AMR bankruptcy fears bring sector down, Mirant, Federal Mogul rise

By Carlise Newman

Chicago, April 22 - AMR Corp. bonds appeared ready for a crash landing Tuesday while the parent of American Airlines clambered to avoid bankruptcy as unions demand a revote on wage concessions. In kind, the rest of the sector, including distressed names Delta Airlines and Continental Airlines, weakened on the session.

Mirant Corp.'s bonds trekked higher, boosted after the company obtained a waiver Monday from its lenders regarding potential events of default. Federal Mogul's bank debt and bonds rose slightly, possibly cheered by earnings news and another milestone in the bankruptcy process: the filing of the company's disclosure statement.

American's 9% bonds due 2012 were seen bid at 30 and offered at 33, a four-point drop from Monday, when the bonds were quoted in the 34 bid/36 offered range, and much lower than the low-40s seen last week when bankruptcy fears retreated slightly.

In a seemingly never-ending string of events, American's unionized pilots met Tuesday afternoon in a bid to reconsider their vote to accept pay cuts amid revelations that management was planning to issue bonuses to some executives - subsequently canceled - and had set up a bankruptcy-protected retirement plan.

The board of the 13,500-member Allied Pilots Association is in talks to decide whether to let stand its previous vote, which accepted $1.8 billion in wage cuts that management says would help keep American out of bankruptcy.

Late Monday, Chief Executive Don Carty gave a public apology over the issue. Despite Carty's admission of bad judgment on Monday, union officials have said that American failed to disclose special pension funding and bonuses for executives even as pilots, mechanics, flight attendants and other workers agreed to big pay cuts.

"I made a mistake, and of course it was a big one," Carty said at the news conference Monday.

In a regulatory filing last week, the airline disclosed it had partially funded a long-existing pension trust that would be safe for 45 executives even in the event of bankruptcy. American also provided retention bonuses for select senior management.

In addition, the Association of Professional Flight Attendants and the Transport Workers Union have gathered their boards for hurried meetings to mull their response to the controversy over the executive perks.

The news from American dragged down the rest of the airline sector as well. Delta Airlines' 8.3% bonds due 2029 were quoted at 51.5 bid/54.5 offered, down "about a half, maybe a point" from Monday. Last week, the bonds got a much-needed boost to the mid-50s after Delta reported a first-quarter loss that was wider than last year but narrower than expected.

Following suit, Continental Airlines' 8% notes due 2005 were seen falling a point to 46 bid/49 offered, from 47 bid/50 offered Monday. Continental also had earnings news last week, reporting a wider first-quarter net loss due to higher fuel prices, and an impairment charge related to grounded aircraft.

"It was mostly airlines today but it's still quiet," said a distressed debt trader, adding that he was leaving early.

He said Mirant Corp. was relatively active, however. Mirant's 9 1/8% bonds due 2013 were quoted at 58 bid/60 offered, up from 54 bid/55 offered Monday. The 7 5/8% notes due 2006 were seen at 66 bid/68 offered, up three points from Monday's 63 bid/65 offered, and its 8.30% notes due 2011 were quoted in "the high 50s."

"Mirant was up three to five across the board, but overall energy wasn't moving like it has been," said a trader.

The company's bank debt was seen bid at 78 and offered at 79, in line with Monday's levels. Prior to Monday, indications on the bank paper were around 72 and 73.

Mirant brightened Monday and Tuesday after it obtained a waiver from its lenders regarding potential events of default in order to allow the company to focus on refinancing its debt. The Atlanta energy company is presently working on refinancing its debt with the most current debt due being the $1.125 billion credit facility maturing in mid-July.

Federal Mogul Inc. resurfaced in distressed debt trade Tuesday, slightly higher after the company filed its disclosure statement in court and reported earnings. Federal Mogul's bank debt was quoted at 76 bid/77 offered, up a point from Monday and two points from Thursday, when it was seen at 74 bid/75 offered. Federal Mogul's 7½% notes due 2004 were quoted at 13.5 bid/15.5 offered, a rise of a half-point from Monday, a trader said.

"There was a little activity, but there hasn't really been any news. Today wasn't anything to move on," he said.

The Southfield, Mich.-based global supplier of automotive components filed a disclosure statement with the U.S. Bankruptcy Court in Wilmington, Delaware in its Chapter 11 reorganization case

Previously reported elements of the plan include the creation of a 524(g) trust for the benefit of present and future asbestos personal injury claimants; the restructuring of $1.6 billion in claims of the pre-petition senior secured lenders into a combination of 6.5-year maturity senior secured term loans and 11-year maturity junior secured PIK notes; and the creation of new common shares for the reorganized company, 50.1% that will be distributed to the asbestos trust, and 49.9% distributed to the noteholders.

Also Tuesday, Federal Mogul reported a narrower first-quarter net loss of $34 million, compared to a net loss of $1.4 billion in the first quarter of 2002. Excluding charges for restructuring activities, asset impairments, losses from divestitures, Chapter 11 and Administration-related expenses and the cumulative effect of a change in accounting, Federal Mogul reported earnings from operations of $7 million in the first quarter 2003, compared to break-even results from operations in the first quarter 2002.

Operating cash flow for the first quarter of 2003 was $33 million, compared to $32 million in 2002.

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