading observed in the name.

A trader quoted the Houston-based utility operator's term loan at 100.25 bid, 100.75 offered, and the revolver was quoted at 98.5 bid, 99.25 offered.

No specific news was heard that would have pushed the paper higher, but rather the move was probably a result of market technicals, the trader added.

Back among the bond traders, Delta "was down a couple [of points]," a trader in distressed bond debt said, quoting the company's benchmark 7.70% notes due 2005 as having fallen back to 46 bid, 47 offered from prior levels at 48 bid, 50 offered, while its 8.30% bonds due 2029 were seen off two points at 27 bid, 29 offered.

The trader saw little movement in other airline issues, with bankrupt United Airlines' paper, for instance, continuing to languish in a 5 to 6 bid context.

Another trader said that Delta "gave back some" on Thursday, quoting the 7.70s as low as 45 bid, 47 offered - although he had seen those bond previously trading in a 46-47 context - while the 8.30% notes were down 1½ points to 26.5 bid, 28.5 offered.

Delta's bonds had been turning skyward on Wednesday after the air carrier - finally - released preliminary details on its turnaround strategy, many months in the making.

Chief executive officer Gerald Grinstein called the strategy "a "comprehensive, 360-degree plan that reinvents Delta." It includes plans for as many as 7,000 job cuts over the next 18 months, plus a 15% reduction in administrative costs, including likely management headcount reductions. There will also be pay cuts and reductions in company funded benefits for the remaining roughly 63,000 employees, to be offset - partly - by an employee rewards program that will give employees stock and profit-sharing to compensate them for their sacrifices. Delta will also eliminate its Dallas-Fort Worth regional hub and will otherwise drastically overhaul its schedule.

In announcing the details of the turnaround plan, Grinstein commented on the "rapid deterioration" of the company's finances, which he attributed to lower yields (i.e. carrying more passengers but making less money due to higher costs), uncompetitive labor costs, high fuel prices "and the debt burden."

Delta, he said, was at 110% of debt-to-capitalization in a high capital-cost industry, "and that is not sustainable. We have to attack that debt."

The company has a massive debt load of about $20.5 billion. It recently began the process of trying to restructure at least some of those obligations by asking the holders of some $1.7 billion of the company's equipment trust certificates and passthrough certificates - securities backed by liens on portions of the company's aircraft fleet - to consent to proposed indenture changes that would enable Delta to purchase the securities from them and hold them, seen by analysts as the likely first step in an effort to restructure the company's debt out of court, by exchanging those notes for other debt that might help bring down Delta's interest costs or otherwise cut its obligations. Standard & Poor's lowered its ratings on Delta's debt following the announcement, on the grounds that it made a debt restructuring at less than full value for the debtholders more likely.

However, a committee claiming to represent the holders of at least $1.3 billion of those notes said it would not go along with the company's request - at least not without more information about the company's turnaround plan and how Delta plans to restructure its debt. A company issued news-release, summarizing the case for consenting to the proposed changes in question-and-answer form, was deemed inadequate by the committee. Delta was forced to extend the original Aug. 31 deadline by which it had hoped to have the consents to the indenture changes in hand.

In his presentation Wednesday, Grinstein said that "one of the very important pieces of the viability plan that has been put together is that it provides the opportunity to get at that debt and to pay it down and to bring it within an acceptable level within a few years. That is an absolutely crucial issue." However, the CEO did not offer any more specific information as to the company's plans for restructuring its debt, or for convincing the recalcitrant secured bondholders to go along with its consent solicitation.

Delta - which has been negotiating with its pilots on and off for months over the airline's demand for a 35% pay cut and work-rule changes to save the carrier $1 billion annually - is "continuing to meet [with the pilots] in an effort to find a mutually agreeable solution," Grinstein said. However, he warned that "time is running out" to reach an agreement, and bankruptcy remains a "real possibility." Besides the company's efforts to wring more concessions from the pilots, it also has to worry about the possibility of service disruptions that could arise from an anticipated increase in early retirements by the pilots, especially those of considerable seniority who may choose to turn in their wings and start drawing their pensions rather than take a massive pay cut.

"If the pilot early retirement issue is not resolved before the end of the month " Grinstein cautioned, "or if all of the other pieces [of the cost-cutting plan] don't come together in the near term, we will have to restructure through the courts."

Avecia up again

Elsewhere, a trader saw Avecia Group plc's 11% notes due 2009 at 84 bid, 86 offered, up from 83 bid, 84 offered on Wednesday. The British-based chemical company's notes had been as low as 77 bid, 78 offered two or three weeks ago, but got a boost from their recently released quarterly results, traders said.

Trico gains, Winn-Dixie steady

A trader saw Trico Marine Services Inc.'s bonds having firmed to 47.5 bid, 48.5 offered from prior levels at 46 bid, 48 offered, although he saw no new news out on the Houma, La.-based provider of maritime services to the oil drilling industry.

The trader saw Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 staying in the same 88 bid, 90 offered context that the problem-plagued Jacksonville, Fla.-based supermarket operator's notes had recently held.

And he saw no changes from recent levels in the debt of Adelphia Communications Corp.

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