Airlines hold on to gains from Thursday; Conseco loses steam; WorldCom still in picture

By Carlise Newman

Chicago, Sept. 12 - Airlines continued their ascent in distressed debt trading ahead of the weekend after a good run Thursday.

Although several airlines canceled flights Thursday due to the second anniversary of the Sept. 11 tragedy, the sector itself held up well, possibly because Thursday's bookings were higher than a year ago, perhaps because "the economy is in better shape, the country is not on the verge of war" and fears have lessened, a trader said.

"Thursday saw some of the distressed names in airlines doing pretty well and that held up for Friday," he said.

He said Northwest Airlines Inc.'s 7 7/8% notes due 2008 were seen up better than 3 points, while Delta's bonds were "slightly better," with its 8.30% notes due 2029 advancing to 67 bid, 69 offered Friday from Thursday's 65 bid, 67 offered. The bonds gained 4 points on Thursday.

The trader also saw American Airlines parent AMR Corp.'s 9.73% notes due 2014 at 59 bid. United Airlines parent UAL Corp.'s 9¾ % notes due 2021 were seen at 15 bid, 16½ offered, a rise of 3 points from Thursday, when they were up 5 points.

Another sign of improvement for the airlines was the news that Continental had added another $103 million to its employee pension plan. The Houston-based airline said its pension contribution for the year now stands at $372 million.

Continental said Friday it has contributed $283 million more than its minimum obligation to the plan for 2003.

Conseco Inc. bonds were still storming ahead, two days after the company emerged from bankruptcy.

The extended bonds closed the session at in "the upper 90s", with the unextended bonds at 55 bid, both rising 1½ points.

"They lost a little steam today but the run they had this week was good," a trader said.

Under the terms of the plan, the company has emerged as a Delaware corporation with a new capital structure consisting of a $1.3 billion secured bank facility; new convertible preferred stock with a liquidation preference of $860 million; new warrants to purchase 6 million shares of common stock at $27.60 per share; and 100 million shares of new common stock.

Holders of the exchanged notes will receive 60.6 million shares, a recovery of 72%, holders of the original notes will receive 32.3 million shares, a recovery of 42% and trust original preferred securities holders will receive 1.5 million shares, a recovery of 1.27%.

Elsewhere, WorldCom Inc. was still "somewhat active" Friday, a trader said. The bonds were up ½ point at 32½ bid, 33½ offered. The MCI paper was seen at 78 bid, bid, 79 offered, unchanged, but "traded pretty well," he said.

"Again, this wasn't a big move for the bonds, but we've traded them every day," he said.

Ashburn, Va.-based WorldCom reached an agreement with the creditor groups early Tuesday. Under the arrangement, holders of WorldCom senior debt - both bank debt and notes - which were to be repaid 36 cents per dollar for their claims, will now receive 52 cents on the dollar. A second group that was also unhappy with the original plan will now be paid 44.5 cents on the dollar.

In other news, HealthSouth Corp.'s debt seemed to have shaken off the bad news that has plagued the company during the week. On Thursday, the U.S. Securities and Exchange Commission said on Thursday that it has sued two former chief financial officers of healthcare services group HealthSouth Corp.

And on Wednesday, a committee of the U.S. Congress investigating HealthSouth said it was widening its probe of $2.5 billion in accounting issues at the clinic operator and seeking records from three companies and a former employee of HealthSouth.

HealthSouth's 6 7/8 % notes due 2005 were quoted at 82 bid, 84 offered, 1 point higher than Thursday, while the benchmark 7 5/8% notes due 2012 saw gains of 1.5 points from Thursday, to 85½ bid, 86 offered, "a little firmer" a trader said.

"It just goes to show they have some kind of strength. The paper didn't even get that low this week and it seemed like there was some kind of announcement or allegation every day," he said.

Former chief financial officers Michael Martin and Malcolm McVay were accused by the SEC Thursday of taking part in the alleged accounting fraud scandal surrounding the Birmingham, Ala.-based healthcare provider. Martin and McVay pleaded guilty in May to criminal charges for their part in the $2.5- billion accounting scandal at HealthSouth.

Fourteen former HealthSouth officers have pleaded guilty to criminal charges and agreed to cooperate with continuing Justice Department and SEC investigations.

In other news, a trader saw the bonds of Greyhound Lines, owned by Laidlaw Inc., which recently came out of bankruptcy, "up pretty smartly after having bounced around" on Friday. The 11½% notes rose from the low 70s to 74 bid, 76 offered. The trader cited a Standard & Poor's upgrade to CCC on Sept. 3.

Elsewhere, WestPoint Stevens Inc.'s 7 5/8% notes due 2005 and 7 5/8% notes due 2008 were up 3 points to 22 bid, while Adelphia Communications Corp.'s 9 5/8% notes due 2007 slipped half a point to "around 67" bid, traders said.

(Paul Deckelman contributed to this report)

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