Fomex bonds firm; Pegasus debt steady; restrained reaction to feds' UAL rejection

By Paul Deckelman and Sara Rosenberg

New York, June 18 - Foamex International Inc.'s bonds were being quoted at solidly higher levels in Friday's quiet market, helped at least in part by a positive mention of the Linwood, Pa.-based maker of polyurethane foam products by Business Week. Elsewhere, UAL Corp's bonds were heard down a bit - but only on quiet dealings and the drop wasn't that much considering the potentially disastrous impact Thursday's rejection of the bankrupt air-carrier's request for a federal loan guarantee might have on its long-term prospects.

Among bank debt traders, Pegasus Media & Communications Inc.'s term loan D paper and Pegasus Satellite Communications Inc.'s bank debt were seen holding steady, after the judge overseeing the Bala Cynwyd, Pa.-based satellite television programming distributor's reorganization opted to delay till Monday the next important judicial ruling in Pegasus' legal battle with its corporate enemies.

Foamex's Caa2-rated bonds were seen "up a couple of points" Friday, a market observer said. He suggested it might be connected to an asset sale - an apparent reference to a bullish story about the company running in Business Week and posted to that publication's online edition.

The story quoted an unidentified New York fund manager who has bought shares in the company as saying that two major chemical makers are in talks on supply agreements with the company that will involve them acquiring stakes of between 10% and 15% in the company.

It also highlights another portfolio manager - Tim Hasara of Kennedy Capital Management, with an 18% stake in the company - as saying that the new management team that took over in February after Chairman Marshall Cogan was ousted and former Mississippi Gov. Raymond Mabus Jr. took over, is slashing debt and lifting margins, with the stock up 40% since late March.

On the bond side, the piece notes that analyst Howard Goldberg of Morgan Joseph has upped his rating on Foamex's bonds to outperform from hold, saying the company is profiting from lower production costs, new products and improved ability to pass on raw-material costs.

On Friday, the market source said, Foamex's 9 7/8% notes due 2007 pushed up to 81.5 bid from recent levels as low as 74, while its 10¾% notes due 2009 moved up to 97.5 from 94.5. The Foamex 13½% notes due 2005 firmed to 98 bid from 95 previously.

At another desk, a trader quoted the 10¾% bonds offered at 98.75 bid and saw the 9 7/8% notes offered at 82.25.

Another trader said that Foamex was "a little bit higher," with the 103/4s trading "on either side" of 98 and the 9 7/8s somewhere in the low 80s. He cited the Business Week piece, acknowledging that it would be pretty bullish for the recovering company "if it's real."

UAL lower

UAL Corp.'s bonds were being quoted a bit lower Friday, after the government's Airline Transportation Stabilization Board announced Thursday evening that it had turned down the bankrupt Elk Grove Village, Ill.-based airline company's request for a $1.6 billion loan guarantee which UAL, corporate parent of Number-2 U.S. carrier United Air Lines, said was absolutely crucial to UAL being able to line up about $2 billion of private financing.

It was the second time that the ATSB had nixed UAL's request - back in December 2002, it rejected a request for a $1.8 billion loan guarantee, after which UAL sought protection from its creditors in a Chapter 11 filing with the federal bankruptcy court in Chicago.

A market source was quoting the UAL notes about half a point to a point lower, around 8 cents on the dollar; the bonds had recently been quoted as high as 9.5.

Another source, however, estimated that the bonds were being quoted as low as the 6-7 range, but had not really seen any trading at that level.

A trader said he just "hadn't seen any markets" in UAL, while a second, who trades distressed bonds, opined that "of course, as you would expect, after news like that, the bids dropped away, because people wanted to see how scared sellers were."

But he added that "sellers weren't motivated at all to do anything. So I really don't know if anything significant traded in the name."

"We saw a few quotes in the morning - then everybody went to the [U.S.] Open [golf tournament on Long Island's East End], or something."

On Friday, the bankruptcy judge overseeing the company's reorganization extended its exclusivity period, during which only the company can propose a reorganization plan, by one month, to July 30. And UAL said late in the day that it would shortly "submit information [to the federal board] justifying the need for reconsideration as well as proposed modifications to the loan terms."

Veteran airline analyst Ray Neidl of Blaylock & Partners in New York said that UAL's management "still thinks they might have a shot at getting an ATSB loan [guarantee]. I don't know the inside details. I don't know why they think they would have a shot, unless they were close to begin with."

The analyst said that in the event the board turns UAL down for a third time, "they will have to seek alternate financing, which I believe will have to include a large component of an equity investment, which may require further cost-cutting and revisions in their revenue projections, and they may have to address their pension liability.

"So it appears they still have a lot of work ahead of them, and it will probably run beyond the July 30 [exclusivity] date they got today."

He said that it was likely that the court would continue to extend UAL's exclusivity on a month-by-month basis "if they prove they are making progress" toward getting the loan guarantee and developing a reorganization plan."

Delta gains

Also on the airline front, Delta Air Lines Inc.'s bonds were firmer Friday on the news that the Air Line Pilots Association will head back to the bargaining table to talk with the troubled Atlanta-based carrier about its request for massive cost-cutting concessions that the airline said it needs in order to stay alive beyond the next couple of quarters.

"There definitely were buyers out there for the shorter paper," a trader said, but even some long-term issues were up, like Delta's 8.30% bonds due 2029, which he quoted at 40 bid 41 offered, up two points on the day.

Another trader said the 8.30s now seemed to be the Delta bond "that most people follow, because it's the lowest dollar-price bond," and he saw it likewise up two points at 41 bid.

Although Delta's bonds and its shares were both up on the news about the pilots - the shares rose 37 cents (6.30%), to 6.24% in New York Stock Exchange dealings - Blaylock analyst Neidl was more cautious in assessing the news.

It was "no surprise that the pilots have to head back to the table," he asserted. "They've got to, otherwise the company will go into bankruptcy. And they were scheduled to go back anyway on Aug. 3 for the contract negotiations, so as I told people this morning, it's 'no big thing.' It will be a big thing when they realize that they do have to give the cost-cutting that the company needs. And this is not like your typical labor-management negotiations - the company really does need to cut their [pilot] costs, by my estimate, $850 million."

For more than a year, Delta had demanded a 30% cost, reduction from its pilots, the best paid in the industry, and the captains had countered with a 9% offer. Recently, the company - reeling from skyrocketing fuel prices and intense fare competition - increased its demand to a 34.5% cut, while the pilots upped their offer to about 13.5%

Neidl said the 34.5% Delta is asking for works out to about $800 million, and on top of that, he thinks then need another $50 million or more in work rule savings.

They may not like it but the pilots "are going to have to learn to live with it [the 34.5% concession]. I don't think they're going to receive it very well, but they're going to have to learn to live with it because the alternative [cost reduction] would be probably even more in bankruptcy and the possible loss of their pensions."

However, even though Delta is beset with competition from upstart low-cost carriers such as JetBlue, Air Tran and ATA, he still believes that it can follow in the footsteps of industry leader AMR Corp. - which was staggering just a year ago but was able to wring enough concessions from its workers to remain a viable competitor.

Delta, he said, "is not going to get that low [cost parity with JetBlue and other low-cost carriers]. Their models are too different and their seniority lists are just too senior" to give the older airline the same kind of freedom to cut staff and lower costs.

While AMR was able to get total concessions from its employees worth $1.8 billion a year, "I estimate Delta needs $2.1 billion total, both wage concessions and other costs, to get down to a CASM [cost per average seat mile, a key measure of airline expenses] of 9 cents, to be competitive with American."

Pegasus loans steady

Back on the ground, Pegasus bank debt held steady with both tranches quoted at 98 bid, par offered on Friday, after the judge decided to delay his ruling on the termination-of-contract issue with DirecTV Group Inc. and the National Rural Television Cooperative until Monday at 5 p.m. ET, according to a trader.

However, "the name should move around" this coming week in reaction to whatever decision the judge ultimately comes to, the trader explained.

Pegasus sought Chapter 11 protection in a filing earlier this month with the federal Bankruptcy Court in Portland, Me., as part of its ongoing legal struggle with DirecTV.

The bankruptcy filing came on the heels of receipt of a notice from the NRTC terminating Pegasus Satellite Television's exclusive distribution arrangements, which provide exclusive rights to distribute DirecTV services in specified U.S. rural territories.

Pegasus is hoping to get a temporary restraining order regarding the contract termination, since once the contract is gone essentially all of Pegasus' business is gone, the trader explained.

Currently, the contract termination deadline is Aug. 31.

DirecTV did make a cash offer to Pegasus - payable in either a lump sum or monthly payments - if Pegasus agrees to an orderly transfer of its subscribers to DirecTV before the deadline. Pegasus rejected the offer as inadequate.

Pegasus - for the moment - distributes DirecTV's programming to its 1.1 million mostly rural customers, although it alleges that the satellite programming industry leader is conspiring with the NRTC in an attempt to steal Pegasus' customers and "destroy" the company - charges that DirecTV and NRTC vehemently deny.

Overall, the distressed bank loan market was quiet on Friday as many participants took the day off to watch the U.S. Open golf tournament, according to a trader.

"It was very dead. I heard of nothing trade in the Street. I've heard of nothing trade retail," the trader added.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.