Delta drops on renewed bankruptcy fears; Great Lakes Dredge sinks on numbers

By Paul Deckelman

New York, April 26 - Delta Air Lines Inc. bonds were rapidly losing altitude Tuesday in the wake of the poor quarterly numbers that the troubled Atlanta-based air carrier put up late last week - and the revived expectations of a possible crash landing in the bankruptcy courts which those numbers have stoked.

Bad numbers were also seen having sent Great Lakes Dredge & Dock Corp.'s bonds lower, although the Oak Brook, Ill.-based maritime services provider is not a name that's usually heard around very much.

Meantime, the bankruptcy buzz that had booted Calpine Corp.'s bonds and shares solidly lower at the tail end of last week seemed to have dissipated somewhat in Tuesday's trading, as the San Jose, Calif.-based power generator's bonds were seemed to have stabilized, albeit at sharply lower levels than they used to hold.

Delta's bonds "definitely looked weak," a trader said, quoting the air carrier's 8.30% notes due 2029 as having fallen to fallen to 25 bid, 27 offered, from prior levels at 28.5 bid, 29 offered.

He also saw Delta's benchmark 7.70% notes due 2005 at 74 bid, 76 offered, a three-point drop from Monday's levels.

"Their numbers just stink," he flatly declared, "and people think that they're having another brush with Chapter 11, that this could be it."

Among those who are looking again at Delta as a possible Chapter 11 candidate - or maybe even a probable one - is respected airline industry analyst Ray Neidl of Calyon Securities in New York.

In a research note put out Tuesday, Neidl declared: "In our opinion, Delta appears to be the most likely candidate for a bankruptcy filing this year [among the major airlines that have not yet filed] based on its liquidity position."

He indicated that the pressure may intensify on Delta by the fall. In the meantime, he estimated that Delta is burning through its cash position faster than the big engines on its aircraft burn through tanks of increasingly expensive jet fuel - cash-burn to the tune of some $4 million in cash a day. Unless that somehow is turned around, Delta's unrestricted cash reserves will drop to $1.47 billion by the end of June - and will the carrier will burn through yet another billion so as to only have $466 million left by year's end - a dangerous level for a company with Delta's heavy debt load and pension funding obligations. Delta did not comment on Neidl's warnings.

The catalyst for the renewed concern about Delta's alarmingly intense cash-burn rate was the company's first-quarter results, issued last Thursday. Those figures showed Delta - corporate parent of the nation's once-mighty third-largest national carrier - as having lost nearly $1.1 billion in the January-March quarter, more than any other major airline.

Great Lakes Dredge sinks

Bad numbers helped set Great Lakes Dredge & Dock's bonds adrift, with its 7¾% notes due 2013 seen having fallen more than seven points to 76.5 bid.

In a filing Tuesday with the Securities and Exchange Commission, the company disclosed that it incurred a net loss of $4.7 million for the quarter ended March 31, as a result of decreased margins and increased interest and legal expenses. That compares unfavorably with its year-earlier net income of $1.8 million. During the quarter, Great Lakes Dredge & Dock incurred $900,000 of legal expenses related to additional counsel for certain employees who were interviewed by attorneys from the Justice Department and subpoenaed to testify before a grand jury investigating the U.S. dredging industry. That probe convened in February 2004.

EBITDA for the quarter ended was $5.2 million, well down from $14.8 million for the same period in 2004, reflecting the impact of the reduced company's reduced dredging margins and its additional legal expenses.

As of March 31, Great Lakes had total debt of $257.8 million ($2 million of that current) , total cash and equivalents of $400,000, outstanding performance letters of credit totaling $13.9 million, and revolver borrowing availability of $11 million. Great Lakes Dredge & Dock said this "remains sufficient for all foreseeable operating cash needs."

However, the filing noted that as of the company's reduced earnings over recent quarters, its net worth dropped below the minimum level required in its underwriting and indemnity agreement with its surety company. Great Lakes said that it had obtained a waiver of this requirement for the just-ended quarter from its surety company.

Collins & Aikman down

Elsewhere, a trader said that Collins & Aikman Products Co. bonds "didn't feel very healthy," although he saw no specific negative news out on the Troy, Mich.-based automotive components maker, whose bonds have seemed to act like a sort of lightning rod for investor concerns about the troubled automotive industry.

He saw Collins & Aikman's 12 7/8% subordinated notes due 2012 dip to 33.5 bid, 35.5 offered from 34 bid, 36 offered, and its 10¾% senior notes due 2011 lose 1½ points to 74.5 bid, 75.5 offered.

Calpine firmer

But a rare upside name Tuesday was Calpine. "You had Calpine last week, at the end of the week, drop 10 or 15 points, on rumors of a technical default," a trader said, although he also noted that the company had vehemently denied any kind of default, and took the rate step of addressing market rumors about a possible bankruptcy filing, saying that was not true either.

But after that carnage, which continued on into Monday, Calpine appeared on Tuesday to have stabilized, although at far lower levels than the bonds held barely a week ago.

Calpine "really didn't do that much," a trader said, quoting the San Jose, Calif.-based independent power producer's 8½% notes due 2010 at 54.25 bid, 55.25 offered, little changed.

Another trader said the Calpine issues "stabilized here," seeing the benchmark 8½% notes due 2011 at 52.5 bid, 54.5 offered and its 8½% notes due 2008 at 53.5 bid, 555.5 offered, "pretty much unchanged on the day."

A trader at yet another shop called Calpine "kind of active, with the short paper actually better."

He saw the company's 8¼% notes due 2005 a point better at 91.5 bid, 92.5 offered, and its 10½% notes due 2006 1½ points better at 81 bid, 83 offered.

"Even the longer stuff was also kind of unchanged to higher," he said, with the 8½% notes due 2008 up a point at 54.75 bid, 55.75 offered.

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