Restructured Norwood bank debt lures buyers; Delta firmer as pilot talks seen resuming

By Paul Deckelman and Sara Rosenberg

New York, Aug. 17 - Norwood Promotional Products Inc.'s newly restructured term loan B received a lot of dealer interest on Tuesday, market sources said, primarily driven by the desire to own equity in the company at a cheap price.

On the bond side of the ledger, Delta Air Lines Inc. bonds - which had been nose-diving earthward over the previous several sessions on investor worries about the faltering Atlanta-based air carrier, seemed to pull out of their death spiral and level off at a slightly higher altitude on market talk - spurred by a newspaper report - that the company's pilots are expected to resume their negotiations with the company this week on the size of the pay-cut concessions they will be asked to make and may demand a sizable equity stake in return for any agreement.

Delta's 8.30% notes were being quoted around 25 bid, 27 offered, which a trader pegged as about half a point above the level they had eased to on Monday.

"At the most, Delta's paper was up maybe a point from [Monday]," the trader said, although he quoted Delta's 7.70% notes due 2005 at 37.5 bid, 39.5 offered, "pretty much unchanged,"

Delta, he said, was being lifted by "speculation that the company is going to give a counter-proposal Thursday to the pilots, and maybe give them equity"

Delta - which has the highest pilot costs of any of the big traditional airlines - has been demanding for months that the pilots agree to a 35% pay cut, as well as other benefit reductions and work-rule changes that Delta says would save it $1 billion and keep it from having to file for bankruptcy. The Air Line Pilots Association, representing the 7,500 unionized captains at Delta, the Number-Three U.S. airline, originally offered a 12½% pay cut and then upped that to 23½%, which it says would save over $700 million.

The two sides have been at an impasse for many weeks, with Delta insisting that it can't accept penny less than the full $1 billion if it is going to lower its cost structure so it can avoid bankruptcy; the pilots, on the other hand, accuse the company of wanting to solve its financial problems solely on their backs.

Despite the war of words, The Cincinnati Enquirer said Tuesday that the two sides plan to resume negotiations on possible concessions Thursday. The paper quotes union officials as saying that the talks would not resume until the company provided further details on possible benefits for the pilots, including an equity share in the airline and a voting seat on its board.

If those talks with the pilots do in fact resume on Thursday, they would come just one day after Delta executives present what is expected to be a wide-ranging restructuring plan to the company's board for approval. That restructuring plan will call on Delta to make changes in virtually every phase of its operations, from route structures to procurement procedures, and could result in operational changes at the company's hubs, including its home base in Atlanta and its second-biggest hub in Cincinnati.

Delta CEO Gerald Grinstein was quoted in the Wall Street Journal earlier in the week as saying that Delta, to survive in a post-9/11 environment increasing dominated by low-cost carriers like JetBlue, may have to shed some of its traditional short-run domestic routes, even if it means losing U.S. market share, in favor of more pricey long-haul transatlantic, transpacific and transcontinental runs, where the airline can charge more by giving passengers more amenities.

Air Canada unchanged on vote

In other distressed airline news, Air Canada's creditors overwhelmingly approved a recapitalization plan on Tuesday that will give them as much as 88% of the airline, although they would likely recover no more than 10 Canadian cents on the dollar. The court-ordered monitor overseeing the restructuring of the world's 11th largest airline had said that if the plan were turned down and the airline liquidated they would get far less than that.

Air Canada is expected to present its plan to the court for approval next week.

Air Canada's U.S. dollar-denominated notes have recently languished around 19 bid, 21 offered, while its Canadian dollar notes were at 17 bid, 20 offered, a trader said.

At another desk, however, the U.S. dollar-denominated 10 ¼% notes due 2011 were seen at 23 bid, unchanged on the day.

Oxford Auto partially rebounds

A trader said that Oxford Automotive Inc.'s 12% notes due 2010 skidded down to 35 bid, 40 offered Monday from prior levels at 55 bid, 57 offered, although he had seen those bonds creep back up off their lows Tuesday to around 40 bid, 45 offered - still well below where they were before the latest round of ratings agency downgrades.

Both Standard & Poor's and Moody's Investors Service sharply downgraded the Troy, Mich.-based automotive components maker's credit ratings last week, citing concerns regarding the company's declining cash flow from operations, weakened liquidity, and ability to meet debt service requirements. Moody's dropped the bonds to C from Caa1 previously, while S&P cut them to C from CCC previously.

Norwood loans draw interest

In bank debt trading, Norwood Promotional Products' debt was seen bid in the high 30s- low 40s range, according to a market source.

On Monday, the Indianapolis-based provider of promotional products finalized its debt restructuring that included getting a new $101 million term loan B due Aug. 2011 at the holding company level. The term loan is priced at a fixed interest rate of 6%, split between 1% cash and 5% PIK.

Investors who participated in the term loan B received equity in Norwood as well. In fact, essentially all of the company's equity was transferred into bank lenders' hands from previous owner Liberty Partners.

"I've had calls from four different people looking to buy the B. They don't really want the B but they want to own the equity and own it cheap. There are no sellers at all," the source said.

Bids on the term loan B are considered extremely low compared to the usual par-area levels that a newly restructured deal tends to trade at, but Norwood's B loan "would only be worth par if everyone believed the value of the entire firm was greater than or equal to $241 million," the source said.

"The 40s level implies that this company in only worth approximately $180 million."

The bank group had first approached Norwood with the suggestion of a restructuring in June 2003 but due to various issues the first meeting between lenders and the company to discuss a solution didn't take place until last December.

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