Delta dives as bank downgrades sector; Goodyear steady; domestic primary quiet

By Paul Deckelman and Paul A. Harris

New York, April 27 - Traders saw a slide in the deeply distressed bonds of Delta Air Lines Inc. and those of rival Northwest Airlines Corp. on Friday after JP Morgan downgraded the shares of a wide range of carriers, including mainstream flyers AMR Corp. and Continental Airlines Inc. and low-cost operator JetBlue Airways Corp.

Elsewhere, traders saw Goodyear Tire & Rubber Co.'s bonds basically holding steady, even as the Akron, Ohio-based tiremaking giant said last fall's strike was less costly than initially believed and touted its expectations of greater-than-anticipated cost savings this year and next, causing its shares to rise. The positive developments were seen having already been priced into the bonds.

Freescale Semiconductors Inc.'s bonds were seen lower in response to the weak quarterly numbers posted by the Austin, Tex.-based computer chip manufacturer.

A sell-side source, emailing well after Friday's close, wrote that the session was quiet overall, and marked the broad market unchanged on the day with some weakness in the morning.

It was the only soft day all week, the source commented.

"The market held firm despite the GDP number," the source added, referring to the U.S. Commerce Department's Friday disclosure that the economy grew at an anemic 1.3% rate during the first quarter of 2007.

In the primary arena, the only real feature was British estate agent Countrywide plc, which priced a big, sterling-denominated three-part offering.

That brought to a close a week which saw Petroplus Finance Ltd. price a two-part mega-deal, and saw offerings for other issuers such as OSI Restaurant Partners LLC, USI Holdings Corp. and Clarke American Corp.

Delta, Northwest, lose altitude

Back among the established issues, a trader saw Delta's 8.30% notes due 2029 nosedive to 53.5 bid, 54.5 offered from 59 bid, 60 offered on Thursday, and saw Northwest's 10% notes due 2009 at 81 bid, 83 offered, down from 86 bid, 88 offered.

Delta and Northwest were "the two biggest movers," another trader said, pegging the Delta 8.30s at 54 bid, 55 offered, down 4 points, and the Northwest 10s down 6 points at 79 bid, 80 offered.

Another source saw Northwest's 7 7/8% notes due 2008 at 84 bid, down 2 points.

A source indicated that the Delta benchmark 8.30s were likely the most heavily traded issue of the day, as well as its biggest mover, down nearly 6½ points to finish at the 54.5 level, while its 7.90% notes due 2009 were also busily traded, dropping nearly 4 points to the 54 level. Northwest's 10s were seen likewise as active movers, losing more than 4 points to finish at the 78 level.

The meltdown of the two distressed airline names came against the backdrop of the JP Morgan report, which painted a bleak picture of the airline business in general. Airline equities were lower across the board as a result.

In that market-moving report, analyst Jamie Baker cut ratings for six carriers - American Airlines' parent AMR, US Airways, Alaska Air Group Inc., United parent UAL Corp., Continental and JetBlue - saying the move was long overdue.

According to an Associated Press report, Baker was unsure where to lay the blame for domestic weakness: softer demand or too great a supply of airline seats. In either scenario, he said, there is little the industry can do in the short term.

In assessing the industry's equity, Baker wrote that he sees no positive indicators for industry stocks, including fuel prices.

Fuel, a major expenditure for airlines, has seen rising prices as the cost of crude oil has climbed over $66 a barrel. At the close of market, light, sweet crude rose $1.40 to $66.46 a barrel, spurred by news that Saudi Arabia had arrested 172 Islamic militants, some of whom planned to attack oil fields.

Delta's current stock, which will become worthless when the airline emerges from bankruptcy on Monday, spiked down 3.5 cents, or 66.04%, to close at 1.8 cents. The Atlanta, Ga.-based Number-Three U.S. carrier's new stock, trading on a when-issued basis, fell to $20.91, down from $22.80 on Thursday. Market players indicated that growing skepticism about whether the stock will manage an upbeat debut next week sparked the decline.

Northwest Airlines, which went into Chapter 11 within hours of Delta on the same day in the fall of 2005, expects to emerge from bankruptcy this summer.

Goodyear little moved despite stock rise

Back on solid ground, traders saw not much movement in Goodyear's bonds, even while the stock bounced nearly 8% at one point in the session and ended up still 5.9% on the day as investors looked beyond the company's swing to a loss and focused instead on upbeat company projections for the neat year or so. Goodyear executives, on their conference call, following the release of the company's quarterly results, said that the new fiscal year off to a good start, with the company embracing both speed and change (see related story elsewhere in this issue).

The company's chairman and chief executive officer Robert Keegan said in a statement that he was confident that Goodyear will top its previously announced goal of cutting costs to save $1 billion by the end of 2008, with the savings now expected to total between $1.8 billion and $2 billion.

The company also reduced its estimate of what the strike last fall by workers at more than a dozen U.S. and Canadian plants cost Goodyear to around $100 million to $120 million for the year - less than the $200 million to $230 million previously estimated.

All of that, plus the not-as-bad as expected quarterly loss, was good news - however, bond marketeers had already pretty much priced it in to the company's bonds.

One trader, for instance, saw the company's most actively traded bonds, the 7.857% notes due 2011, at 104.75 bid, 105.25 offered, which he said was down marginally "with the rest of the autos, on the weak economy."

At another desk, the Goodyear bonds were seen up by around the same amount at 105.

Not much happening

Traders in general said not much was going on, calling it a "typical Friday."

The first trader characterized the market in general as "a little lower," with the widely followed CDX index down 1/8 point on the day.

He saw the two automotive benchmarks - General Motors Corp.'s 8 3/8% notes due 2033 and Ford Motor Co.'s 7.45% notes due 2031 - down about ½ to ¾ point at 90.25 bid, 90.75 offered, and 79.375 bid, 79.875 offered, respectively.

Freescale lower on numbers

Traders saw Freescale Semiconductors' bonds continuing to ease in probable response to the first-quarter numbers it posted, when operating, net and EBITDA losses totaled $654 million, $539 million and $119 million, respectively.

Freescale's 8 7/8% notes due 2014 were seen down ¼ point at 100.5. While its 10 1/8% notes due 2016 were seen at another desk at that same level, down nearly a full point on the session.

Primary action in Asia, Europe

Meanwhile the Friday primary market session produced virtually no stateside news.

However Countrywide Plc (Castle Holdco 4, Ltd.) priced a £640 million three-part notes transaction - a deal which saw price talk tweaked and tightened, and was said to be receiving a warm reception from European accounts, due in part to a dearth of issuance there.

The London-based estate agent priced a £370 million tranche of seven-year senior secured cash-pay notes (B2/B) at par to yield three-month sterling Libor plus 287.5 basis points, on top of price talk that was revised from earlier talk which had the notes pricing in a 275 to 300 basis points range.

Meanwhile Countrywide priced a £100 million tranche of seven-year senior secured toggle notes (B2/B) at par to yield three-month sterling Libor plus 325 basis points, again on top of revised price talk. Earlier the toggle notes had been talked to price 25 to 50 basis points behind the cash-pay notes.

The company also priced a £170 million tranche of eight-year senior unsecured notes (Caa1/CCC+) at par to yield 9 7/8%, once again on top of talk that had been lowered from previous talk of 10% area.

Credit Suisse, Deutsche Bank Securities and Goldman Sachs & Co. were joint bookrunners for the acquisition financing.

Elsewhere Shanghai-based developer China Properties Group priced its $300 million issue of seven-year senior notes (B1/B+) at par to yield 9 1/8%.

The yield came at the tight end of the 9 1/8% to 9¼% price talk, which had been lowered from previous talk of 9¼% to 9½%.

Merrill Lynch & Co. led the sale.

$3.8 billion week

While by no means conspicuous compared to some of the weekly totals rolled up thus far in 2007, the April 23 to April 27 week, which topped $3.8 billion in 11 dollar-denominated tranches, still beat the previous two weeks: the April 16 to April 20 week saw less than $1.5 billion in six tranches, while the April 9 to April 13 week saw just over $2 billion in eight tranches.

The biggest week thus far in 2007 remains the March 12 to March 16 week, during which Freeport MacMoRan priced its $6 billion whopper. That week came in at just under $10 billion in 15 tranches.

One sell-side source told Prospect News recently that the primary market has lately been demonstrating conspicuous manners, in that only one mega-deal at a time is being paraded before the accounts.

That color seems more or less to be holding true.

The $3.8 billion week just passed saw one large deal, Petroplus Finance Ltd.'s $1.20 billion two-part senior notes deal, completed.

Meanwhile the week to come gets underway with just one big gorilla in the floodlights: Edison Mission Energy's $2.7 billion three-part offering of senior notes (expected ratings B1/BB-), via Citigroup, Credit Suisse, Deutsche Bank Securities, Goldman Sachs, JP Morgan, Lehman Brothers and Merrill Lynch.

The roadshow is expected to wrap up on Monday, with pricing to follow on Tuesday, however no price talk had been circulated as Prospect News was going to press on Friday, according to an informed source.

An astonishing lead

Considering that sources throughout junk land agree that 2006 set the record for high yield new issuance - $156.63 billion in 396 dollar-denominated tranches, according to Prospect News data - it is perhaps somewhat astonishing that the present year has seen nearly 33% more issuance in a year-over-year comparison.

Whereas at the Friday close, the 2007 primary market had seen $58.5 billion in price in 161 dollar-denominated tranches, on April 27, 2006 the market had seen $44.0 billion price in 128 tranches.

Stephanie. N. Rotondo contributed to this report.

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