Delta bonds continue retreat; asbestos bank debt names move up

By Paul Deckelman and Sara Rosenberg

New York, Jan. 11 - Delta Air Lines Inc. bonds were again lower on Tuesday amid continued turmoil in the airline industry sparked by the beleaguered Atlanta-based carrier's decision last week to institute a broad program of fare cuts - cuts since followed by several of its airborne rivals.

In bank debt dealings, asbestos names were once again active, and were seen having pushed up a bit, aided by perceptions that Congressional action will be forthcoming soon on a claims payment mechanism that also caps asbestos-related medical damage claims that have bankrupted dozens of companies.

Delta's benchmark 7.70% notes due 2005 were quoted by one trader as having fallen to 89.5 bid, 90 offered, from prior levels around 92 bid, 93.

The trader saw "all the airlines softer," with Continental Airlines' 8% notes due 2005 down a quarter point at 96.5 bid, 97.5 offered, and Northwest Airlines Corp.'s 10% notes due 2009 at 76.75 bid, 77.25 offered, although he said "we really didn't see very much" of Minnesota-based Northwest's bonds.

Another trader saw the 7.70s drop to 88 bid, 90 offered from 90 bid, 92 offered, while Delta's 7.90% notes due 2009 lost a point to close at 56 bid, 58 offered. Its 8.30% notes due 2029 were unchanged at 44 bid, 46 offered.

The trader saw generalized weakness in the air sector, with bankrupt Indianapolis-based carrier ATA's 13% notes due 2009 and 12 1/8% notes due 2010 down three points to 53 bid, 55 offered, and American Airlines parent AMR Corp.'s 9% notes due 2012 and 2016 a point lower at 75 bid, 77 offered.

Delta's bonds had firmed last week on speculation that it would attempt to "transform" itself into something closer to one of the low-cost carriers like Southwestern Airlines or JetBlue, that have taken much business away from Delta and the other traditional "legacy" carriers. But then after the official announcement, the bonds began sliding, and have kept right on retreating. Bonds of the other carriers sank on the perception that Delta's move might spark a destructive fare war that could cost the industry as much as $2 billion to $3 billion.

Delta's chief executive, Gerald Grinstein, defended the new fare structure in a Monday evening speech in Atlanta, saying that "we had to act, and it was clear we had to make some changes."

The CEO also said that half of Wall Street "thinks we are geniuses" - while the other half "thinks we're Dumbos."

Asbestos loans better

In bank debt dealings, bankrupt Chicago-based building materials maker USG Corp.'s paper was heard moving up about a quarter of a point to 118 bid, 118.75 offered Tuesday, buoyed by the more hopeful outlook for the asbestos legislation.

Bankrupt Toledo, Ohio-based insulation maker Owens Corning's loan paper was meanwhile trading at unchanged levels of 91.5 bid, 93 offered, according to a trader.

The sector - which has posted strong gains since the day after the elections - has been active since last week, as news came out that Washington is apparently making progress on crafting a claims payment mechanism that would stem the flood of asbestos lawsuits, with Senate Judiciary Committee chairman Arlen Specter (R.-Pa.) planning on holding a hearing on a draft proposal this week, and aiming to wrap up action by the end of the month.

Southfield, Mich.-based automotive component supplier Federal-Mogul Corp.'s existing bank debt - not the exit financing facility - was among the most active issues, at unchanged levels of 94.5 bid, 95.5 offered. Federal-Mogul was also driven into bankruptcy by asbestos claims.

Mirant restarts gains

Mirant Corp.'s '03 bank debt headed back up to 72.75 bid, 74 offered after falling off about half a point in Monday's session to 72.5 bid, 73.5 offered, according to a trader.

Once again, no particular news was seen to instigate the move in the bankrupt Atlanta energy company's paper, the trader added.

Gate Gourmet lower

Gate Gourmet Inc.'s U.S. dollar term loan B1 fell off a little bit early in the session on Tuesday ahead of an auction for foreign currency term loan A and revolver paper that came out of London, according to traders.

The term loan B was quoted in the 95 context, compared to previous trades in the 96 to 97 type of range, one market source said.

However, according to a second source, the paper rebounded from the early day lower levels to end the session unchanged from Monday's levels at 95.5 bid, 96.5 offered.

As for the pro rata auction, "I thought 92, 94 was the context but I haven't seen it trade," the second source added.

Gate Gourmet, a Zurich, Switzerland-based airline catering company, has been under some scrutiny recently as the company failed to make an amortization payment on its loans and an interest payment on its mezzanine debt, which means that technically an event of default under the credit agreement has occurred.

In light of these missed payments, Standard & Poor's downgraded the company's bank loan ratings to D last week from BB and Moody's Investors Service downgraded the company's bank loan ratings to Caa1 from B1 this week.

Nothing has been decided by the bank loan lenders in terms of a course of action regarding the default, but various options are being reviewed.

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