Loral climbs higher on satellite sale; AMR continues rally; Metris falls on loss

By Carlise Newman

Chicago, Oct. 23 - Earnings dominated much of the day Thursday, but the distressed debt market had enough news to chew on this week to keep the session interesting. Loral Space & Communication Inc. continued to climb higher after successfully completing two separate sales of satellites this week, and American Airlines Inc. also soared on the third-quarter profit it has not seen for months.

Loral Space & Communications Inc. shot higher Thursday after "a difficult and messy week," one trader said.

After the close Wednesday, the U.S. Bankruptcy Court for the Southern District of New York authorized Loral subsidiary Space Systems/Loral to sell satellites to DirecTV Inc.

Loral's 10% notes due 2006 were up 2 points in Thursday's session to 78 bid, 80 offered, one trader said.

"That's a long way away from where they were Tuesday, down 8 or 10 points," he said. "It's been pretty hard to track Loral bonds these last few days. They were up, down, all over the place."

The 10% notes rose about 5 points Monday, when the New York-based satellite operator announced that Intelsat Ltd. won a bidding auction for 5 satellites for $1.1 billion. But during the following session, the notes plunged 10 points as uncertainty grew over the next satellite sale to either DirecTV or Echostar.

Late Wednesday the court approved the construction of two satellites DirecTV, and one satellite for PanAmSat Corp. PanAmSat also has an option to order an in-orbit spare for one of its existing satellites from Loral.

The value of the three new awards is more than $320 million. DirecTV will make advance payments of $25 million on each of its two new satellite orders and PanAmSat will make an advance payment of $25 million on its new satellite order, for a combined cash advance of $75 million.

EchoStar Communications Inc. sought to purchase the nearly complete DirecTV satellites, a transaction to which Loral was opposed.

DirecTV agreed to increase the total contract value for the satellites by $25 million to $165 million.

Elsewhere, AMR Corp. was still basking in the afterglow of posting a profit, although slim, in the third quarter on Wednesday.

AMR's 9.73% notes due 2014 were up an additional 3 points at 65 bid, 69 offered, after rising 4 points Wednesday after the news was released, a trader said.

"Remember when this issue was in the 30s? A profit is a profit...and almost unheard of among airline names for a long time," he added.

The parent of American Airlines said it earned about $1 million in the July-September period, break-even on a per-share basis, on revenue of $4.60 billion, topping expectations. AMR lost $924 million in last year's third quarter.

The minuscule profit marked a turnaround for the world's largest airline, which has lost $6.4 billion in the past 2½ years and nearly filed for bankruptcy in April.

Excluding one-time gains and losses from downsizing, Fort Worth, Texas-based AMR said it would have lost $23 million or 15 cents per share in the most recent quarter. Analysts had expected a loss of 41 cents per share.

Not doing so well was Metris Cos. Inc., which reported a much wider third-quarter loss as the credit card issuer tries to turn around its business.

The Minnetonka, Minn.-based company, which targets customers with bad credit, reported a third-quarter loss of $130.5 million, or $2.27 per share, compared with a loss of $10.9 million, or 19 cents per share, a year earlier.

Metris' 10% notes due 2004 were quoted down 3 points from Tuesday, when they were last seen trading, at 71 bid, 73 offered. The bonds had been trading in the high 70s in late September and early October.

In its earnings news release, Metris said that it plans to sell a $500 million credit card receivables portfolio during the fourth quarter. The sale is expected to result in a pretax loss of $64 million, which was reflected in the third-quarter results.

The third-quarter results also reflected the impact of sales of the company's membership club and warranty business, a $590 million credit portfolio, and certificates of deposit, and a reduction in its work force.

"I think this company still has some time to get back on track. I think we would have seen a bigger drop in the bonds if there wasn't some confidence out there somewhere," one market participant said.

In other news, Goodyear Tire & Rubber Co. paper was slightly higher despite news Wednesday that it would restate its results for periods dating back to 1998, citing errors in inter-company billing systems and mistakes stemming from the introduction of a new computerized accounting system in 1999.

Goodyear's 7 7/8% notes due 2011 were seen rising 1½ points to 79 bid, 81¼ offered, one trader said. At another desk, they were seen at 81 bid.

Goodyear, which was scheduled to announce quarterly results Thursday, said it would instead publish the full third-quarter earnings report by mid-November and canceled its earnings conference call set for Thursday.

"It looks like the restatement was ignored, and the S&P comment gave back the confidence in the bonds," said one trader. "That and the fact that Goodyear said it wouldn't have any effect on its plans to turn the company around."

Standard & Poor's said it believes the restatements will not materially weaken the company's liquidity position, or reduce access to its bank credit facilities. S&P also said the earnings and cash flow impact for 2003 is expected to be relatively minor.

The tire maker said it was restating results for the five years from 1998 to 2002 and for the first and second quarters of this year, slashing net income by up to $100 million over those periods.

Analysts' third-quarter estimates had ranged from a loss of 7 cents to a loss of 25 cents, with the average estimate calling for a 16-cent loss.

Goodyear had earned $33.7 million, or 20 cents a share, in 2002's third quarter. The company estimated third-quarter revenue will be about $3.9 million, above estimates of about $3.8 billion.

Goodyear, which began a turnaround plan earlier this year and has refinanced debt, said the restatement would not affect its net cash position or access to credit facilities.

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