Pegasus bonds steady after drop; Delta bonds gain as stock rises

By Paul Deckelman and Sara Rosenberg

New York, May 20 - Pegasus Media & Communications Inc.'s term loan D and Pegasus Satellite Communications Inc.'s bank debt stabilized on Thursday in a quiet secondary market after seeing a two day fall in levels on bankruptcy fears, although the Bala Cynwyd, Pa.-based satellite TV programming distributor's bonds were seen having once again eased after having bounced a bit off their recent lows.

Pegausus' term loan D was quoted at 98 bid, par offered. On Tuesday, the tranche had declined by a point to par bid, 101.5 offered, and then it continued its descent on Wednesday to the 98 bid, par offered level, according to trader.

The Satellite paper was quoted at 96 bid, 97.5 offered. On Tuesday, this tranche was seen at around the 98 level, also down a point on the day, and then continued its decline on Wednesday to this 96, 97.5 context, the trader said.

"People are looking at it as a potential bankruptcy," the trader explained.

On the bond side of the ledger, people are apparently still regarding it as such, even though Pegasus Satellite's bonds had firmed a bit on Wednesday from their lows.

A trader in distressed bonds said that the company's issues, such as its 9¾% notes due 2006 and 12 3/8% notes due 2006, both of which had firmed to around 55 bid Wednesday, were lower in Thursday's dealings, "around 52 [bid] 55 [offered] or 53-55, but what's the difference?" he asked.

At another desk, a trader pegged Pegasus's 13½% notes due 2007, which had been trading in the 25 bid area, as having fallen back to as low as 20 bid, 26 offered, although he allowed that the bonds "might be tighter" than that.

He saw Pegasus's 12 3/8% notes, which had recently firmed to about 55 bid from previous lows, as low as 49 during the session, while its 9 5/8% notes due 2005, which had been bid around 58 previously, were offered at 56.

The company's bonds "did get shellacked," he declared.

On Tuesday, Pegasus had filed its 10-Q with the Securities and Exchange Commission. In the filing, it revealed that is was trying to figure out how to pay a $51.5 million breach-of-contract settlement to DirecTV Inc., with the main issues being how much pre-judgment interest it will have to pay and how much the bond will be if the company decides to appeal the decision.

If the company fails to pay, it could be in default under its credit facilities and its bonds. And, without waivers, Pegasus Satellite Television, Pegasus Media and/or Pegasus Satellite may have to file for protection under Chapter 11, the filing said.

Salton resumes downward path

Elsewhere, a trader saw Salton Inc.'s bonds "moving lower again," after the Lake Forest, Ill.-based maker of the George Foreman hotdog and hamburger grills and other small appliances had been moving up for several sessions. The bonds had fallen sharply for most of last week after Salton posted a wider quarterly loss and revealed that it was in violation of its financing covenants, but then seemed to climb off the canvas over the next several sessions.

But on Thursday, he said, the trader said, they were once again in retreat, its 10¾% notes due 2005 dropping to 65.5 bid, 67.5 offered from 69 bid, 71 offered on Wednesday, while its 12¼% notes due 2008 backpedaled to 60 bid, 62 offered from 64 bid, 65 offered on Wednesday.

On the upside, the trader said, Mississippi Chemical Corp.'s 7¼% notes due 2017 had risen to 48 bid, 49 offered from prior levels at 45 bid, 46 offered.

Delta better

And traders saw Delta Air Lines Inc.'s bonds having risen several points in tandem with the Atlanta-based air carrier's shares, which jumped after Lehman Brothers touted the stock in a research note.

A trader quoted Delta's 10% notes going home about 52 bid, 54 offered, up a point or two on the session, while its 7.70% notes firmed to 63 bid, 65 offered, the 7.90% notes to 49 bid, 51 offered, the 10 3/8% notes due 2011 at 49 bid, 51 offered and the 8.30% bonds due 2029 were at 42 bid, 44 offered, up a point on the day.

"Bids are creeping in there - and the stock did better, up 82 cents, a big move."

The rise in Delta shares translated to a 15.86% jump, to $5.99, in New York Stock Exchange trading of 11 million shares, twice the normal volume.

Delta got a boost, both on the stock and the bond sides, another trader said, after Lehman Brothers upgraded its rating on the stock to overweight from equal weight, and increased its target price for the stock to $10.

What's more, Lehman analyst Gary Chase wrote in a research note, while acknowledging that Delta certainly faces hurdles, not the least of which is getting its pilot's union to agree to the big cost-saving concessions the airline says it must have to stay competitive, the shares could be worth even as much as $20 - if Delta can get the pilot's to sign off on a 30% reduction in pilot costs (the union is so far not budging from the 9% offer it made some weeks ago). That lofty price also assumes a 33% equity dilution in exchange for the concessions, and an 8% cut in non-labor costs.

The other trader expressed some degree of astonishment at Lehman's reasoning, given the struggle Delta faces to get its pilots to agree to further concessions. But whatever their reasoning, he said, Delta's bonds continue to head skyward after having hit recent lows on company warnings that the concessions were absolutely needed.

He saw the 8.30% bonds having moved as high as 41 bid, 42 offered, before ending at 40.5 bid, 41.5 offered - well up from levels several days ago of 37.5 bid, 39 offered.

Air Canada lower

Also up in the air, a trader saw Air Canada's 10¼% notes fall as low as 27 bid, 29 offered from Wednesday's levels around 31 bid, 33 offered, as the bonds initially fell back - though on relatively light volume - on news that the insolvent Canadian air carrier had still not been able to convince one holdout union to go along with its cost-cutting requests, which in turn was threatening the company's chances of cinching a rescue financing package from Deutsche Bank and GE Capital Aviation Services, a unit of General Electric Corp.

Air Canada said Thursday that it would continue meeting with the Canadian Auto Workers union for as long as it would take to get an agreement, with airline chief Robert Milton flying from Air Canada's home base in Montreal to Toronto to make his pitch to the union leaders.

By the end of the day, the trader said, the bonds had crept back up to 30 bid, 32 offered, "no real change - and I didn't see very much trading in them," he added.

On Thursday evening, well after the market had closed, Air Canada announced that it had reached a tentative agreement on cost realignment with the CAW Airline Division, which represents approximately 5,000 customer sales and service agents and crew schedulers at Air Canada.

The company said the agreement, which is subject to ratification by union membership, "meets the target set for CAW's share of C$200 million in cost savings."

With agreements now in place with all of it unions, Air Canada said that it has now satisfied the outstanding conditions in its financing agreements with Deutsche Bank and wit GE Capital Aviation Services.

Air Canada, in announcing the deal with the last union, said that the labor cost realignments, combined with a restructuring of supplier contracts and aircraft leases, effectively reduces Air Canada's operating costs by some C$2 billion. It said that the progress it had made in cutting its cost structure "gives us the momentum to move forward with confidence towards an emergence from CCAA [the Companies Creditors' Arrangement Act, Canada's equivalent of the U.S. Bankruptcy Code] in the fall."

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