Northwest Air delays bank meeting; GM bonds steady despite July sales slide

By Paul Deckelman and Sara Rosenberg

New York, Aug. 1 - Northwest Airlines Inc. has pushed off the bank meeting to launch its proposed $1.375 billion debtor-in-possession financing facility from this coming Friday to next Monday, because of scheduling conflicts with management availability, according to an informed source.

But some investors are hypothesizing that the delay might also have something to do with flight attendants rejecting the proposed labor contract this past Monday and the likelihood of a strike, a buy-side source told Prospect News.

Flight attendants rejected their second tentative agreement with the bankrupt Eagan, Minn.-based Number-Four U.S. airline carrier by a margin of 3,266 to 2,637. Northwest, under a previously approved motion, has the ability to impose new terms if no contract was reached. But, the union has said that if contract changes are imposed without the flight attendants' consent, the union can call for an all-out strike.

The rumor is the short amount of time that the company gains by pushing the launch into next week may "buy them enough time to put together a new slide presentation and offering memorandum," the buy-side source said.

Official word on the matter though is that the labor dispute has nothing to do with the rescheduling of the bank meeting but rather it really is just a matter of availability, the informed source reiterated.

Citigroup and JPMorgan are the lead banks on the DIP, with Citi on the left.

The facility consists of a $1.225 billion term loan and a $150 million revolver, with both tranches talked at Libor plus 250 basis points.

The DIP will be convertible into a permanent five-year exit financing facility upon the company's emergence from Chapter 11.

Once the DIP is converted into an exit facility, pricing may stay at Libor plus 250 basis points if the appraised market value of the collateral to the sum of the amount of the term loans, the commitments, the amount of all hedging exposure secured by the collateral and the amount of the pari passu obligations which is not replaced or cash collateralized is greater than 1.75 times. However, pricing can move up to Libor plus 300 basis points if that ratio falls below 1.75x.

Of the total proceeds, $975 million will be used to repay amounts owed under the existing DIP, and, at the company's option, $150 million will be used to replace or provide cash collateral for the first-lien obligations.

With this refinancing, the company's aggregate cost of borrowing will be approximately 350 basis points lower than the existing facilities, liquidity will be increased, and because the DIP is convertible into an exit facility, Northwest will save approximately $900 million in debt repayment through 2010 due to a longer amortization period.

Financial covenants include a minimum ratio of trailing four-quarter consolidated EBITDAR to consolidated fixed charges of 1.15 to 1.00 for the fiscal quarter ended Dec. 31, 2006, 1.20 to 1.00 for the fiscal quarter ended March 31, 2007, 1.30 to 1.00 for the fiscal quarter ended June 30, 2007, 1.40 to 1.00 for the fiscal quarter ended Sept. 30, 2007, and 1.50 to 1.00 for each fiscal quarter after that.

Under the covenants Northwest must also maintain minimum cash liquidity of $750 million at all times.

In the junk bond market, a trader quoted Northwest's 8 7/8% notes due 2006 two points lower on the day at 48 bid, 50 offered.

He also saw the bonds of Northwest's equally bankrupt, Atlanta-based rival Delta Air Lines Inc., about ½ point lower, with the Number-Three U.S. carrier's 8.30% notes due 2029 at 26 bid, 27 offered, while its other bonds, like its 7.90% notes due 2009 were also ½ point down, at 25 bid, 26 offered.

GM, Ford little moved

Back on terra firma, General Motors Corp.'s bonds, and rival Ford Motor Co.'s, as well as the notes issued by their respective financing arms, General Motors Acceptance Corp. and Ford Motor Credit Co., were all seen little changed despite the not-unexpected news that July vehicle sales by the two Detroit giants (as well as the Chrysler portion of DaimlerChrysler) were well off the hot pace set last year when the Big Three were luring customers into their respective showrooms by offering heavy, costly incentives.

The news that GM's July sales fell 22.2% from year-ago levels did not "cause the auto sector to crash and burn," a trader said, as it had been largely expected, even predicted by GM executives themselves, who noted that a year ago the carmaker was offering heavy buyer incentives to move their cars, light trucks and SUVs.

"I guess the numbers were already figured in," another said, as he quoted GM's benchmark 8 3/8% notes due 2033 at 82.5 bid, 83 offered, actually up ½ point on the day. GMAC's 6 7/8% notes due 2012 were up ½ point at 96.75 bid.

GM's bank debt, however, was weaker, with levels dropping by about ½ point to 94 bid, 94.5 offered, according to a trader in that market.

Breaking down the July sales figures, sales of light trucks and SUV's slid 31.2% from year-ago levels, while car sales were off 2.7%.

However, looking on the bright side, the 410,332 new cars and trucks sold in July were its best retail and second-best monthly sales performance year-to-date.

Ford's poor sales numbers - even worse than GM's with July sales sliding 35.2% from last year's incentive-swollen levels - likewise had little impact on the Number-Two domestic carmaker's bonds. Ford's 7.45% notes due 2031 were perhaps ¼ point easier at 73.5 bid, 74 offered, while its Ford Motor Credit 7% notes due 2013 ended at 88 bid, 88.5 offered, unchanged on the day.

Dura up again

Elsewhere in the automotive area, a trader saw Dura Operating Corp.'s bonds firmer for a second straight day as the Rochester Hills, Mich.-based automotive components maker's debt bounced back from the seriously oversold levels to which it had plummeted last Thursday, with a further downside move on Friday, in response to quarterly numbers showing a slide into the red.

"They were oversold last week," he said, "and the subs really got smashed," with the 9% subordinated notes due 2009 losing fully half their value and falling into the mid 20s from prior levels around 50. However, those bonds were up a couple of points on Monday, and continued that rebound on Tuesday, adding 2 points to finish at 28.25 bid, 29 offered.

Dura's senior 8 5/8% notes due 2011, which last week fell into the mid-70s from prior levels around 85, were up about ¾ point on Tuesday to 77 bid, 78 offered.

Collins & Aikman loan lower

Collins & Aikman Corp.'s bank debt continued to decline during Tuesday's session, with still no public news seen pushing the paper down, according to a trader in distressed loans.

The bank debt closed out the day quoted at 76.5 bid, 77.5 offered, down from Monday's closing levels of 80 bid, 82 offered, the trader said. The Monday closing levels were down by about 6 points from Friday.

The bankrupt Troy, Mich.-based automotive interior components maker's 10¾% senior notes due 2011 were meantime seen as low as 15 bid, 17 offered, down a point, a trader in distressed bonds said, as the notes continue to fade along with the bank debt as investor optimism that any kind of a good bid for the company's assets will emerge anytime soon. That optimism had pushed Collins & Aikman's senior bonds as high as around 30 about a month ago, and had also pushed its 12 7/8% subordinated bonds due 2012 up to around 7 cents on the dollar. The latter bonds have also fallen back in the interim, and now languish at near-worthless levels of 2 to 3 pennies on the dollar.

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