New World Pasta in Chapter 11; Delta down on bankruptcy talk

By Paul Deckelman and Sara Rosenberg

New York, May 10 - New World Pasta Co.'s bank debt was quoted around 91 bid, 93 offered Monday following the company's Chapter 11 filing, basically unchanged from previous levels with little activity seen in the name, traders said.

And mention of the possibility that Delta Air Lines might follow sector peers United Airlines and USAir into bankruptcy pushed the Atlanta-based air carrier's bonds down sharply - a situation not helped by the overall downtrend in the high yield market.

A trader said of the New World filing that "pretty much the bank community expected this and was just waiting for the filing. Everybody knew it was coming. It's been hovering in the low 90s for a while."

On Monday, the Harrisburg, Pa.-based dry pasta maker announced that it filed a voluntary petition seeking reorganization under Chapter 11 of the U.S. Bankruptcy Code and added that it obtained a commitment for a $45 million debtor-in-possession financing facility from a financing group led by one of its current banks.

Upon court approval, which is expected within the next few days, up to $20 million of the financing facility will be available immediately on an interim basis, the company said in a statement.

"This action by our company to file for reorganization under Chapter 11 was taken only after much review by the company's board of directors and our senior executive team, and after consultation with advisors expert on these matters. We concluded that it was the right step to improve our business for the future," said Wynn Willard, the chief executive officer, in the announcement. "Now we have the opportunity to reduce our debt burden and to strengthen our financial and marketplace position."

"This filing will help our efforts to emerge as a stronger, more financially stable competitor," added Ed Lyons, the senior vice president and chief financial officer, in the release. "We will continue to work on strengthening our business, reducing costs and becoming more efficient. We at the company will be talking to our stakeholders, and we look forward to working productively with them through the reorganization process."

A distressed-debt trader meantime said that the filing would have little impact on New World Pasta's bonds, which he said had been "down in the low teens anyway" for quite a while, "offered but not really bid."

A market source at another desk meantime saw New World's 9½% notes due 2009 continuing to languish around the same 11.625 bid levels they have recently held.

Delta plunges

Also on the bankruptcy front, Delta Air Lines is not there - yet - but for the first time, the carrier, which heretofore has steadfastly resisted suggestions that it might find itself forced to make an emergency landing in Chapter 11, has officially acknowledged the possibility.

A trader said that Delta's 7.70% notes "got mowed," plummeting a full six points, at 64 bid, 65 offered, after Delta for the first time officially warned about the possibility of bankruptcy in the event it cannot reach an accord with its pilots.

Another trader said that Delta's warning is "the beginning of the end-game" for the carrier and its unions, who have sparred for months over Delta's efforts to get its pilots - the best paid in the industry - to agree to more than the 9% pay cut they have offered. The company is looking for a giveback of around 30%, which the captains have resolutely resisted.

Delta, on its recent conference call, decried what it said were its way-too-high cost structure, putting the blame on the pilots and warning that current cost levels were unsustainable in the long run - but stopping short of a bankruptcy warning. However, in a 10-Q filing Monday with the Securities and Exchange Commission, it warned that it might be forced into Chapter 11 if no accord is reached with the pilots.

The trader said that "it's a game of chicken that everyone has been kind of anticipating."

He saw the Delta 8.30s of 2029 at 39 bid, 41 offered from 44 bid, 46 offered several days ago.

Not all of the loss, he said, was necessarily based on the news of Delta's finally using the dreaded "B" word - "the fact that they said it was not a surprise to anybody, because they had kind of alluded to it for a while." Traders said the bonds were also lower amid an airline sector downturn sparked by sky-high fuel prices, as well as an overall high yield market malaise.

The trader noted that Delta could go either way, depending on what the union response was - it might go the way of AMR, which was able to "play hardball with its unions" and wring from them concessions that allowed the Dallas-based Number-One carrier to avoid bankruptcy - or it might end up like United Airlines, which was unable to get the kinds of concessions it needed and is currently restructuring.

"Who knows how it will turn out?" he shrugged.

Calpine weaker

Elsewhere, as the whole bank loan market in general felt off and lower on Monday, Calpine Generating Co. LLC's second lien and first lien term loans were once again said to be softer, with both tranches down by about a quarter of a point, according to a trader.

He saw the second-lien term loan quoted at 91.75 bid, 92.75 offered, while the first lien term loan was quoted at 98.875 bid, 99.375 offered, the trader added.

CalGen is a wholly owned subsidiary of Calpine Corp., a San Jose, Calif. power company, whose bonds meanwhile continued to weaken following last week's disappointing earnings results.

Calpine's 8 ½% notes due 2008 dropped another 2½ points, to 62.5 bid, 63.5 offered. At another desk, its 8 5/8% notes due 2010 were four points lower on the session, at 61.5.

MCI down again

On the phone front., a distressed-debt trader saw MCI Corp.'s new paper continuing to slide in the wake of the release of numbers by the Ashburn, Va.-based long distance giant, which recently emerged from Chapter 11.

He pegged MCI's 5.908% notes due 2007 down half a point at 95.5 bid, 96.5 offered; its 6.6809% notes due 2009 were at 91.5 bid, 92.5 offered, down a point or two, and its 7.735% notes due 2014 were a point-and-a-half lower at 88.5 bid.

Allegiance Telecom's 12 7/8% notes due 2008 were a point-and-a-half lower, at 35.5 bid,

And Qwest Communications International Inc.'s bank debt was all over the place, with some traders estimating that the paper was around the mid-90 level, but with no quotes in the Street on Monday it was hard to pinpoint just where to place the debt, according to a trader.

"It's been down a lot lately. A couple of points since last week," the trader said, explaining that since the bank debt is tied to a fixed rate component, valuations have slipped on rising interest rate fears. And, until people figure out valuations, exact levels on the bank debt are hard to determine, the trader continued.

"If you're stuck with fixed coupon paper it doesn't bode well," the trader added.

The Denver-based telecommunications company's 6 7/8% notes due 2033 were meantime seen by a bond trader down several points at 79 bid, 80 offered - just one of a number of issues that he saw lower on "just a brutal day."

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