Northwest Airlines, Delta weaken; Doral down; Fedders falls on coupon questions

By Stephanie N. Rotondo

Portland, Ore., March 2 - Distressed airline paper continued its fall on Friday, as Northwest Airlines Corp. requested an exclusivity extension and Delta Air Lines Inc. released monthly earnings for January.

Northwest asked a bankruptcy court judge to push back its exclusive period from mid-March to late June, just before the company expects to emerge from bankruptcy.

Meanwhile, Delta posted a narrower net loss in January 2007 versus a year ago. Despite the better numbers, the company's 8.30% notes due 2029 fell about a point.

Meanwhile, worse-than-expected fourth-quarter results did little for Doral Financial Corp. The Puerto Rico-based bank's shares have been hit hard for some time, while Doral's bonds have seen fewer and fewer trades.

Traders are continuing to buzz on whether Fedders Corp. made its coupon payment due this week. The speculation cost the company's notes about a point during the trading day.

Investor nervousness since Tuesday's stock market plunge did little to stir up activity in the distressed debt arena. As the volatile week closed, bond traders were noting how quiet it has been.

"It was literally a snore today," one insider said.

Northwest drops

Northwest Airlines lost altitude in its bonds, a trend repeated over the week. One trader said the notes had lost 8 to 10 points from their highs.

The trader placed the 10% notes due 2009 at 89, while the 9 7/8% bonds due 2007 came in at 91.5. He also pegged the 8 7/8% notes due 2006 at 88. Another trader placed Northwest's 8 7/8% notes easier at 86.5 bid, 87.5 offered.

At another desk, a trader saw the 10% notes at 88.5 bid, 89.5 offered, down from levels around 91 bid on Thursday.

Northwest's 7 7/8% notes due 2008 were meantime seen to have fallen another 3 points on the session to 88 - this after having begun the week above par.

Northwest Airlines asked its bankruptcy judge to extend the period during which it alone can propose a reorganization plan.

The Eagan, Minn.-based airline filed a motion with the bankruptcy court Friday, requesting an extension on its exclusivity period, due to expire March 16. The request seeks to move the date to June 29.

The distressed airline has said it expects to emerge from bankruptcy at the end of the second quarter, which is June 30. In the filing, the company said it is "on track to emerge from Chapter 11 with all deliberate speed. The debtors have made and continue to make significant progress in restructuring their businesses."

Delta dips

A narrower net loss did little to boost Delta's debt, which a trader said was "settling in at 57.5."

Another trader said that Delta's notes due 2009 were heading home at 57 bid, 58 offered, after trading as low as 56.25 bid, 57 offered. But while "they traded a lot of bonds," they ended essentially little changed on the day, he said.

The Delta bonds were one of the most actively traded issues in the market, with a source at another desk pegging them at 58 bid, down a point on the day.

The Atlanta-based company posted a net loss of $109 million for January, compared with a net loss of $300 million for the same month the previous year. The loss before reorganization items equaled $115 million, a $98 million improvement over January 2006.

According to a company news release, Delta's operating loss of $65 million, an $81 million improvement over January 2006, included a $15 million negative impact of fuel hedges for the month.

The press release also stated that the company expects it will emerge from Chapter 11 protection shortly after its confirmation hearing, scheduled for April 25. It also said that equity holders would receive no distribution and current equity interests would be cancelled upon exiting bankruptcy. Further, the release noted, "we urge that caution be exercised with respect to existing and future investments in Delta's equity securities and any of Delta's liabilities and other securities."

Doral down

Puerto Rican bank Doral might be in for some tough times, as the company posted its fourth-quarter results, which came in much lower than expected.

The financial institution showed a net loss of $59.3 million, or 55 cents per share. The figures were well below the estimates of Cohen & Co., which estimated the loss at 33 cents per share.

In an equity research report published by Cohen, many potential risks prompted the company to issue a sell recommendation. The risks, according to the report, include "failure to refund the debt that matures in July 2007, potential losses in shareholder lawsuits, continuation of the flat to inverted yield curve, and continued declines in mortgage volumes in Puerto Rico."

Traders have been talking about the dive in Doral equity for several weeks. Earlier in the week, a trader familiar with the name said, 'The excitement that the recap would happen and common [stock] have any value has evaporated with the subprime mortgage market issues decreasing the value of [the business]."

Doral's floating-rate notes have been increasingly harder to unload, traders have said.

"Bondholders [are] not so sure at this point they want equity," the trader explained. The answer is "definitely no at these prices."

"[The bonds] are for sale," the trader said. "The thrill is gone here, I think."

The trader said the relatively inactive notes saw a few odd lot trades Friday, coming in around 95.5, down from the previous day's level of 96.5. He added that the "bonds may sell off back to 92-93 level."

Fedders weaker

"Did they or didn't they?" That is the question on traders' minds, as speculation on whether Fedders made its coupon payment continues.

"Everyone was talking about it," one market insider said.

The rumors of potential default may be weighing the Liberty Corner, N.J., company's debt down. The 9 7/8% notes due 2014 fell about a point, with one trader quoting the notes at 59 bid, 59.5 offered.

Default rumors have followed the company since the beginning of February. A loan amendment and search for refinancing of its debt put the bonds on slightly better footing. But as the payment due date came and went without any indication of the direction the company was going, the rumor mill started up again.

Calls to the company Thursday and Friday have gone unreturned.

Forest products down

A trader saw Canadian forest products companies Ainsworth Lumber Co. and Tembec Inc. lower, with Vancouver, B.C.-based Ainsworth's 7¼% notes due 2012 at 75 bid, 76 offered, while its 6¾% notes were in the 71 bid, 72 offering area. He said that activity in the name picked up later in the day and they finished down a couple of points.

Montreal-based Tembec's 8 5/8% notes due 2009 finished around 79.5 bid, 81 offered, and its 8½% notes due 2011 ended around 70, also about 2 points lower.

Chiquita slips

At another desk, a trader saw Chiquita Brands International Inc.'s 7½% notes due 2014 down a point at 88.5 bid, 89.5 offered after the Cincinnati-based fruit and vegetable importer announced that it would delay the filing of its 2006 year-end financial report with the Securities and Exchange Commission.

The report was due on March 1, but Chiquita now says it expects to have it in by March 16. It cites the need to obtain an amendment to its credit facility relating to the treatment of a $25 million charge it recorded and certain other related costs in connection with a previously disclosed U.S. Justice Department investigation of its Colombian operation.

Chiquita says it is in compliance with its credit facility financial covenants but needs the amendment to deal with potential financial covenant non-compliance in future periods.

Affinion loan paper lower

Affinion Group Holdings Inc.'s new unsecured PIK toggle term loan took a hit on Friday as recent weakness in the loan market has shown up a bit more in this type of paper, according to traders.

The unsecured term loan ended the day at 98¼ bid, 99 offered, down around three quarters of a point to maybe even a full point, one trader said.

"Generally speaking, all of the recently done PIK toggle loans are down," the trader remarked.

"It makes sense," a second trader added. "They're following the market down. PIKs are a little more risky so they just got hit harder."

Affinion is a Norwalk, Conn., direct marketer of membership clubs and insurance products.

Sara Rosenberg and Paul Deckelman contributed to this article.

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