Delta renews dive on more bankruptcy buzz; talk out on Columbus McKinnon, Avnet deals

By Paul Deckelman and Paul A. Harris

New York, Aug. 15 - Delta Air Lines Inc. bonds continued to push ever lower Monday as market speculation that the third largest U.S. airline carrier will soon file for Chapter 11 protection intensified; news reports said the struggling Atlanta-based carrier was already in talks with potential lenders for the debtor-in-possession financing it would need to survive during a bankruptcy restructuring. Late in the day - well after trading had wrapped up - cash-strapped Delta announced that it will sell its Atlantic Southeast Airlines Inc. regional carrier unit to SkyWest Inc. for $425 million.

Most of the other activity in a generally sleepy mid-summer secondary market came out of the distressed area, including a rise in Collins & Aikman Corp. bonds amid talk that rival automotive interior components maker Lear Corp. might make a bid for the bankrupt Troy, Mich.-based company; and a rise in Foamex LP's senior notes - and a corresponding drop in its subordinated bonds - after the Linwood, Pa.-based maker of foam rubber products for automotive and other industrial manufacturers said that it would not make the scheduled principal payment due Monday on its maturing 13¼% subs.

In the primary market, things were also seen to be pretty quiet; information emerged on a preferred stock issue by a subsidiary of Calpine Corp. Price talk meantime emerged on Avnet Inc.'s planned split-rated 10-year deal, and on forward calendar dweller Columbus McKinnon Corp.'s eight-year issue of pure junk notes. Syniverse Technologies Inc. was heard to be hitting the road Tuesday for a short marketing campaign for its planned eight-year bond offering

Columbus McKinnon notes talked at 9% area

With its roadshow wrapping up Amherst, N.Y., hoist company Columbus McKinnon Corp. talked its approximately $136 million offering of eight-year senior subordinated notes (B3/CCC+) at a yield in the 9% area on Monday.

The Credit Suisse First Boston-led debt refinancing deal is expected to price late Tuesday or early Wednesday.

Syniverse to start roadshow

One roadshow start was heard during the Monday session.

Syniverse Technologies, a Tampa, Fla.-based company that provides technology services to wireless telecommunications companies, will begin a two-day roadshow on Tuesday for its $150 million offering of eight-year senior subordinated notes (existing B2/confirmed B).

Lehman Brothers will run the books for the debt refinancing deal.

Split-rated Avnet not a junk draw

Elsewhere the market heard price talk on a split-rated deal from Phoenix, Ariz.-based computer components company Avnet Inc.

Avnet talked its $250 million offering of 10-year senior notes (Ba2/BBB-/BB) at Treasuries plus 187.5 basis points, with pricing expected on Tuesday.

Banc of America Securities and Credit Suisse First Boston are joint bookrunners for the debt refinancing deal.

Market sources remarked on Monday that at the given price talk Avnet is not likely to attract a great deal of junk play.

In what is perhaps an indication of how high-yield market conditions and a company's fortunes can change, back in early 2003 Avnet priced a straight high-grade $475 million issue of five-year notes (Baa3/BBB-) at par to yield 9¾%.

At the time market sources told Prospect News that high-yield names had definitely been in the deal.

Preferred market heating up

Also reported in a Monday press release were some terms on a preferred deal from a Calpine Corp. subsidiary.

CCFC Preferred Holdings LLC announced that it priced a $150 million preferred equity issue that will pay Libor plus 950 basis points.

One market source told Prospect News on Monday that the preferred market has definitely picked up since spring of the present year.

The source attributed the pick-up to a change in tone from the rating agencies which, the source said, are giving higher equity credit for issuers who have issued certain types of perpetual preferred deals.

The source said that Moody's now has a classification system for preferreds that involves baskets A through E, with E being 100% equity credit, and A being 0% equity credit.

Depending on the language in the underlying documentation of the preferred surrounding what events would trigger a deferral of dividend payments, the agency will assign the various levels of equity credit, the source added.

Delta down again

Back in the secondary arena, Delta's benchmark 7.70% notes scheduled to come due on Dec. 15 were seen by a market source to have fallen about three points on the session, to 25 bid, while the troubled Atlanta-based airline's other bonds were all seen converging around the 15-15.5 area.

At another desk, a trader saw the 7.70s down four points on the session to 23 bid, 25 offered, with other issues, like the 10% notes due 2008, the 7.90% notes due 2009 and the 8.30% notes due 2029 each down a point or so to bid levels in the 15-16 neighborhood.

"Delta was down a little bit," he said, "but it wasn't really getting cracked."

Another trader, while seeing the bonds in that same vicinity - 21 bid, 22 offered for the 7.70s and 15 bid for all of the longer issues - said that the bonds had reached those levels "on no real size" trading. "Just some small trades - hundreds and two hundreds.

"There was news out on them," he said, "but nobody really cared," with everyone waiting for the next shoe - probably a bankruptcy filing - to drop.

"It looks inevitable, doesn't it?" he asked, rhetorically. "It doesn't look like they have any hope at all of staying out - so it's really just a question of time now."

Equity players likewise believe that the end is near; they dropped Delta's New York Stock Exchange-traded shares to an all time low of $1.39, down 22 cents (13.66%) on the day. Volume of 35.4 million shares was about six times the norm.

The analyst community pretty much also agrees that time is running out for Delta's efforts to stay out of Chapter 11. For instance, long-time Delta-watcher Ray Neidl of Calyon Securities believes that the filing is likely some time after Labor Day.

While publicly insisting that Delta believes its interest are better served by an out-of-court restructuring, Delta executives may also be coming around to accept the inevitability of bankruptcy in the face of rapidly escalating fuel prices. The New York Times reported over the weekend that Delta has begun arranging financing that it might be able to tap in the event of a bankruptcy filing, holding talks with its major lender, GE Commercial Finance - which fronted Delta $1 billion last fall to keep it out of bankruptcy. The Times reported that the General Electric Corp. unit "could do so again, in or out of bankruptcy," according to people familiar with the talks, which were not confirmed by either Delta or GE Commercial Finance.

Firing what could be its last bullet in an effort to stave off bankruptcy, Delta late Monday announced the sale of Atlantic Southwest Airlines to SkyWest - already one of Delta's regional airline partners - with the latter company to provide $350 million in cash will be payable at closing, representing $330 million of the purchase price and $20 million relating to certain aircraft financing deposits.

The company said that an additional $125 million, representing $95 million of the purchase price and $30 million relating to certain aircraft financing deposits is payable to Delta either upon the earlier of assumption by Delta of the ASA and SkyWest Airlines Delta Connection agreements should Delta file for Chapter 11, or four years after the closing of the deal, whichever comes first. Conversely, SkyWest will be entitled to retain the $125 million if Delta were to reject its Delta Connection agreement with either ASA or SkyWest Airlines in a Chapter 11 proceeding before the fourth anniversary of the closing of the transaction.

But with jet fuel costs skyrocketing along with world crude oil prices, which continue to hover above $66 a barrel, it is uncertain how much time Delta has bought itself by selling Atlantic Southwest. Delta has estimated that every one-cent rise in jet fuel prices dents its bottom line by $25 million. Delta has lost about $10 billion since 2001.

Foamex seniors up

Other news out of the distressed precincts seemed to be powering the junk market's feeble secondary activity level Tuesday.

Traders said that Foamex International Inc.'s decision to not make the $51.6 million payment due on the maturing 13¼% notes gave its senior bonds a boost - but sent its subordinated notes in the opposite direction. Holders of Foamex's 10¾% senior notes due 2009 had urged the company not to make the payment, seeing it as a large cash drain on their potential recovery.

News that the payment won't be made - and that Foamex is in talks with major noteholders on what it called "a significant de-leveraging transaction" - as well as the possibility that the company might restructure under Chapter 11 and has already lined up DIP financing, helped push the 103/4s up more than three points to 89.75, a market source said - while dropping its subordinated bonds, such as the 9 7/8% notes due 2007, by more than two points to around 24.5 bid.

Another trader, however, saw the subs higher at the end of the day - though only because the bonds are now trading flat, or without their accrued interest, which translates to loss of several points of value, despite the nominal rise in the bonds price.

He saw 9 7/8s go from 20 bid, 24 offered, trading with interest, to 24 bid, 26 offered, trading flat, and also saw the 131/4s fall to that 24-26 area from prior levels around 35-40.

At the same time, he saw the 103/4s firm to 90 bid, 92 offered from 89 bid, 91 offered, but noted that the senior bonds too, were now trading flat.

Foamex's Nasdaq-traded penny stock shares meantime lost half of what little value they still had, dropping 16.1 cents (50.31%) to end at 15.9 cents; volume of 11.9 million shares was almost 22 times the normal activity level.

Collins & Aikman up on merger talk

Another name out of that same distressed automotive sector that was seen reacting to news was Collins & Aikman. A trader quoted its Collins & Aikman Products Co. 10¾% senior notes due 2011 as having risen to 33 bid, 34 offered from prior levels around 31 bid, 33 offered, attributing the rise to "talk that Lear [Corp.] may get involved" and possibly make a bid for the bankrupt Collins.

Another source had the company's subordinated 12 7/8% notes due 2012 up a point to 7 bid.

An automotive industry trade paper, the Automotive News, quoted unidentified sources close to Southfield, Mich.-based Lear as saying that company "might buy part or all of Collins & Aikman." There was no comment Monday from Lear, whose debt ratings were recently lowered to junk-bond level by the major agencies amid the weakness of the automotive supplier sector.

Lear's 8.11% notes due 2009 were being quoted up ¾ point to 103.25, while its 5¾% notes due 2014 were seen up 7/8 of a point at 89.

Ply Gem, Dobson gain on earnings

Among other issues not considered distressed, a trader saw Ply Gem's 9% notes due 2012 firmer on good numbers; the replacement-window maker's bonds were quoted at 88 bid, 90 offered, up a point.

Another company whose bonds were pushed up be favorable earnings data was Dobson Communications Corp., whose 8 3/8% notes due 2011 were a point better at 106.5, while its 8.443% notes due 2011 gained a quarter-point to 104.25, and its 9 7/8% notes due 2012 ended at 110.25, up ¾ of a point. The Oklahoma City-based wireless provider's American Cellular unit's 9½% notes due 2009 and 10% notes due 2011 both gained 1¼ point to finish at 105, a trader said.

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