Delta bonds fly south on earnings and liquidity warning; Foamex continues fall

By Paul Deckelman and Sara Rosenberg

New York, March 10 - Delta Air Lines Inc. bonds were several points lower across the board Thursday after the troubled Atlanta-based airline company warned that it would have a sizable loss in 2005 and likely will have trouble getting the cash it needs to pay its interest and fulfill other obligations.

Elsewhere, Foamex International Inc. bonds continued to head lower, the latest sign of weakness in the battered automotive component supplier sector.

Delta's benchmark 7.70% notes due 2005 were seen by one trader as having fallen as low as 85 bid, 87 offered from prior levels around 90 bid, 92 offered, before coming off those lows to finish at 89 bid, 90 offered, down only about a point.

But he saw Delta's 10% notes due 2009 dropping to 52 bid, 54 offered from 57 bid, 59 offered, while its 7.90% notes due 2009 were six points down at 43 bid, 45 offered, and its 8.30% notes due 2029 were down four points at 35 bid, 37 offered.

A second trader said the 7.90s had gone home at 42 bid, 44 offered, while the 8.30s slid to 34 bid, 36 offered.

At another shop, a market source saw the 7.70s fall as low as 84.5 bid, from prior levels around 89, before trying to climb back up. He pegged the 8.30s at 35.5 bid, down two points on the day, while the company's 9¾% notes due 2021 were likewise down a pair, at 37.25.

Delta's convertibles dived more than 5 points, with both the 8% issue and 2.875% issue seen late in the session at 44 bid, 46 offered.

Delta's NYSE -traded shares swooned 56 cents (11.45%) to $4.33, on volume of 10.8 million, around three times the usual activity level.

Delta warned in its 10-K annual filing with the Securities and Exchange Commission that it expects a "substantial" loss in 2005, and faces a severe liquidity crunch that could conceivably drive it into bankruptcy.

A trader said the news should have been no great shock, since the company has said all of this before, in one form or another. He opined that the bonds fell as much as they did perhaps because

"maybe putting it in print makes it seem more real."

Delta said in its filing that it has $3.4 billion in obligations in 2005 related to leases, interest on debt, debt maturities and funding of employee pensions - and it doesn't think its cash flows from operations will be sufficient to meet all of its needs. Delta will thus have to tap its available cash, as well as the final $250 million it borrowed late last year from American Express Co.

Delta cautioned that its filing that its cash reserves would be much lower at the end of 2005 than they were last year unless it can sell assets or raise money in other ways - but it acknowledged that it will have a hard time trying to borrow money, since it has already pledged most of its assets as collateral on previous loans.

Delta further warned in the filing that if it cannot access the capital markets to meet its operational needs or its cash levels fall to an "unacceptably low" level, or if the assumptions in its turnaround plan fail to materialize, it might be forced to seek Chapter 11 protection.

The trader noted that the company's bonds had both climbed sharply last fall when Delta was finally able to cajole its pilots' union into accepting a $1 billion permanent pay cut as part of the company's cost saving efforts, which may have made some investors a little giddy. As they were buying into a now-Delta-will-survive scenario, he suggested, they did not realize how many more hurdles the company still faces.

"As they said in their 10-K, they need everything to work perfectly for them for them to continue on. They've got a lot of moving pieces" that have to fall into place, he said.

"A lot of people were looking at them, and saying 'they've got the pilots' agreement,' and the bonds traded up seven or eight points, and that's just not enough. They need a lot more than just the pilots' agreement, and I think what this is showing is the reality, that this isn't just one or two things to fix it. It's 10 different things - and if they get all 10 things, then they've got a shot. This [filing] pointed out that it's a little more difficult than getting a wage agreement."

Delta's bad news sent a chill across the whole airline sector, pushing other carrier's bonds lower. A trader saw American Airlines parent AMR Corp.'s 9% notes due 2012 down two points on the session, at 74 bid, 76 offered.

Outside of the airlines, there was "not much going on," a trader in distressed issues said. "Everyone was focused on Delta."

Auto supplies a little lower

For instance, he saw the auto supplier sector only "slightly weaker." People "were paying all of their attention to the airlines."

A trader said that Collins & Aikman Products Corp., which seems to have become the poster child for automotive segment problems, was pretty much unchanged Thursday, with it its 10¾% senior notes due 2011 at 92 bid, 94 offered, while its 12 7/8% subordinated notes due 2012 languished at 70 bid, 72 offered.

Tower Automotive's 12% notes due 2013 were likewise unchanged at 60.5 bid.

But Foamex International's the 9 7/8% notes due 2007 were seen off at least a point at 58 bid, 59 offered. However, the other bonds of the Linwood, Pa.-based maker of foam rubber padding for auto seats and dashboards, among its other products, were seen little changed, with the 10¾% notes due 2009 seen at 89 bid, 91 offered and its 13½% notes slated to come due on Aug. 15, still at 94 bid, 96 offered.

Winn-Dixie Stores Inc.'s bonds eased, a trader said, with the bankrupt Jacksonville, Fla.-based supermarket operator's 8 7/8% notes due 2008 down a point at 57 bid, 58 offered, and its real-estate secured passthroughs down 1½ points at 76.5 bid, 78.5 offered.

In bank debt news, levels on Mirant Corp.'s 2003 and 2004 paper widened a little bit to 77 bid, 78 offered from 77.25 bid, 77.75 offered, as little activity was seen in the Atlanta-based energy company's paper, a trader said.

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