American Airlines better bid as confidence grows; Mirant mixed but mostly lower

By Carlise Newman

Chicago, June 11 - AMR Inc. built on gains in recent weeks with another booming day Wednesday after releasing news Tuesday that the company will save $200 million in labor costs in the second quarter.

Even more so than the announcement, was the fresh level of confidence in the struggling Fort-Worth based parent of American Airlines.

"We've watched the bonds go up and up, from the teens to the mid to high 50s," a trader said. "They're not out of the woods but they've really shot up fast."

American Airlines' 9% notes due 2011 were quoted at 59 bid, 61 offered, two points higher than Monday's levels.

Chief executive Gerard Arpey said American will save $200 million in labor costs in the second quarter thanks to concession deals reached a few months ago that were aimed at keeping the airline out of bankruptcy.

Arpey said he expected the labor savings to double in the third quarter and then hit $450 million by the fourth quarter.

Bankruptcy-threatened American has said it wants to cut its operating costs by about $4 billion a year, and it recently reached agreements with its work force aimed at saving it $1.8 billion a year.

Arpey said that as of July of this year, the carrier should have about 35,000 fewer employees than it did in 2001, and that the company was well on its way to achieving its $4 billion yearly savings goal.

Chicago-based UAL Corp., parent of bankrupt United Airlines Inc., was unchanged, a trader said. UAL's 9¾% notes due 2021 were quoted at 9 bid, 10 offered.

On Monday UAL said it has begun to present its updated business plan to its board of directors, creditors' committee and potential sources of exit financing.

The Chicago-based airline also said its equity securities will have little or no value.

Mirant Corp.'s bonds were mixed but mostly lower Wednesday as news that some bondholders may block the Atlanta generator's exchange offer continued to weigh on sentiment.

Mirant's 7 5/8% notes due 2006 were quoted down two points at 70 bid, 72 offered, a distressed trader said. However, another desk quoted the notes up a half point to 74 bid. In addition, that desk quoted the 8.3% notes due 2011 up one point to 60 bid.

"They got hammered this week, but today wasn't so bad," a trader said of the bonds.

Mirant's bank debt was in the "mid- to high 50s" having previously been in the 60s, a trader said.

Last week, Mirant began an offer to exchange new secured debt for $1.45 billion of existing bonds due or putable within three years. Mirant is offering new senior secured notes due 2008 in exchange for its $750 million of 2.5% convertible debentures due 2021 but putable in 2004 and $200 million of 7.4% senior notes due 2004. Mirant subsidiary Mirant Americas Generation LLC is also conducting a similar exchange for its 7.625% notes due 2006.

But holders of Mirant Americas Generation bonds plan to file suit, likely this week, to stop the offer, according to sources cited by Reuters. The Mirant Americas Generation bondholders say the offer unduly favors creditors holding Mirant debt at their expense, the report said.

"I think people are trying to figure out what's going on. Mirant was falling before the news was out on Monday. It hasn't been doing so hot this week or last," said a distressed debt trader.

In addition to the exchange, the Atlanta-based company said it is asking holders of the bond debt to vote in favor of a prepackaged plan of reorganization, in case an insufficient number of banks or bondholders agree with its out-of-court restructuring plan.

And analysts have said if the bond exchange offer is blocked by legal action or turned down by creditors, Mirant would likely file for bankruptcy.

XM Satellite Radio's zero-coupon notes due 2009 were quoted by a trader at 68 bid, 70 offered, two points higher than Monday, when they were seen at 66 bid, 68 offered.

Standard & Poor's raised its corporate credit rating on XM Satellite Radio Holdings Inc. and its subsidiary XM Satellite Radio Inc. to CCC+ from SD.

"XM had some decent bids. It's been doing better," a trader said.

Standard & Poor's also assigned its CCC+ rating to XM s proposed $125 million senior secured notes due 2010. The outlook is stable. The Washington, D.C.-based satellite radio broadcaster has about $835 million in debt.

In other news, Adelphia Communications Corp.'s 10 7/8% notes were quoted "up a couple of points," to 60 bid from 58 bid, a trader said.

HealthSouth Corp.'s 10¾% notes due 2008 were said to be "a lot higher today," at 57.5 bid from 54, while the 7 5/8% notes due 2012 were up a point to 77.5.

Laidlaw Inc.'s 8¼% notes due 2023 were quoted up a point and a half to 54.5 bid. Doman Industries Inc.'s 8¾% notes due 2004 were seen up 1.25 points to 22.5 bid, while WorldCom Inc.'s 7½% notes due 2011 were seen down one point to 30 bid.

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