Delta bonds jump on pilot talks news, consent solicitation; Horizon debt up on Ross' winning bid

By Paul Deckelman and Sara Rosenberg

New York, Aug. 18 - Delta Air Lines Inc.'s battered bonds were headed skyward for a second straight session, with Tuesday's hefty gains far eclipsing Monday's modest rise amid all kinds of news about the struggling Atlanta-based carrier, including definitive confirmation by the company and its pilots' union that the two sides have a negotiating meeting scheduled for Thursday - a session at which management is expected to offer the captains equity in the company in return for larger pay cuts. Delta also announced that it was seeking the consent of the holders of some of its aircraft-secured debt to the company buying and holding some of those notes - seen as a harbinger of an upcoming debt restructuring, either with or without the courts.

Bank debt traders meantime saw Horizon Natural Resources' - formerly AEI Resources - bank debt once again stronger now that a definitive winner has emerged in the bidding process for the bankrupt Ashland, Ky.-based coal producer's assets.

Delta's benchmark 7.70% notes due 2005 were quoted by several traders as having pushed up to 44 bid, 46 offered from prior levels at 38 bid, 40 offered. Its 7.80% notes due 2009 rose to 32 bid, 33 offered from 28 bid, 29 offered on Tuesday, while its 8.30% bonds due 2029 improved to 29 bid, 30 offered from prior levels at 25 bid, 26 offered.

Delta's 8% convertible notes added 4 points to 35.5 bid, 36 offered and the 2.875% convertibles rose 5.25 points to 40 bid, 41 offered on the day's events. Convertible bondholders were "pumped up," as one trader put it, on speculation that debtholders will end up owning the airline.

Delta's New York Stock Exchange-traded shares meantime were up 48 cents (13.37%) to finish at $4.07, on volume of 13.5 million, about two-and-a-half times the average daily handle.

Delta gained altitude as both the company and the union confirmed news reports indicating that the two sides will meet on Thursday. It is widely expected that Delta, seeking $1 billion of pay cuts from the captains, or 35%, in order to lower its industry-costliest labor cost structure, will offer them equity in the restructured company to get them to increase their offer, which now stands at 23.5%, or about $700 million.

Delta bonds "initially opened lower," a trader said, "then the news came out about the pilots possibly going back to the bargaining table and they got a lift out of that. The really short paper rallied," with the 7.70s moving up to 44.

He noted that "towards the end of the day, CNBC came across with a headline saying they've hired some bankruptcy lawyers and the bonds took an about face and started trading off again. So it was a really volatile day."

Delta was reported to have retained Weil Gotshal & Manges, a well-known bankruptcy counsel - one more indicator that a restructuring of some sort is near.

The trader said he didn't know how true that last bit of news was, but said it seemed like the bonds "got a little softer" from their earlier highs, although he had no real quotes following the CNBC headline.

Consent solicitation boosts bonds

Earlier, he said, the bonds had also gotten a lift from the company's announcement that it was seeking consents from the holders of numerous series of its equipment trust certificates and passthrough certificates - bonds secured by liens on the company's aircraft - to indenture changes that would allow Delta to buy those bonds and hold them, which the airline says would give it greater flexibility in restructuring its $18 billion debt load as it attempts to avoid bankruptcy (see separate story elsewhere in this issue).

It is believed that should it get that authority from the holders of the $1.7 billion of certificates then Delta might offer to give them new debt - with probably worse terms but a greater likelihood of being paid.

Another trader called the consent solicitation "an aggressive move on their part" as the airline tries to get on top of its financial problems.

Those efforts included the presentation to the company's board of directors Wednesday by Delta's chief executive officer, Gerald Grinstein, of a long-awaited plan to change the way Delta does business, growing out of a months' long strategic review of everything from the company's route structure to its bulk procurement policies for mundane items, and everything in between. According to news reports, Grinstein has indicated that Delta might cut service on some shorter routes or even abandon them entirely in favor of increasing premium-priced long-haul service and providing more amenities to travelers to justify the higher price

Details of Grinstein's presentation to the board were not released. Delta has indicated that those items which are approved will be phased in over time, with many of the changes to be enacted with little or no fanfare.

ATA steady at lower levels

Also in airline news, the bonds of ATA Holdings Corp. continued to languish at lower levels, in the wake of the Indianapolis-based low-fare carrier's admission earlier this week in its 10-Q filing with the Securities and Exchange Commission that barring changes to its aircraft lease agreements, it does not expect to have enough cash to meet those obligations in the first quarter of 2005. It posted a loss of $90.7 million during the first half of the year, its business hurt by ever-increasing jet fuel costs, aggravated by a decline in its important military charters business.

Some analysts have speculated that the company may default on its Air Transportation Stabilization Board-backed loans - or perhaps may even be forced into a bankruptcy filing.

A trader saw ATA's 9 5/8% notes due 2005, which had slid to 39 bid from 42 bid, 43 offered on Tuesday, holding at that same level Wednesday. Another trader quoted the company's 13% notes due 2009 offered at 44, with no bid; he had seen the notes at a wide 38 bid, 43 offered on Tuesday.

At another desk, the 13s were seen down 2½ points at 40.5, as were its 12 1/8% notes due 2010.

Parmalat unchanged on latest suit

In non-airline action, Parmalat Finanzaria SpA was reported to be suing its two auditing firms, Deloitte & Touche and Grant Thornton, for some $10 billion for their alleged role in the Italian diary products giant's collapse into insolvency late last year.

That suit mirrors several recent suits Paramalat has brought or has threatened to bring against giant banks that helped line up its financing, including Citigroup, Banc of America, Deutsche Bank and UBS. Parmalat claims that the banks - and the auditors - conspired with the now-deposed former management to cover up the real deteriorating state of Parmalat's finances from investors and regulators, enabling company insiders to siphon billions of dollars out of the company treasury - an allegation the banks and the auditors so named have vehemently denied.

Parmalat's bonds were seen at 16 bid, 17 offered, unchanged on the session.

Horizon loans up again

Back among the bank debt players, Horizon Natural Resources paper was quoted Wednesday at the 104 bid, 106 offered level after having moved up steadily over the last week or so.

A trader said that the coal miner's paper was trading around 74 at the start of last week, then spiked into the mid-80s on news of union contracts being dismissed, and just kept climbing from there. It closed out last week at 90.5 bid, bid, 93 offered.

The rally really began on news reports that a federal bankruptcy judge ruled that the insolvent coal producer, in Chapter 11 since November 2002, does not have to honor union contracts, eliminating medical coverage and retirement benefits, and making the company more attractive to buyers.

And, Tuesday's announcement that a group led by Wilbur Ross won the court-mandated auction for the company with a $786 million bid plus the assumption of liabilities has only helped bank debt levels, the trader explained.

Ross' Newcoal LLC, Oldcoal LLC, in partnership with A.T. Massey Coal Co., bid $304 million in cash, $482 million in second-lien notes plus liabilities.

The auction results must be approved by the U.S. Bankruptcy Court for the Eastern District of Kentucky. A hearing is scheduled for Aug. 31.

A bond trader, meantime saw Horizon's notes quoted around 13 bid, 14 offered, up from recent levels around 9 bid, 10 offered.

Also stronger Thursday was Mirant Corp.'s 2003 bank debt, with levels heading higher by about a point to 58.5 bid, 59 offered, according to a trader.

No specific news was seen pushing the Atlanta-based energy company's paper up.

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