Delta continues slide, Levi up on asset sale talk; Adelphia loan eases

By Paul Deckelman and Sara Rosenberg

New York, May 11 - Delta Airlines bonds continued to hit turbulence on Tuesday, a day after the Atlanta-based air carrier had warned that it might be forced into bankruptcy if it could not come to an agreement with its pilots on cost-saving measures.

Elsewhere, Levi Strauss & Co. bank debt and bonds firmed after the San Francisco-based blue jeans maker said it would explore the possible sale of its Docker's unit, which makes a popular line of khaki pants.

Delta's 7.70% notes due 2005 were quoted as having dropped to 64.5 bid, 66.5 offered from Monday's close around 68 bid, 70 offered - which itself was down about four to six points from prior levels, depending on whom you spoke to.

"The shorter maturities all got whacked," a trader said, quoting Delta's 10 3/8% notes due 2011 at 49 bid, 51 offered, down two points from Monday. However, he saw the company's 7.90% notes due 2009 unchanged at 45.5 bid, 47.5 offered.

The trader noted that the airline sector is inherently vulnerable to all kinds of factors, from labor costs - Delta has the highest pilot costs in the industry, which it is trying to trim - to fuel prices, which are heading skyward as the price of crude oil passes the $40 per barrel mark.

"It's a crapshoot," he said. "How anybody in that industry can sleep at night amazes me."

At another desk, a trader saw Delta's 8.30% notes half a point lower at 39 bid, 40 offered, and saw rival Northwest Airlines pushed down in sympathy, its 8 3/8% notes due 2006 two points lower at 82 bid, 83 offered, on "a little pressure, finally, on Northwest."

Salton plunges

But the big loser was back on the ground, as distressed-bond traders began quoting Salton Inc. following the nearly 30-point loss seen in the lake Forest Ill.-based small appliance maker's bonds after it reported a sharply wider quarterly loss and said it was in talks with its lenders to relive covenant violations.

Salton's 12¼% notes were seen trading as low as 55 bid, 57 offered before closing at 59.5 bid, 61.5 offered, well down from levels in the mid-80s, and its 10¾% notes ended at 63.5 bid, 65.5 offered, down from prior levels north of 90.

Adelphia loans ease

Also on the downside -though certainly nowhere nearly that bad - Adelphia Communications Corp.'s bank debt was down about a quarter to a half a point on Tuesday, with the Old Century paper quoted at 96.75 bid, 97.75 offered and the New Century paper at 96.25 bid, 97.25 offered, according to a trader.

He saw no specific reason for the decline in the Greenwood Village, Colo. cable company's paper.

Adelphia bonds were meanwhile seen little changed, its 10 7/8% notes due 2007 at 106.5 bid, down from 107, its 11 7/8% notes due 2007 half a point better at 122, and its 11% notes due 2006 unchanged at 106.

Levi loans, bonds better

Levi Strauss' term loan B was up about half a point and traded pretty actively on news of the possible sale of the Dockers asset, a bank loan trader said.

The term loan B was quoted at 105.5 bid, 106.5 offered, according to a trader, up from 105 bid, 106 offered. In the morning, one fund manager saw the paper quoted at 105.25 bid, 106.25 offered.

Levi's 11 5/8% notes due 2008 were meanwhile seen having moved up to 92.75 bid from 91 previously, while its 7% notes due 2006 were two points better at 88 bid, and its 12¼% notes due 2012 rose to 91.25 from 90 on Monday.

Although an asset sale usually brings bank debt levels back to where the paper is callable, in this case, levels headed higher with some speculating that the movement could have something to do with the need for lender approval to complete the sale.

"The paper is never callable at a premium. But it's non-call for 21/2-years to start. If they do need lender consent to sell Dockers, that could be why the paper is up. Lenders can basically say to the company that to give you consent we'll demand a premium from you," the trader explained.

On Tuesday, Levi Strauss announced that it is exploring the sale of its worldwide Dockers casual clothing business that generates annual worldwide revenue of approximately $1.4 billion, including more than $360 million in licensee wholesale revenue. Citigroup Inc. has been retained to assist with the potential sale.

"We are choosing to sell the Dockers brand because we want to reduce our debt substantially, improve the capital structure of the company, and focus our resources on growing our Levi's and Levi Strauss Signature businesses," said Phil Marineau, chief executive officer, in a company news release.

"We have made good progress in improving our competitiveness and financial strength, including taking cost and complexity out of our business, revamping our Levi's brand products and marketing, and expanding our Levi Strauss Signature brand for value-conscious consumers. Selling the Dockers business would be a significant next step towards achieving our long-term financial performance goals for the company."

As of May 9, the branded apparel company had available liquidity resources of approximately $490 million and total debt, less cash, of approximately $2.02 billion.

"We have sufficient liquidity and expect to remain in covenant compliance throughout the year whether we sell the Dockers business or not," said Jim Fogarty, chief financial officer, in the release. "This proposed transaction is a strategic choice that we've made as one of a number of actions we've been taking to reduce our debt, improve our financial strength, focus our resources and investment, and make us more competitive. We believe the sale of the Dockers business, coupled with our previously announced initiatives to deliver more competitive operating and SG&A margins in 2005, would transform Levi Strauss & Co."

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