Airline bonds lower as sector battered by poor earnings; Federal-Mogul bank debt firms

By Paul Deckelman and Sara Rosenberg

New York, Oct. 20 - Bonds of beleaguered Delta Air Lines Inc. were quoted lower Wednesday, after the Atlanta-based air carrier, as expected, reported a sharply wider than previously expected third quarter loss. Other air carrier bonds, such as Northwest Airlines Corp., Continental Airlines Inc. and AMR Corp. were also easier, pushed down by a combination of worries over continued high oil prices and losses reported by those airlines as well as by Delta.

In bank loan trading, Federal-Mogul Corp.'s revolver traded around at stronger levels, market participants said - although just how high the paper got was up for debate.

Delta reported a net loss of $646 million ($5.16 per share) for the September 2004 quarter - about four times its year-ago loss of $164 million ($1.36 per share). Excluding certain non-cash charges, the latest quarter's net loss and loss per share were $592 million and $4.73, respectively. Wall Streeters had been forecasting $3.76 per share of red ink.

The big loss came as no surprise to the market, since Delta had revealed last week in a filing with the Securities and Exchange Commission that its losses would come in far worst than originally predicted, largely on skyrocketing oil prices. Delta also said that as of Sept. 30, it had $1.77 billion in cash, of which $1.45 billion was unrestricted - well down from the $2.7 billion of unrestricted cash with which it began the year, and down from the $2 billion cash cushion it reported at the end of the previous quarter on June 30.

Delta skipped the customary conference call with analysts and investors following release of its results, a step which has sparked speculation in the financial markets that the end may be near in the carrier's long, fervent - and apparently, increasingly difficult - fight to stay out of bankruptcy.

Delta's bonds - which last week had shot skyward on apparent progress the airline seemed to be making in its efforts to win paycut concessions from its pilots and to cajole debt holders into accepting an exchange offer that would wipe out some of its $20 billion debt load - have been falling ever since last Friday, when the SEC filing became known. Even though Wednesday's figures represented no departure from what the market already knew, the company's bonds continued to head lower.

A trader in distressed bonds said that Delta's benchmark 7.70% notes due 2005, which he saw Tuesday at 49 bid, 51 offered, had by Wednesday's close descended to 44 bid, 47 offered. He saw Delta's 8.30% notes due 2029 backpedal to 22 bid, 24 offered from 25 bid, 26 offered on Tuesday. The 7.70s had hit a recent peak of 65 last week, while the 8.30s had gotten as good as around 32 bid, according to market participants.

Another trader, who said the Delta bonds had already been "knocked around so much already," saw the carrier's long bonds a little above the first trader's levels, at 24 bid, 26 offered, down from 25.25 bid, 27.25 offered.

The trader said that in general, airline paper was weaker on the day, both on the massive red ink which Delta and the other carriers are reporting, as well as oil prices, "which certainly didn't help."

Oil prices had been moderating a little earlier in the week but on Wednesday, crude for November delivery rose as high as $55.20 per barrel, on the New York Mercantile Exchange, before settling at $54.92 per barrel.

Higher crude prices - they're 81% above where they were a year ago - translate into higher prices for jet fuel. Even with some of the costs hedged, that still has taken massive bites out of the airlines' bottom lines.

Northwest bonds lower

Northwest reported Wednesday that it lost $46 million (54 cents a share) in the third quarter, after an $8 million payout on preferred dividends. A year ago, the Eagan, Minn.-based airline operator showed a profit of $42 million (49 cents a share). Steep as that loss was, it was less than the 81 cents a share of red ink the analysts had projected. Northwest's 9 7/8% notes due 2007 were heard to have dipped a point, to 75.5 bid, 77.5 offered.

A trader at another shop pegged Northwest's 7 5/8% notes due 2023 at 64 bid, its 8 7/8% notes due 2006 at 85 bid, and its 7 7/8% notes due 2008 at 65.5, "all weaker on the day," he said, with the latter bond two points lower.

AMR bonds drop

And a trader saw AMR's 9% notes due 2016 down 3½ points on the session, at a wide 53 bid, 56 offered, and saw the Fort Worth, Tex.-based American Airlines parent's 9% notes due 2012 down a similar amount, to 56 bid, 58 offered.

AMR on Wednesday said it lost $214 million ($1.33 per share) in the third quarter, versus its year-ago profit of $1 million or flat per share. Like Northwest, AMR managed to beat analysts' expectations of a loss of $1.51 per share.

Continental Airlines' 8% notes due 2005 were seen at 91.25 bid 92 offered, off 1½ points, in an apparent delayed reaction to the Houston-based carrier's third-quarter numbers. Continental lost $16 million (24 cents a share), although it did finish in the black if a special charge related to its retirement of some of its older gas-guzzling planes were factored out.

ATA off on cash warning

ATA Holdings Corp. did not have earnings out Wednesday - but the Indianapolis-based parent of low-fare carrier ATA warned that even though flight attendants had approved a $24 million wage concession plan, those savings alone will not be enough to ease its liquidity situation.

ATA - which said back in August that it might run out of cash early in 2005 - said Wednesday that its cash crunch has worsened since that SEC filing. It said in a new filing that its financial picture was worsened by record-high fuel costs, weak fares and the effects of multiple hurricanes in Florida and the Southeast.

ATA's bonds were seen by one trader at 26 bid, 28 offered, down from 28 bid, 30 offered previously.

Federal-Mogul loan rises

In bank loan dealings, Federal-Mogul's revolver traded at 91.75 in the Street, a trader said, while another saw the paper ending the day at 91.25 bid, 91.75 offered.

A third trader said the paper traded as high as 92.25 by day's end, compared with trades earlier in the day at 91.25.

"They put out projections, filed them with the court," the third trader said in explanation of the paper's strengthening.

In these projections, the Southfield, Mich.-based automotive components company - driven into bankruptcy under a flood of asbestos-related lawsuits - estimates that for the fiscal year ending Dec. 31, it will clear $1.23 billion in profits on projected revenues of $5.89 billion. For 2005, it will earn an estimated $55 million on net sales of $5.94 billion. For 2006, the net profit is estimated at $202 million on revenues of $6.09 billion and in 2007, the company estimates it will earn $246 million on sales of $6.23 billion.

EBITDA for the fiscal year ending Dec. 31 is estimated at $585 million, $683 million in 2005, $860 million in 2006 and $929 million in 2007.

Tower down again

Back among bond traders, another auto parts maker - Novi, Mich.-based R.J. Tower - was seen heading back down again, after having firmed Tuesday on the news that the company had approached lenders with an amendment proposal that would let it get a $200 million accounts receivable securitization facility.

That news had boosted Tower's 12% notes due 2013 as high as 71 bid from 66 offered previously, although late in the day Tuesday, the bonds had come off their highs to finish around 67.5 bid.

On Wednesday, Tower "really got kicked in the teeth," a trader said. "It took a spill late in the day." He saw the bonds falling to 64.5 bid, 65.5 offered from 68 bid, 69 offered.

Winn-Dixie bonds lose, bounce

Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 fell to 84 bid "right out of the chute" from Tuesday's 87.5 bid, 89 offered close, a distressed-bond trader said, after the Jacksonville, Fla.-based supermarket operator released its quarterly results. But he saw those bonds come off the lows to end essentially unchanged at 87 bid, 88 offered.

The company reported a net loss of $153.1 million ($1.09 per share) for the first quarter of fiscal 2005, versus year-ago net earnings of $1.2 million (one cent per share) a year ago.

Winn-Dixie - which is in the process of closing a number of underperforming stores or those outside its core geographic areas - said that it had a net loss from continuing operations of $123.6 million (88 cents per share), versus net earnings from continuing operations of $5.2 million (four cents per share) a year ago.

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