Delta, Northwest bonds drift off; Six Flags slides; Granite firms; Dana bonds better; Calpine steady

By Ronda Fears

Memphis, Dec. 12 - Bankrupt airline paper drifted lower Tuesday amid word circulating in the market of a meeting of UAL Corp. creditors and plans for Delta Air Lines Inc.'s top executives to be in meetings again with creditors Wednesday.

Merger speculation remains rampant as the market expects consolidation far beyond Delta and peer bankrupt carrier Northwest Airlines Corp. - not the least interesting of which was a remark Tuesday that Delta could be looking for private equity backing to buy Northwest, its hostile suitor US Airways Group Inc., or another carrier like Continental Airlines Inc.

"UAL creditors are supposed to be meeting, but we don't know exactly what that's about," said one distressed bond trader. "All the names are in the mix now. It's frenetic. Just about the only airline not mentioned in this fray is the top dog, American Airlines. So that might be worth watching."

Delta's top management reportedly is going to pitch its case for remaining independent to creditors on Wednesday, following a board meeting Monday. In a similar two-day meeting almost two weeks ago in New York, US Airways management formally pitched their bid for Delta. The US Airways bid, which emerged in mid-November, is valued roughly at $8.8 billion, consisting of $4 billion in cash plus US Airways shares.

Atlanta-based Delta has pledged to file its reorganization plan before year-end.

Meanwhile, amid the turmoil in the skies, traders called Delta and Northwest bonds lower by a half point to a point Tuesday. Delta's 8.30% notes traded as high as 70.75 early Tuesday but drifted steadily lower to settle at 65.75 bid, 66.5 offered, one trader said, and he pegged the 7.90% notes off to 65.5 bid, 66.5 offered from 67.5.

Northwest's bonds were described by another trader as falling as much as 3 points on the session. He pegged the 10% notes ended at 92 bid, 93 offered, versus 95 on Monday, and the 9 7/8% notes at 92.5 bid, 93.5 offered, down from 96.

Basically, traders felt like the pull back in Delta and Northwest paper was due to profit taking. "They had run too far" as one trader put it.

Delta recoveries aided by noise

While the general sentiment is that some sort of deal involving Delta will come to pass, players said their opinion of whether it will be beneficial will hinge on whether Delta is the hunter or hunted.

"The feeling is that the 'unofficial' unsecured creditors committee [an ad hoc group separate from the unsecured creditors committee in the bankruptcy] will be pressuring for the US Airways deal and recovery for these bonds will be in the neighborhood of 70-80%," one trader said.

"There is growing speculation about another offer, but I don't know any details. I suppose the obvious conclusion is that they would be looking to boost recoveries."

Indeed, but the process has motivated Delta to find a way to pay more.

"Delta's 'plan' before US Air's bid was to shaft the unsecured creditors to the tune of several billion dollars. Delta will have to revise its plan to shaft the unsecured creditors to a lesser extent," said a buyside market source.

"As an unsecured creditor I want the bidding to keep on going up. I am not involved in the discussions directly, but the most interesting thing I have heard is that, I guess, Delta could get its own backers and bid for US Airways and/or Northwest. That would turn the tables."

Delta deal could be a downer

But, the buysider said he is less excited about a deal for Delta as time wears on.

"Merging is a bad idea for the airlines doing it. It is good for the overall industry via decreased capacity but seriously bad for those who merge," he said.

"All the investment bankers on Wall Street will push for these mergers, but anyone that has an accounting and decent management background knows it's easier said than done. I say most of these mergers will fail."

The die is probably already cast, however, and even the most reluctant will be along for the ride, he added. He cited comments from the chief executive of United Airlines parent UAL on Tuesday to the nature of the airline industry needing consolidation.

"We think it is good and overdue for the industry despite the fact that it is difficult," Glenn Tilton said on a UAL investors meeting Tuesday. But Tilton added, "We are not in position to comment on anything specifically."

Northwest Airlines has asked for bankruptcy court approval to hire Evercore Group LLC as an adviser in an effort to explore strategic alternatives such as a merger or acquisition.

Also fueling the consolidation frenzy, the buysider said, is news such as the International Air Transport Association releasing data Tuesday that, worldwide, airlines are now expected to make a collective profit of $2.5 billion in 2007, up from $1.9 billion previously forecast, as fuel prices come down.

The IATA also now expects a reduced loss in 2006 of $500 million, down from the $1.7 billion previously forecast, helped by increasing efficiencies and steady growth in passenger numbers. Brian Pearce, IATA chief economist, said he now sees the industry doing much better despite the oil shock and now has almost reached break-even at the net post-tax level.

Sans Delta's $6 billion in restructuring costs, the IATA said the whole airline industry would be in profit in 2006.

Calpine bank paper better

In another bankrupt name, Calpine Corp.'s second-lien bank debt continued to head higher during Tuesday's market hours still swept up by the news that the company will begin paying current on the loan, according to a trader.

The second-lien paper closed the day at 114.5 bid, 115 offered, up from previous levels of 113.5 bid, 114.5 offered, the trader said.

As for the San Jose, Calif.-based independent power producer's bonds, traders described that paper as "mostly steady" to higher by maybe as much as a half point, with the 8 5/8% notes due 2010 and 8½% notes due 2011 both at 80 bid, 81 offered. One trader noted heavy short covering in Calpine shares, however, which were up more than 8% on Tuesday in the Pink Sheets.

Six Flags asset sales dimming

While amusement park operator Six Flags Inc. said Tuesday it plans to reach a decision on the possible sale of some of its amusement parks by the end of the year, which was not news, market sources said the interpretation is that there will be no transaction anytime soon.

Six Flags bonds were a little better early in the session, one trader said, but following the company's update call with investors, the paper took a slide. The 8 7/8% notes due 2010 were described as off a point at 95 bid, 96 offered and the 9¾% notes due 2013 down similarly at 92.5 bid, 93.5 offered.

"Looks like everyone expecting asset sales are selling. There was some selling during the morning run-up," the trader said.

"Progress on asset sales sounds pretty poor. It sounds attractive on the plan to fix the brand, but sounds like they are hopeless on a balance sheet fix."

He said he got calls late in the day that suggested there might be buyers who will step in at the lower bond prices, however.

Six Flags chief executive Mark Shapiro said that the company is still trying to sell the nine parks it has tagged for the auction block as a package but has had discussions about various other options. In any event, he said Six Flags would operate the parks as going concerns.

"We've concluded that the operational value exceeds the current real estate value and therefore regardless of the ownership of the park, those nine parks under consideration will be operational for 2007 and beyond," Shapiro said during a conference call.

"We may still sell the parks as an entire package or we may sell some as a package and retain others."

Chief financial officer Jeff Speed said Six Flags anticipates full-year revenue falling about 2%, excluding the disposition of certain parks and about $16 million in costs related to management changes. He also said that 2006 attendance is expected to be down 14% from last year, partially offset by 14% growth in total revenue per capita.

Six Flags outlines game plan

Toward improving its brand name and presence in theme park market, Six Flags announced several new contracts. It has signed a wide variety of licensing and sponsorship deals, including a multi-year strategic relationship by which Cold Stone Creamery will open and operate Cold Stone Creamery locations in its branded parks.

As for new entertainment and marketing initiatives in 2007, the company said it has inked deals to include Thomas & Friends and The Wiggles, expand its relationship with Tony Hawk, and add its Holiday in the Park to parks that feature holiday and winter themed shows and events in December, among other things.

"This will be the first year we're able to put our 'family-friendly' stamp on a full Six Flags season, from preparation to execution," the company said in a statement. "Our plans to diversify the family entertainment experience are well underway and that strategy will permeate the entire company."

Last year, Shapiro, backed by Washington Redskins owner and Six Flags shareholder Dan Snyder, ousted the company's former CEO Kieran Burke and added three hand-picked members to the board - politician Jack Kemp, Hollywood producer Harvey Weinstein and advertising executive Michael Kassan.

They also moved the company headquarters to New York City from Oklahoma City.

Granite gains to 92.5 flat

Back to bankruptcy issues, Granite Broadcasting Corp.'s bonds began trading flat, or without interest, of course, with the prepackaged bankruptcy filing - which was no big surprise - but were ticking up a bit Tuesday as holders will end up with the majority of the company's equity in the reorganization.

One trader figured the big holders of the 9¾% senior secured notes that matured June 1, 2006 were adding to their positions, but another said he saw both old and new buyers for the Granite paper.

The bonds dipped to 88 bid initially Tuesday but soon found buyers and came back to end the day at 92.5 bid, 93 offered, up about 2 points from Monday's close of 90.5. The stock zoomed 57%, which traders attributed to short covering.

Under the prepackaged reorganization plan, current secured debtholders will exchange their notes for a combination of new notes and new common stock. And, current common and preferred stockholders will exchange their existing stock for shares of the newly reorganized company. The company expects to exit bankruptcy around mid-2007.

For several months preceding the maturity of the 9¾% bonds, Granite had been warning of trouble and in July reworked some bank debt. New York City-based Granite, which operates NBC, ABC and CBS television stations in 11 markets, including San Francisco, Detroit and smaller New York markets such as Buffalo, Syracuse, Utica, and Elmira, filed the prepackaged bankruptcy Monday.

The company had been trying to sell its San Francisco and Detroit stations, but having not come to terms, the company said it could now be in growth mode, as the "restructuring will provide us with additional resources to re- invest in and grow our local television businesses, and enables us to continue to seek out new stations and markets."

Dana visibility improves

Bankrupt auto parts supplier Dana Corp. on Tuesday identified four of eight plants it plans to close during the next two years as part of a previously announced plan to curtail costs, and the visibility helped push its bonds up by 1 to 2 points.

The Dana 6½% notes due 2008 added 1.5 points to 79.25 bid, 80.25 by one trader's account, but another pegged that issue better by 1 point at 78.5 bid, 79.5 offered. The 7% notes due 2029 were pegged at 75 bid, 76 offered.

Dana said it will close the traction products facilities in Syracuse, Ind., and Cape Girardeau, Mo., and the structural solutions plants in Guelph and Thorold, Ont. The bankrupt Toledo, Ohio-based auto-parts maker said it expects to incur pretax charges of about $26 million during the fourth quarter and additional pretax charges of about $19 million during 2007 to 2009 in connection with these closures.

Production from the Syracuse and Cape Girardeau facilities will be moved to Dana operations in Mexico.

Closure of the Guelph plant coincides with the end of a customer program that comprised all production volume at the facility. The majority of the production at the Thorold operation will be moved to Dana's Elizabethtown, Ky., structures plant.

The other four facilities that will be closed are expected to be finalized in 2007, Dana said.

Delphi bonds on the rebound

Meanwhile, bankrupt Troy, Mich.-based parts maker Delphi Corp. was "bouncing back up like it did the other day," a trader said, with the company's 6.55% notes that were to have matured this year up 1½ points to 110 bid, 111 offered, its 6½% notes due 2009 a point better, also at 110 bid, 111 offered, and its 6 ½% notes due 2013 and 7 1/8% notes due 2029 each up ¾ point, at 108.75 bid, 109.75 offered and 109.75 bid, 110.75 offered, respectively.

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