Delta bonds fly on possible convert deal; Mirant more powerful

By Paul Deckelman and Sara Rosenberg

New York, March 24 - Delta Air Lines Inc. bonds were seen heading skyward Thursday - particularly at the short end of the company's capital structure, apparently pushed up by news that the troubled Atlanta-based air carrier is considering issuing new convertible debt to ease its liquidity woes.

In bank debt dealings, Mirant Corp.'s paper reversed its direction, with levels going up instead of down for the first time this week, as the distressed-loan market as a whole felt stronger during the shortened pre-holiday session, which saw a 2 p.m. ET debt and bond market close ahead of Friday's full market closure.

Delta's flagship 7.70% notes due 2005 were seen having jumped to 74 bid, 76 offered from Wednesday's closing levels at 68 bid, 70 offered, a trader said.

He also saw the company's 10% notes due 2008 end at 45 bid, 47 offered, and its 7.90% notes due 2009 finish at 39 bid, 41 offered, both "up one to two points" on the day, while its 8.30% notes due 2029 gained two points to 32 bid, 34 offered.

However, "the big mover was the '05," he said, both in terms of price movement and trading activity.

The bonds got a boost after its chief executive officer, Gerald Grinstein, told the Goldman Sachs Transportation Conference on Wednesday that Delta was considering the convertible issue to put a little more cash in the till at a time when the beleaguered carrier is beset by ever-mounting fuel bills, among other expenses.

Grinstein told the conference that rising fuel costs have impacted upon the airline's liquidity by about $900 million to $1 billion, and Delta can only recoup about 25% of that through higher ticket prices, since a rise in ticket costs beyond a certain level will send travelers running to the desks of rival air carriers.

The rest must be made up in other cost cuts - although Grinstein did not say whether this would mean cutting more jobs on top of the 16,000 it has already cut since 2001 and the 7,000 it expects to cut over the next year, or whether Delta would have to go back to its employees and ask for still more wage concessions, this after having dragooned $1 billion of permanent wage cuts out of its pilots last year and a few hundred million of other wage cuts from the rest of its work force and its management cadre.

He did not say what kind of a time frame he was talking about.

Grinstein expressed the hope that Delta could continue to avoid a crash landing in the bankruptcy courts.

But while cutting costs will be the key determinant of whether Delta will survive pretty much as is, Grinstein also spoke of "other liquidity opportunities in order to provide that liquidity cushion that will get us through '05 and '06."

He predicted that by 2007, Delta "will become cash positive."

"I guess investors viewed his comments positively," a trader mused, "though I don't understand why," given the company's clearly proliferating problems.

Mirant loans higher

In the bank debt market, Mirant's 2003 and 2004 debt was quoted at 73 bid, 74 offered, up half a point from Wednesday's levels of 72.5 bid, 73.5 offered, according to traders.

And, Mirant's MAGI bank debt was higher on the day with levels moving to 107.25 bid, 108 offered, traders said. One trader said the MAGI paper was up by 3/8 on the day, while another trader said the paper was up half a point on the day.

"A little stronger tone to the market today....but not a lot of action!" the first trader said in explanation of the rise in the bankrupt Atlanta-based power generation company's rise.

"The market just feels better today," the second trader added.

Collins & Aikman heads upwards

Back among the bond investors, Collins & Aikman bonds, and its shares as well, were speeding higher Thursday, apparently pushed up by rumors that the company is lining up new financing, in the absence of any other positive news.

A trader in distressed issues mentioned the market speculation about Collins & Aikman supposedly trying to line up second-lien financing as the explanation for a rise in the Troy, Mich.-based automotive component maker's bonds.

He saw its 10¾% senior notes due 2011 having pushed to 83 bid, 85 offered from 79 bid, 81 previously - after first having pushed as high as 86 - while the 12 7/8% subordinated notes due 2012 firmed to a close at 48 bid, 50 offered from 42 bid, 43 offered earlier.

Another trader agreed that according to market scuttlebutt, "there was supposed to be a conference call," apparently with the company's bank lenders, sparking "rumors that they were trying to do a second-lien bank facility."

This trader saw the company's bonds "up significantly," on "strange rumblings."

He saw the 12 7/8% notes open at 41.5 bid, 42.5 offered, about the same level at which they had closed Wednesday, and then, they "ran up" as high as a 51-52 context intraday, before they "retracted a little" to close at 47 bid, 48 offered, still up more than five points on the session.

He saw the 103/4s open at 80.5 bid, 81.5 offered, climb to a peak of 85.5 bid, 86.5 offered, and then finish at a more moderate 83.5 bid, 84.5 offered.

A market source at another shop saw the 10¾% notes firming four points on the day to 84, but saw the 12 7/8s up just two points to 44 bid. However, a source at another desk, quoted the latter bonds around 50 bid, a gain of more than seven points all told.

The company's New York Stock Exchange-traded shares zoomed 35 cents (34.65%) to $1.36 on volume of about one million, twice the norm.

Sources in the bank-debt market also heard the rumors about the possibility of a second-lien financing but had few if any details about it. Unlike the bonds the company's bank debt was unchanged on the day and "pretty much quoted around par."

On its March 17 earnings conference call, at which Collins & Aikman disclosed an accounting problem which may force it to restate results back to 2003, announced that it had filed for a 15-day extension of its financial reporting deadline with the Securities and Exchange Commission, and warned that it would still likely not be able to get its results in by the extended deadline, the company said that it would be meeting with its bank lenders during the week just passed. But it said this in the context of a discussion of seeking lender waivers to reporting deadline requirements in its loan covenants, and did not indicate at that time that it was seeking any new financing.

Elsewhere in the auto sector, bankrupt Novi, Mich.-based RJ Tower Corp.'s 12% notes due 2013 were unchanged at 53.5 bid, although Eagle-Picher Industries Inc.'s 9¾% notes due 2013 were seen three points lower at 67.5 bid.

Adelphia lower

Reports that Adelphia Communications Corp. may be close to settling its outstanding legal issues with the Justice Department and the Securities and Exchange Commission did little to help the bankrupt Greenwood Village, Colo.-based cable operator's bonds, which were in fact lower on the session.

A trader saw its 10¼% notes due 2011 drop a point to 89 bid, 90 offered.

A source at another desk saw those bonds dip to 89.5 bid from 91 previously, while its 10 7/8% notes due 2010 lost a point to 87.5.

The source said that the company's Century Communications Corp. Issues "look like they really got hit," quoting the Century 8 3/8% notes due 2007 at par bid and its 8 7/8% notes due 2007 also at par, both down 2½ points.

Published reports said that Adelphia was offering to pay offered to pay $725 million to resolve federal criminal and civil fraud investigations arising from the allegations that former Adelphi boss John J. Rigas and members of his family had systematically looted hundreds of millions of dollars from the company and then had allegedly used accounting hocus-pocus to cover up the thefts.

If the settlement is accepted, it would be the second-largest settlement of its type in U.S. history, second only to the $750 million that WorldCom Inc. - now known as MCI - paid to settle its fraud charges in 2003.

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