Delta better ahead of update; Adelphia firms; Mississippi Chemical remains in 63 area

By Ronda Fears and Sara Rosenberg

Nashville, Sept. 7 - Even following a long holiday weekend, distressed bond traders said Tuesday was a "lackluster" and "uneventful" session. Wednesday is expected to be more active, though, as Delta Air Lines Inc. opens the day with an update on its restructuring plan. Ahead of the Delta conference call, though, the airline's bonds were just slightly better.

Northwest Airlines Corp. and Continental Airlines Corp. were both gaining ground as well.

"People are starting to feel more comfortable with the short Northwest Airlines paper" with the Northwest 7 5/8% due 2005 and the Continental 8% due 2005 "moving up a little bit, maybe half a point," said a trader.

"But there are still people filtering in, and we hope that tomorrow picks up a little bit."

Elsewhere, Adelphia Communications Corp. bonds were a little firmer too, as the auction of the bankrupt cable company approaches at the end of this month.

Mississippi Chemical Corp. bonds remained in the 63 area, where the notes were seen Friday, but are still considerably higher than the recent mid-50s area. The company filed an amended restructuring plan last week, to incorporate the sale of assets to Terra Industries Inc., which was announced earlier this month.

In distressed loans, Interstate Bakeries Corp. finally gained ground after a recent string of losses.

Delta holding ahead of update

Gerald Grinstein, Delta's chief executive, will on Wednesday set out details of a strategic review, the lack of which was the primary obstacle in the Atlanta-based airline getting consents from holders of notes secured with plane assets. The conference call is scheduled for 8:30 a.m. ET.

His proposal is expected to include thousands of job losses, pay cuts and an increase in healthcare contributions from employees.

Delta's 8.30% bonds due 2029 were up a point, maybe 1.5 points, on the day, traders said.

One trader put the issue at 28.5 bid, 30.5 offered, while a trader at another shop put those bonds at 29 bid, 30 offered. Late last week, the 8.3s were at 27 bid, 29 offered.

Delta's convertibles were described as about a half-point better, with the 8% issue in the 38 area and 2.875% issue at 40.25 bid, 40.75 offered.

Delta shares closed Tuesday up nearly 10%, gaining 38 cents on the day to $4.48.

Over the past couple of weeks, Delta's bonds have bounced around, first moving higher on indications that the union representing Delta's 7,500 pilots would come back to the bargaining table and might be persuaded to go along with the carrier's request for a 35% cut, which would produce $1 billion in annual savings for Delta.

As a backdrop to the Delta situation, headlines following the three-day holiday noted a breakdown in US Airways Group Inc.'s talks with its pilots, which is threatening to send that airline into bankruptcy for a second time. U.S. Airways is seeking $295 million from its pilots as part of a plan to cut annual labor costs by $800 million and reduce annual expenses overall by $1.5 billion.

But a convertible trader said the US Airways state of affairs might work in Delta's favor.

"If the US Airways pilots force [US Airways] out of the sky, that helps Delta's argument with their pilots," the trader said. "Delta's pilots are the highest paid in the industry, so if other pilots can't get any more money then they will have to relent. On the other hand, if they don't, then they will be out of a job if Delta goes belly-up."

Adelphia firms by a half-point

Adelphia's distressed bonds were up by a half-point or so, and its convertibles gained similarly, as the market awaits the bankruptcy auction of its cable assets as well as word on whether the founding Rigas family will be forced to pay back some $3.23 billion to the company.

"Adelphia paper was a little better," a distressed bond trader said. "The bonds were firmer but prices were up just about a half-point."

Recently, the 10 7/8% notes due 2010 were at 92.25 bid and 9 7/8% notes due 2007 at 91 bid. The 3.25% and 6% convertibles were pegged at 29 bid. Adelphia shares were unchanged at 37 cents in Pink Sheets trading, although turnover was about double the normal pace at 1 million shares.

There was no fresh news on the Greenwood Village, Colo.- based cable operator, whose assets will be auctioned off later this month. Among potential buyers for the Adelphia assets are expected to be such cable giants as Comcast Corp., Time Warner and possibly Cox Communications as well as Charter Communications Inc. or top executives at some of those cable companies.

Analysts are looking for the Adelphia assets to fetch $20 billion or thereabouts.

Adelphia also is asking the bankruptcy court to order the cable company's founding Rigas family to pay back $3.23 billion. The legal fate of Rigas family members is yet to be decided. On Sept. 21, a federal judge is expected to set a sentencing date for John and Tim Rigas, as well as a retrial date for Michael Rigas.

In July, a federal jury convicted John Rigas and his son, Tim, of securities fraud, bank fraud and conspiracy. The father and son allegedly conspired to hide $2.3 billion in debt, lied to investors and looted the now-bankrupt cable company. They each face 20 years in prison for the various counts. The jury, however, was unable to declare a verdict against Michael Rigas, former operations chief at Adelphia, hence the move for another trial.

Interstate Bakeries loan up

Interstate Bakeries' bank debt finally saw an upside after taking quite a hit during the first half of last week, with the paper quoted higher at 94½ bid, 96 offered Monday from previous levels of 92 bid, 94 offered, according to a trader.

Market sources attributed Tuesday's positive performance to "people focusing" on the name.

The Kansas City, Mo., wholesale baker's bank debt - known for such famous brand names as Wonder Bread, Hostess Twinkies and Drake's Cakes - saw a somewhat significant backlash after it announced that it missed its deadline and would delay filing its 10-K annual report for the fiscal year ended May 29 for a second time.

In reaction to the announcement, Moody's Investors Service downgraded Interstate Bakeries' bank debt rating to Caa1 from B2.

As all of this negative news compounded, the bank debt dropped to as low as 91 bid from levels in the low 98s prior to last week's events.

Mississippi Chemical notes still at 63 area

Back in bonds, Mississippi Chemical's 7¼% notes due 2017 were still in the 63 area following news late last week that the bankrupt Yazoo City, Miss.-based chemicals concern had filed an amended plan of reorganization.

A trader at one shop described the issue as slightly up on the news at 63 bid, 64 offered, having recently been seen in the upper 50s. Another trader saw the bonds at 63.5 bid, 64.5 offered, noting that he recently saw the bonds in the 54 bid, 56 offered neighborhood. On Friday a trader pegged the issue at 63.

Subject to court approval, the amended plan implements the sale of its nitrogen operations to Terra Industries, which was announced on Aug. 9 along with Terra's acquisition of all of the outstanding shares of Mississippi Chemical for an estimated total of about $268 million in cash and $107 million of Terra stock, plus assumed debt of $161 million.

The amended bankruptcy plan also includes separate treatment of Mississippi Chemical's ongoing phosphate business and the companies that formerly operated as its potash business, and facilitates the separation of those businesses from Mississippi Chemical prior to the closing of the Terra transaction.

Mississippi Chemical, which filed bankruptcy in May 2003, said it plans to file new disclosure statements with the court by Friday.

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