WorldCom cheered by reorganization plan; airlines mixed on war end, looming earnings reports

By Carlise Newman

Chicago, April 14 - WorldCom Inc. bustled with activity in distressed debt trading Monday after the company announced major changes: a new name, a new CFO and a reorganization plan. Despite having anticipated the filing of the plan for weeks, WorldCom's bonds and bank debt brightened on the news.

Airlines were in mixed territory Monday. Also preparing for big news this week - Delta Airlines, Continental Airlines and Northwest Airlines are all due to report earnings this week - the sector appeared undecided as to direction, as analysts predict disastrous numbers in the reports, but an end to fighting in Iraq cheered some names.

As usual, American Airlines parent AMR received different treatment, slipping after its pilots' union said it is extending voting on labor concessions for one day until Tuesday morning, bringing bankruptcy a step closer.

Fort Worth-based American's 9% notes due 2012 were seen losing three points Monday, to 25 bid/27 offered from 28 bid/30 offered at Friday's close.

American had said it would file for bankruptcy if any of its three main unions did not ratify the concession deals. Various media reports circulated Monday citing sources saying that a group of four financial institutions has $1.5 billion in debtor-in-possession financing nearly complete should American file for bankruptcy on Tuesday.

Voting will also end Tuesday morning for the Association of Professional Flight Attendants and the Transport Workers Union, which represents baggage handlers and mechanics.

American is seeking $660 million in concessions from its 12,000 pilots, $620 million from 34,000 ground workers and $340 million from 24,000 flight attendants. The agreements include layoffs for 2,500 pilots, about 2,000 flight attendants and up to 1,400 ground workers.

Northwest Airlines' 7 7/8% notes due 2008 were seen at 50 bid bid/51 offered, "about a half-point higher" from Friday. Atlanta-based Delta Airlines' 6.65% notes due 2004 were seen bid at 74, offered at 75, mired in levels from Thursday and Friday. Continental Airlines' 8% notes due 2005 were seen falling a half-point to 48 bid/50 offered, from 48.5 bid/50.5 bid Friday.

"The war ending isn't doing much and neither is the financing," said a distressed trader. "Doesn't this mess just make you want to hop on Southwest when you have to fly?"

U.S. House and Senate negotiators on Friday approved a package of aid worth about $3.5 billion to U.S. airlines. The vote by a House-Senate conference committee added the aid to an emergency spending bill for the war in Iraq that Congress hopes to pass before the weekend.

The money approved included $2.4 billion in reimbursements to airlines for security costs and a suspension of passenger security fees, worth another $520 million. It extended war risk insurance for one year, a provision worth about $600 million to the airlines. Lawmakers also approved $275 million for jobless aviation industry workers.

WorldCom's bonds rose two points Monday to 28 bid/29 offered from 26 bid/27 offered Friday. The Clinton, Miss.-based telecommunications company's bank debt also rose "about a point, to the 27-28 range."

WorldCom filed its plan of reorganization with the U.S. Bankruptcy Court for the Southern District of New York on Monday and proposes to issue stock or new notes to its bank lenders and existing noteholders (see related story on page one of this issue).

Under the reorganization plan, holders of WorldCom senior debt - both bank debt and notes - may choose to receive 14.36 shares of new common stock for each $1,000 of the holder's allowed claim, or new notes at the rate of 35.9 cents on the dollar. Unsecured claim holders will receive 7.2 shares of new common stock for each $1,000 of the holder's allowed claim and cash at the rate of 17.9 cents on the dollar.

For exit financing, if noteholders choose to receive less than $5.5 billion in new notes, WorldCom will obtain a term loan equal to the difference between $5.5 billion and the amount of new notes elected by the noteholders, up to a maximum of $1 billion.

The company also announced the appointment of a new chief financial officer, a brand name change to MCI, and the relocation of its corporate headquarters to Ashburn, Va. from Clinton, Miss.

"We've been seeing the telecoms move lately, and they all watch WorldCom. You'll see some of the others move if WorldCom keeps it up," said a distressed debt trader. "The name change will help hide the past, but we'll see."

XM Satellite Radio Holdings Inc. saw its bonds rise after announcing its subscriber base has topped 500,000. XM Satellite's 14% notes due 2009 were one point better Monday at 45 bid/48 offered.

The Washington, D.C.-based radio satellite operator traditionally releases its subscriber numbers each quarter. As of April 1, the company had 483,000 subscribers.

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