Horizon Resources up strongly; Delta, Trico Marine bonds head lower

By Paul Deckelman and Sara Rosenberg

New York, Aug. 10 - Horizon Natural Resources (AEI Resources) bank debt traded up by about 11 points on Tuesday as news reports surfaced that the company renegotiated contracts which will result in higher financials and make the company more attractive to buyers.

On the downside, Delta Air Lines Inc. bonds continued their recent steady erosion, driven down by renewed investor fears that the troubled Atlanta-based air carrier is burning through its cash reserves at an alarming rate and may eventually wind up crash-landing in Chapter 11.

Horizon's paper traded as high as 85 and settled in at 84 bid, 86 offered by day's end, a trader said. On Monday, the paper traded at 74 and on Friday it had been down around 71, the trader added.

News reports said that a federal bankruptcy judge ruled that the insolvent Ashland, Ky.-based coal miner, in Chapter 11 since November 2002, does not have to honor union contracts, eliminating medical coverage and retirement benefits.

Horizon's assets are scheduled to be auctioned on Aug. 17.

Newcoal LLC, a group led by investor Wilbur Ross and organized by the holders of a majority of the $465 million principal amount of Horizon's second-lien notes, is the stalking-horse bidder with an offer of $277.35 million. Just last week, Newcoal was given court approval to use the group's second-lien Horizon bonds in its bid.

Citation Corp. was another big mover in the distressed loan market, trading off by about five points to 78 bid, 79 offered, according to a trader.

No public news was released about the Birmingham, Ala. metal components supplier to cause the drop.

Among bond investors, Delta Air Lines bonds were getting hammered, in continued investor response to company disclosures Monday that the troubled carrier had already burned through $700 million of the $2.7 billion cash cushion it began the year with and would likely burn up an equal amount - or maybe even more - in the remainder of the year, given the sharp rise in fuel prices and its inability so far to get its pilots' union to sign on to big cost concessions.

Those negatives caused Moody's Investors Service to cut Delta's senior unsecured debt rating to Ca - Moody's second-lowest rating - from Caa3 previously. The outlook remains negative.

"Delta's ability to generate positive operating cash flow is highly dependent on successful renegotiation of the company's labor agreement with its pilots," Moody's said in its downgrade message. "A rapid resolution of these negotiations is not expected in the near future."

A trader in distressed bonds declared that Delta was "down 10%," its 7.70% notes due 2005 having fallen to 42 bid, 44 offered from prior levels at 48 bid, 50 offered. He saw Delta's 8.30% notes due 2029 fall to 26 bid 28 offered from 28 bid, 30 offered.

At another desk, Delta's 10% notes due 2008 were seen having retreated to 34.5 bid from 38 previously. Its 7.90% notes due 2009 dropped to 32 bid from 38.5

Delta's bonds were "just getting mowed," a trader said, quoting its 7.70% notes due 2005 at 42 bid, 44 offered, down from prior bid levels in the 46-48 area, and its 8.30% notes at 27 bid, 29 offered, down around two points from recent levels.

In convertibles, one buyside trader said the Moody's action, "cemented the belief that bankruptcy is around the corner" for the Atlanta-based air carrier.

Delta's converts dropped at one point by 4 to 4.25 points with the 8s at 32 bid, 34 offered and the 2.875s at 34.75 bid, 35.75 offered. However, the buyside trader said there was a buyer in early afternoon that pushed the issues to the mid-30s.

The converts ended the session off about 2.5 points, with the 8s at 34.25 bid, 35.25 offered and 2.875s at 36 bid, 38 offered.

Trico lower on earnings

Also on the bond front, Trico Marine's 8 7/8% notes due 2012 sank to 47.5 bid from prior levels at 52, following the release of second-quarter earnings numbers by the Houma, La.-based provider of marine services to the offshore oil drilling industry.

Its net loss for the second quarter of $44.7 million ($1.21 per share) on revenues of $25.7 million, compares with a net loss of $42 million ($1.16 per share), on revenues of $34.5 million for the year-ago quarter of 2003.

Pegasus bonds gain

A trader saw Pegasus Satellite Communications Inc.'s senior bonds such as its 12 3/8% notes due 2006 improve to 63.75 bid from prior levels at 62. There was no fresh positive news out on the Bala Cynwyd, Pa.-based satellite television programming distributor.

A trader saw Mississippi Chemical Corp. bonds continuing to fall following the bankrupt Jackson, Miss.-based chemical company's announcement that it is to be acquired by Terra Inc.

He saw the Mississippi bonds at 53 bid, 56 offered, off from 56 bid, 58 offered previously.

And he saw some strength in the bonds of the asbestos-challenged Armstrong World Industries, at 64 bid, 66 offered, up from recent levels around 61 bid, 62 offered for the bankrupt Lancaster, Pa.-based floorcovering maker.

And sector peer Owens Corning was two points better, at 45 bid, 47 offered, although no one had heard any kind of positive color on the bankrupt Toledo, Ohio-based insulation maker.

Leap volatile again

Back among the bank loan traders, Leap Wireless International Inc.'s bank debt was quoted at 118 bid, 118.5 offered, according to a trader, who said that the paper was really down from Friday, when it was seen as high as 122.5 bid, 123 offered. But it was close to unchanged to down half a point from where it went out Monday.

However, other traders had quoted the paper at 120 bid, 121 offered on Monday, up from Friday's levels of 118.75 bid, 120 offered.

This discrepancy may be expected as the San Diego-based communications operator's bank debt tends to trade on the volatile side and moves up and down between the teens and the 20s on a somewhat regular basis.

The strengthening to the 120 plus levels had been attributed to sector peer MetroPCS Communications Inc.'s recent revelation that it had understated financial results for the quarter ended March 31, an admission viewed as a bullish sign for similar companies.

But, as an example of the paper's volatile nature, when MetroPCS had first announced at the end of July that it was pulling its initial public offering, Leap's bank debt initially plummeted to 112 bid, 113 offered.

Leap expects to emerge from bankruptcy next week with long-term debt reduced to approximately $390 million from more than $2.4 billion. All of the issued and outstanding common stock, warrants and options of Leap will be cancelled on the effective date of the company's plan of reorganization and no distribution will be made to existing stock, option or warrant holders.

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