AMR soars ahead of union voting deadline; Kmart weakens as confirmation hearing drags on

By Carlise Newman

Chicago, April 16 - American Airlines soared to levels it hasn't seen in weeks on Wednesday, boosted by investors betting flight attendants would agree to labor concessions and prevent the company from having to file for bankruptcy.

The American Airlines attendants represented by the Association of Professional Flight Attendants have until 6 p.m. ET to vote or change votes tallied earlier on Tuesday. The original vote rejected contract changes even though the pilots and mechanics unions' membership approved concessions. American's executives have said that just one union rejecting the contract changes would force a bankruptcy filing.

The anticipation lifted almost the entire sector, and Delta Airlines and Continental Airlines gained in the session. In addition, the U.S. terror alert level dropped one notch to "elevated," or yellow, also helped the struggling airline sector.

AMR's 9% notes due 2012 were seen by traders rocketing to 37.5 bid/39.5 offered Wednesday as bankruptcy fears retreated slightly. Another desk quoted the bonds at 37 bid.

The world's largest airline's bonds were trading in levels around 27 bid/30 offered at Tuesday's close, falling after the flight attendant's union rejected wage concessions. The company is poised to file for bankruptcy as early as Wednesday evening unless flight attendants reverse themselves and approve $340 million in wage and other concessions.

The Fort Worth-based airline granted a request by the flight attendants' union Tuesday to delay a Chapter 11 bankruptcy filing and allow members to keep voting - and change votes already cast - until 6 p.m. ET Wednesday.

Members of the Association of Professional Flight Attendants are generally expected to accept the package Wednesday, according to media reports - and those expectations proved correct when the result was announced Wednesday evening, with the APFA voting 10,761 in favor and 9,652 against.

Those who did not vote in the first round, making up about 7,000 of the roughly 26,000 flight attendants, were also able to cast a ballot. Flight attendants on Tuesday rejected a package of $340 million in wage concessions by just 533 votes.

"AMR was uncontrollable today. All the airlines went nuts in some way," said a distressed debt trader. "I, for one, am not holding my breath that they'll vote in favor tonight."

Atlanta-based Delta Airlines' 6.65% notes due 2004 were seen bid at 75, offered at 76, up "about a point and a half" from Tuesday. Delta is expected to release an earnings report Thursday before the bell.

Continental Airlines' 8% notes due 2005 rose to 52 bid/54 offered, up two points from Monday's close, when they were seen at 50 bid/52 offered.

But a triple-digit first-quarter loss kept a damper on gains for Northwest Airlines' 7 7/8% notes due 2008 were seen at 48 bid bid/49 offered, losing three points from the close of Monday's session, and two points lower than Tuesday's open, when the bonds were quoted at 50 bid/51 offered, a trader said.

Northwest said the war and the spread of virus SARS, or Severe Acute Respiratory Syndrome, hammered worldwide travel demand in the latter part of the quarter, further hurting an industry still reeling from the Sept. 11, 2001 terrorist attacks.

Kmart Corp., in the throes of court meetings that have delayed the company's emergence from bankruptcy, was "a bit weaker" Wednesday.

The company's bank debt was seen bid at 39 and offered at 40, a point lower than Tuesday when it was quoted at 40 bid/41 offered. Kmart's 9 3/8% notes due 2006 were seen falling to 13 bid/15 offered Tuesday, after levels of 14 bid/16 offered Tuesday.

The Troy, Mich. retailer will have to wait longer to emerge from bankruptcy after a hearing to rule on the company's reorganization plan failed to conclude with a decision on Tuesday (see story elsewhere in this issue). After about seven hours in court on Tuesday and with the Passover, Good Friday and Easter holidays ahead, U.S. Bankruptcy Judge Susan Sonderby adjourned the hearing until next Monday.

A Kmart spokesperson told Prospect News the hearing would likely continue through Tuesday and possibly Wednesday.

Energy companies continued a mild rally Wednesday, as rumors began circulating again that Calpine Corp. may announce a refinancing deal. A few weeks ago Reliant Resources and Dynegy completed deals, while AES Corp. unveiled a $1 billion offering of notes to pay off outstanding debt from a senior bank facility. And late Wednesday El Paso Corp. announced it has obtained a new $3 billion secured revolver to replace expiring facilities.

Calpine Corp.'s 8½% notes due 2011 were seen rising a point to 64 bid/65 offered, compared to 63 bid/64 offered late Tuesday. Calpine's 7 3/8% notes due 2008 also rose "about a point," to 67 bid/68 offered. Calpine had enjoyed a surge in its bonds when the refinancing deals were announced, and then weakened in recent sessions.

"I think we're going to see another resurgence in Calpine and some of the other energy companies pretty soon if they keep cleaning up," said a distressed trader.

Indeed, Dynegy encountered optimism Wednesday. Dynegy's 8¾% notes due 2012 firmed to 82 bid/83 offered Wednesday from 81 bid/82 offered Tuesday.

On Wednesday, Standard & Poor's Ratings Services affirmed its B corporate credit ratings on Dynegy and its subsidiaries and removed the ratings from CreditWatch with negative implications. The outlook is negative.

Standard & Poor's also assigned its B+ rating to Dynegy Holdings Inc., a Dynegy subsidiary's new $1.66 billion senior secured credit facility. The Houston, Texas-based company has $5.454 billion of debt outstanding.

S&P said the CreditWatch removal reflects the successful restructuring of two revolving bank loans coming due in April and May 2003 and a third bank loan related to a communications operating lease.

"The successful completion of the new bank facility relieves some concerns regarding Dynegy's liquidity position because it renews a significant amount of bank line capacity. However, the negative outlook reflects our uncertainty regarding Dynegy's ability to generate sustainable cash flow, given the current environment in electric generation, as well as the price volatility in gathering and processing of natural gas liquids," said Standard & Poor's credit analyst John Kennedy.

© 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.