ATA bonds soar as Southwest bid seen; Mirant bank debt off on Pepco brouhaha

By Paul Deckelman and Sara Rosenberg

New York, Dec. 14 - ATA Holdings Corp. bonds continued to climb Tuesday as at least one published report indicated that low-cost airline segment leader Southwest Airlines Co. has offered not only to buy six of ATA's gates at Midway Airport in Chicago, but is seeking to take control of the whole company.

In bank loan trading, Mirant Corp. paper was seen lower, as the bankrupt power generating company continued its legal duel with Pepco Holdings Inc.

ATA's 13% notes due 2009 and 12 1/8% notes due 2010 - which had risen over the past two sessions as Southwest emerged as a rival to AirTran Holdings Inc. in bidding for certain of ATA Airlines' assets - managed to wing their way all the way up to 38 bid, 40 offered, a trader in distressed bonds said, a four-point gain on the session. ATA's Pink-Sheet traded shares were up a nickel (4.10%) to $1.27.

The bankrupt air carrier's hometown newspaper, the Indianapolis Star, reported Tuesday that Southwest Airlines' $100 million bid for control of the six gates that ATA leases at Midway also features a proposal for Dallas-based Southwest to take almost complete control of its failing rival.

Southwest's bid - which also includes a proposed code-sharing arrangement on some routes - was submitted Friday, the deadline for putting in bids. It's aimed at stopping Orlando, Fla.-based AirTran from getting ATA's 14 Midway gates with its $90 million offer to ATA, which the two airlines had agreed upon last month.

AirTran contends that Southwest - which is already the dominant carrier at Midway - is trying to gain a virtual stranglehold over the busy airport, which is popular with Windy City travelers because it is closer to downtown than the larger O'Hare International.

But the Star report indicates that Southwest's bid is about more than a few gates at one airport. The paper said that should its proposal be approved by the bankruptcy court, Southwest, the seventh-largest U.S. airline, would then proceed to inject $47 million in cash and take a 35% stake in ATA Holdings, the airline's parent company. It would then replace certain senior ATA executives with its own people, who would move to cut labor costs between 15% and 20%. The Star attributed its information to a draft copy of Southwest's plans that it had obtained.

It said that Southwest's proposal was discussed during a meeting Monday between lawyers for ATA and lenders and creditors, reviewing the two rivals' bids. Under the Southwest arrangement, creditors would be offered new shares in ATA and a role in choosing its board members.

The paper further said that Southwest's plan includes $85 million for the Air Transportation Stabilization Board, the government agency that guaranteed $140 million in ATA loans in the months before the tenth-largest U.S. carrier finally went bankrupt in late October, driven to insolvency by a combination of escalating fuel prices and a toughly competitive, low-margin industry.

On Thursday, ATA is scheduled to make its recommendation which plan it prefers to the bankruptcy judge overseeing its case.

Apart from the ATA-AirTran-Southwest saga, a trader said he saw little going on in the airline sector. Delta Air Lines Inc.'s bonds were seen trading mildly higher, with the troubled Atlanta-based carrier's flagship 7.70% notes due 2005 up 1/8 point at 93.5 bid, its 7.90% notes due 2009 half a point better at 62.875 and its 8.30% notes due 2029 up ¼ point at 48.25.

Mirant loans down

Back on the ground, Mirant's 2003 bank debt fell about a point and a half on Tuesday as drama continues to surround the whole Pepco contract issue.

The Atlanta energy company's paper was quoted at 66.5 bid, 67.5 offered, according to a trader. By comparison, on Monday, the paper had been quoted by one trader at 67.75 bid, 68 offered and by a second trader at 68 bid, 68.75 offered.

Although the US District Court for the Northern District of Texas ruled that Mirant must honor its Pepco contracts - a decision that pushed Mirant's '03 bank debt lower by about half a point on Monday - Mirant said on Tuesday that it is holding off payment until the U.S. Bankruptcy Court for the Northern District of Texas rules on the situation. The hearing is scheduled for Wednesday morning.

The payments are owed under the asset purchase and sale agreement in which Mirant bought Pepco's generating assets in December 2000.

If the bankruptcy court rules in favor of Washington-based Pepco, Mirant estimates it could be on the hook for more than $300 million during 2004 and 2005, the company said in a previously filed Securities and Exchange Commission filing.

Mirant's bonds, such as its 7.90% notes due 2009 and 7.4% notes that were to have matured this past July, were both seen unchanged at 72.

Gate Gourmet regains some losses

Gate Gourmet Inc.'s term loan B has regained some ground after a six- to seven-point drop at the end of last week as the initial shock over the company's liquidity concerns has worn off and investors have had a chance to digest information revealed on a lender call Friday.

On Tuesday, the paper was seen trading in the 97 context, versus the 96 bid, 97 offered on Monday and 95.5 bid on Friday - where it moved immediately following the lender call, according to market sources. Prior to the call, the paper was quoted around 102.

The call was held so that the company could ask lenders to defer loan amortization payments due Dec. 31 till April 1, 2005 and waive financial covenants for Dec. 31. Gate Gourmet also wants to defer interest payments on its mezzanine debt.

These requests and the seriousness of the Zurich, Switzerland-based airline catering company's liquidity problem have investors worried on many levels, leaving some believing that a Chapter 11 filing could potentially be in the future. Additionally, lenders are concerned that approving this proposal only buys the company some time and there's no guarantee that come April there will be enough liquidity to make required debt payments.

Consents from lenders on the proposal are due Dec. 20.

Adelphia better

Elsewhere, a bond trader said that the news that federal regulators are seeking a $2.53 billion judgment against ousted Adelphia Communications Corp. founder and chairman John J. Rigas and his son Timothy, who was chief financial officer of the company until the Rigases were stripped of control of Adelphia in 2002 "probably sent the bonds higher," - even though enforcing such a judgment could interfere with the Greenwood Village, Colo.-based cable operator's bankruptcy reorganization.

He said that Adelphia's junior bonds, such as its 6% notes, had recently been trading around 17 bid, but then moved up to around 20 bid on Monday and got as high as 21 bid Tuesday, before easing slightly off that peak to end at 20 bid, 21 offered.

At the same time he saw its regular junk bonds, such as its 10¼% notes due 2006 and its 10¼% notes due 2011 "staying the same" around prior levels in the 92 bid, 94 offered area for the '06s and 98 bid, 99 offered area for the 11s.

Another trader concurred that Adelphia was "actually higher" despite the implications the Rigas news might have for the reorganization. He then qualified that, saying that "the shorter maturities were a little stronger" on the session, such as the defaulted 9¼% notes that were to have matured in 2002, which moved up to 91 bid, 92 offered from 89.75 bid, 91 offered on Monday. Meantime, "the longer stuff was a little weaker, strangely enough," he said, quoting the 10¼% due 2011s as having eased to 96.75 bid from 97 bid, 98 offered earlier.

The Justice Department, in seeking the judgment against John and Timothy Rigas, contended that the $2.5 billion represented their illegal profits from improper use of the company's assets. If it were granted the judgment, the feds could then seek to enforce it by trying to seize stock in cable TV systems run by Adelphia. That has the potential for interfering with Adelphia's efforts to either sell its assets, or even the whole company, to the highest bidder, or to alternatively restructure and emerge from bankruptcy around mid-year.

However, bond investors don't seem to be too worried at this point; a market source pegged the Adelphia 9 7/8% notes due 2007 nearly a point up on the day at 92.25.

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