Airlines move lower as oil moves up; little Adelphia movement seen as FCC okays sale

By Paul Deckelman and Sara Rosenberg

New York, July 13 - Bonds of airline operators like Delta Air Lines Inc. and Northwest Airlines Corp. were generally seen losing altitude on Thursday, pushed lower by the rise in world crude oil prices - a leading indicator of future jet fuel price trends - in the wake of the expanding Middle East crisis.

Adelphia Communications Corp.'s bonds were seen little changed on the session Thursday, when the Federal Communications Commission, as expected, overwhelmingly approved the planned purchase of the bankrupt Greenwood Village, Colo.-based cable operator's assets by Comcast Corp. and Time Warner Cable.

In the automotive arena, General Motors Corp.'s bonds were seen easier, but with not too much activity, ahead of Friday's scheduled summit meeting in Detroit between GM chairman and chief executive officer G. Richard "Rick" Wagoner and Carlos Ghosn, his opposite number at French carmaker Renault SA and that company's 44% owned affiliate, Japanese auto producer Nissan Motor Co. They are expected to talk about a comprehensive three-way alliance between the car companies, with Renault and Nissan taking as much as a 20% equity stake in troubled GM.

Ford Motor Co.'s bonds meantime retreated after the struggling automotive giant said that it would cut the dividend that it pays to stockholders - a drastic move seen as indicating that things are not well with the Number-Two domestic carmaker.

In the market for distressed bank loans, Collins & Aikman Corp.'s paper headed lower in light trading, although there was no particular news seen sparking such a downfall, market participants said.

A trader in distressed notes saw bankrupt Atlanta-based Number-Three U.S. airline carrier Delta's 8.30% notes due 2029 fall two points on the session to 27.5 bid, 28.5 offered, while its shorter maturities such as the 7.90% notes due 2009 were likewise down two points, at 26.5 bid, 27.5 offered.

He saw Northwest Airlines' bonds similarly down a deuce, with the bankrupt Eagan, Minn.-based Number-Four U.S. carrier's 8 7/8% notes slated to come due this year falling to 47 bid, 49 offered, while its 7 7/8% notes eased to 48 bid, 50 offered.

At another desk, a market source pegged Northwest's 10% notes due 2009 at 46.75 bid, down 2¼ points from Wednesday's levels, and saw the Delta 8.30s at 28, down a point on the day.

Top carrier American Airlines' corporate parent, Fort Worth, Tex.-based AMR Corp.'s bonds, were also on the downside, its 9% notes due 2012 retreating to 98.625 bid - although late in the session there was a small trade up around 99, both down from Wednesday's close around 100.25. AMR's 9% notes due 2016 traded as low as 95.25 during the day versus 98.375 the prior day, a market source said. However, some small trades late in the day pushed the bonds back up to about 97.5.

The airline bonds were descending, even as world crude oil prices were headed in the opposite direction, pushed upward by the latest Middle East flare-up on fears that oil output from the region could be affected. Light sweet crude for August delivery settled at a new high of $76.70 a barrel on the New York Mercantile Exchange. The price continued climbing in after-hours electronic trading, when volumes are significantly lower, to $78.35. However, commodities market-watchers noted that while the latest prices were record highs in nominal terms, with adjustments for inflation, the price today would have to reach above $90 to match, in relative terms, the record levels seen in the late 1970s and early 1980s in the wake of the Iranian revolution.

And a trader at another shop, while noting the 1 point retreats in both Delta and Northwest, skeptically asked "what's another dollar or two [in oil prices] since the price of oil had already been floating around the $75 mark for most of the last week or two?"

Rising oil prices are seen as a negative for the airlines because they point to likely rises in price for distillates, particularly jet fuel. Rising fuel costs over the past several years were a key factor in pushing both Delta and Northwest into bankruptcy, and had an impact as well on the eventually bankrupt United Airlines and US Airways.

Adelphia little moved

Back on terra firma, Adelphia Communications' bonds were not much changed, "even after the FCC vote," a trader said. Another agreed, seeing the company's 10¼% notes due 2011 up ¼ point at 57.5 bid, 58.5 offered, while its 10¼% 2006 notes were perhaps ½ point better in subdued trading at 54 bid, 55 offered.

The five-member panel, which includes three Republicans and two Democrats, okayed the $17.6 billion sale deal on a 4-1 vote, with only Democratic commissioner Michael J. Copps objecting.

The deal allows the two largest multiple systems operators in the cable industry, Time Warner and Comcast, to get even bigger, by divvying up Number-Five operator Adelphia's systems between them, which raised the hackles of some smaller industry competitors, congressmen and media reform activists - but the commission majority's decision said that the merger serves the public interest by paving the way for bringing Adelphia out of bankruptcy, where it has been languishing since the spring of 2002. Democratic commissioner Jonathan S. Adelstein spoke to that sentiment in saying that Adelphia, which has some 5.2 million subscribers scattered across 31 states, has been "rotting on the vine" in the interim.

He joined with GOP commissioners Kevin J. Martin, the body's chairman, Deborah Taylor Tate and Robert M. McDowell in approving the deal, saying that on balance, the more compelling interest was to get Adelphia out of bankruptcy and improve service to its customers, with Comcast and Time Warner expected to undertake some $1.6 billion in system upgrades that will bring high-speed voice and data, HDTV and video on demand to the Adelphia systems that they are acquired.

Time Warner Cable and Comcast will divide up Adelphia's systems that geographically complement their existing portfolios, and will then further swap some of those systems they already own to create stronger geographic clusters. Adelphia systems are primarily located in the Northeastern portion of the United States - including Pennsylvania, where the company was founded in 1952 and headquartered for many years, upstate New York and New England, across the Southeast, particularly in southern Florida, in the states of Ohio, West Virginia and Kentucky, in its new home state of Colorado and scattered locations in the West, especially Southern California.

The FCC vote was the last legal obstacle to the sale of Adelphia's properties to Comcast and Time Warner. Judge Robert Gerber of the U.S. Bankruptcy Court for the Southern District of New York, which has been overseeing Adelphia's reorganization, recently approved allowing the sale to take place even though Adelphia's plan of reorganization has not yet been approved by its creditors and confirmed by the court.

Adelphia asked Gerber to allow the expedited procedure so that the long-running legal wrangling between different creditor groups over who will get what portion of the sale proceeds would not endanger the very chances for the sale itself.

Collins & Aikman slips

In the bank loan market, Collins & Aikman Corp.'s paper was seen lower, traders said, with the bankrupt Troy, Mich.-based automotive interior components company's debt closing out the day quoted at 94 bid, 94½ offered, down ½ point from previous levels of 94.5 bid, 95 offered.

A bond trader meantime saw Collins' senior notes at 23.5 bid, 24.5 offered, well down from recent levels in the high 20s.

GM heads down

Another trader saw GM's bonds "drifting lower with the market," which was generally lower, quoting its flagship 8 3/8% notes due 2033 down between ½ point and 1 point, at 79 bid, 80 offered.

He noted that there were news stories out in advance of Friday's sit-down between GM boss Wagoner and Renault/Nissan chieftain Ghosn, quoting the latter as saying that the two carmakers are only interested in a wide-scale alliance with GM, which would involve them taking as much as a 20% stake in the American company, and cooperating on various cost-saving initiatives that could benefit all three of them.

However, Ghosn sought to downplay speculation that bringing GM into Renault's and Nissan's existing partnership might be a way of greasing the skids under Wagoner and having Ghosn himself - widely praised for bringing Nissan back from the brink of insolvency several years ago - step in to run GM. Ghosn told CNBC in an interview that "I'm not going to run any other third company and that's not what's at stake here."

There has been some speculation that GM's largest single shareholder - and the man who's been acting as the matchmaker between GM and its would-be alliance partners - billionaire financier Kirk Kerkorian, a sometimes vocal Wagoner critic, was trying to maneuver the GM CEO out and replace him with Ghosn. Kerkorian, who holds 9.9% of GM's stock through his Tracinda Corp., has been unhappy with the pace of GM's turnaround efforts, and also is displeased that Wagoner is GM's point man in its talks with Ghosn; the cantankerous billionaire wanted the board to appoint a committee independent of current management that could also draw on outside financial and legal expertise in evaluating the merits of any possible deal with Renault and Nissan.

Even though Ghosn's declaration that he is not interested in Wagoner's job did make headlines, the trader said that in his view, Ghosn "didn't have much of importance to say regarding the potential alliance. It's still not clear, to say the least," what such a linkup might mean, "so the bonds sank a little bit on that as well."

Ford lower as dividend cut

Also in the auto sector, Ford's bonds were trading lower, after the Dearborn, Mich.-based carmaker announced that it will halve its quarterly dividend to five cents per share from 10 cents. That may sound like nickels and dimes - but the move is expected to save the company $92 million per quarter.

Ford - faced with slumping auto sales and trying to keep its turnaround plan on track - also said that it would cut the compensation it pays its board members in half as well.

A trader pronounced Ford's benchmark 7.45% notes due 2031 as having fallen a point on the news to 71.75 bid, 72.25 offered, and saw its Ford Motor Credit Co. financing arm's 7% notes due 2013 down ¼ point at 86.5 bid, 87 offered.

Another trader, who also estimated the 7.45s down a point at 71.5 bid, 72.5 offered, said that "on the surface, this seems like a positive" because the company is saving money, "but I think it's more negative than positive, if you dig down deeper into it, because everyone knows they're having trouble, but for them to announce it now, may point to the fact that their restructuring efforts aren't doing as much as they would like, and maybe [they have to] just ramp it up a bit." Ford's turnaround strategy includes cutting its workforce by 30,000 jobs and closing 14 facilities by 2012.

The trader also saw the 7% notes due 2014 of what he called Ford's "partner in crime" - Visteon Corp., a former Ford subsidiary still very dependent on its former parent for orders and financial support as it tries to make its own turnaround - "take a little beating," falling a point to 81 bid, 82 offered.

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