Horizon bank debt up again; Kaiser bonds lower on asset-sale failure

By Paul Deckelman and Sara Rosenberg

New York, Aug. 11 - Horizon Natural Resources (AEI Resources) bank debt traded up again Wednesday, aided by a favorable court ruling in the insolvent Ashland, Ky.-based coal mining company's bankruptcy case.

On the bond side of the ledger, Kaiser Aluminum & Chemical Corp.'s bonds were seen down on the session after the Houston-based metals producer failed to get any qualified bids for its 20% stake in Australian aluminum producer QAL. Delta Air Lines Inc. bonds continued to fade, losing yet another point across the board following Moody's Investors' Service downgrading its debt ratings.

Horizon bank debt was seen Wednesday at the 90 plus or minus level, according to a trader. On Tuesday, the paper had traded as high as 85 before it settled in at 84 bid, 86 offered by day's end.

The strengthening is a result of news surfacing that a federal bankruptcy judge ruled that Horizon - in Chapter 11 since November 2002 - does not have to honor union contracts, eliminating medical coverage and retirement benefits.

The ruling is expected to result in higher financials, making the company more attractive to prospective buyers.

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.

Meanwhile, Citation Corp.'s bank debt, which tumbled by about five points in Tuesday's market, edged up by about half a point to 78.5 bid, 79.5 offered, according to a trader.

No public news has been released about the Birmingham, Ala. metal components supplier, but talk is that the fall was caused by some liquidity concerns.

Delta down again

Delta Air Lines Inc.'s worsening liquidity concerns kept investors jittery Wednesday, as they took the company's bonds down about a point across the board. A trader saw Delta's 7.70% notes due 2005 at 41 bid, 42 offered, down from Tuesday's level at 42 bid, 44 offered.

At the other end of the maturity curve, Delta's 8.30% notes due 2029 were seen at 26 bid, 27 offered. Its intermediate length 7.90% notes due 2009 were at 28 bid, 29 offered.

Delta's convertibles continued to get sold off, with each dropping another 2 points Wednesday. The 8% convertible was at 32.5 bid, 33.5 offered and the 2.875% convert at 34.25 bid, 35.25 offered.

Moody's Investors Service late Tuesday downgraded Delta's ratings, dropping its senior unsecured debt rating to Ca, the second lowest rating, from Caa3. The outlook on the ratings remain 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 a statement. "A rapid resolution of these negotiations is not expected in the near future."

Moody's action followed Delta's disclosure Monday that its stockpile of available cash, which stood at $2.7 billion at the beginning the year, was now down to about $2 billion - and that it anticipated a similar burn rate for the remainder of the year, given elevated fuel costs and its inability to make up for them by raising customer fares - several efforts by Delta and other airlines to boost fares have been quickly scuttled.

Delta said in a Securities and Exchange Commission 10-Q filing earlier this week that that falling yields and rising fuel prices have caught the carrier in a bind. And it said that with a number of its rivals, such as American Airlines, US Airways and United Airlines had "significantly reduced their costs through bankruptcy or the threat of bankruptcy. As a result, our unit costs have gone from being among the lowest of the hub-and-spoke airlines to among the highest, a result that places us at a serious competitive disadvantage."

But Delta warned that "our unencumbered assets are limited, our credit ratings have been substantially lowered and our cost structure is materially higher than that of our competitors. Except for our existing commitments to finance our purchase of regional jet aircraft, we have no available lines of credit. We believe that, unless we achieve significant reductions in our cost structure, we will be unable to access the capital markets for new borrowings on acceptable terms."

It said that "continued losses of the magnitude we recorded in 2003 and in the six months ended June 30, 2004 are unsustainable, and we have significant obligations due in 2005 and thereafter, including significant debt maturities, operating lease payments, purchase obligations and required pension funding. We are intensively engaged in an effort to identify and obtain cost reductions from our key stakeholders and to implement new strategic business initiatives in order to effect a successful out-of-court restructuring, but there can be no assurance this effort will succeed."

Kaiser down on sale hitch

Kaiser Aluminum, in bankruptcy since February 2002, got a setback Wednesday in its effort to sell assets, as it received no qualified bids for its 20% stake in the Queensland Alumina Ltd. refinery in Australia by the Aug. 10 deadline. Kaiser was to have held an auction on Monday, but now that plan has been scrubbed.

Kaiser had set a minimum for qualifying bid of $525 million for the QAL stake, but got no response from potential buyers.

The company said that it is reviewing additional options in connection.

Kaiser's 10 7/8% notes due 2006 were seen having backpedaled to 99 bid from prior levels around 106.

Federal-Mogul edges higher

The news was better for holders of Federal-Mogul Corp.'s distressed bonds, in the wake of the Southfield, Mich.-based auto parts maker's having held a meeting among representatives of its U.K. workforce, its Creditors Committee, the U.K. Administrators, the Trustee of the T&N Pension Scheme and major debtholder Carl Icahn, with the goal of resolving the remaining Pension Scheme issues.

The meeting was seen as a key step toward wrapping up some loose ends and bringing the company's possible Chapter 11 emergence closer.

"Not that the bonds were running," said a trader who quoted the notes at 29 bid, 30 offered, up about a quarter to half a point, "but it brings some more closure. It looks like things are gonna get settled."

Federal-Mogul said that it believes that "much progress was made toward airing the open issues and, with the assistance of Mr. Icahn, attempting to find solutions that would be satisfactory to all parties."

Icahn stated that "we presented a proposal that we believe will save jobs of FMO's U.K. workforce, and avoid a wind-up of the Pension Scheme."

The company - in Chapter 11 since October 2001 due to massive asbestos claims arising from its purchase of British-based piston maker T&N - has Nov. 3 as the deadline by which votes are due on its plan of reorganization and a confirmation hearing is scheduled for Dec. 9

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