Delta Air bonds continue Friday's retreat; RCN up as plan filed

By Paul Deckelman and Sara Rosenberg

New York, Aug. 23- Delta Air Lines Inc. bonds were once again in the mode that the distressed-debt market has come to know best - heading lower - on Monday as an early attempt to take the bonds higher apparently gained no traction and they resumed the downside path they were traveling on Friday.

Elsewhere, RCN Corp. bonds were heard to have gained as the Princeton, N.J., -based telecommunications operator filed its reorganization plan.

Bank-debt traders reported an absolute drying up of activity in their market, with many players absenting themselves and heading for vacation getaways to ride out the sleepy last week or so of summer.

Delta, however, was a source of some activity on the bond desks.

The Atlanta-based air carrier's paper had risen most of last week, on hopes it might be able to soon reach agreement with its pilots - Delta's only major unionized group - on cutting its swollen labor costs by $1 billion a year. But those gains proved to be short-lived, as the bonds faded badly Friday in the wake of Thursday's ratings downgrade by Standard & Poor's, which cited company plans to seek debtholder consents to indenture amendments on certain series of bonds and the speculation that Delta would try to take out those bonds via what the agency called a "coercive" exchange or tender offer.

Right out of the gate Monday, one desk reported an effort to take the bonds back up on the perception that they were oversold Friday. Delta's benchmark 7.70% notes due 2005 were seen having initially headed higher, quoted at 46.5 bid, a two-point gain from Friday, while its 10 3/8% notes due 2011, normally little traded, were seen four points better at 33.

But that early advance was soon gone with the wind as Friday's newly negative tone again held sway.

By the time the day ended, a trader said, 7.70s had given up all of their gains and then some, falling back to 41 bid, 43 offered from 45 bid, 47 offered on Friday. He saw Delta's 7.90% notes due 2009 off two points from Friday's levels, closing Monday at 33.5 bid, 33.5 offered, while its 8.30% bonds due 2029 were down just a point at 27 bid, 29 offered.

"The short paper," he said, "is gonna get taken down a lot quicker [than the longer bonds] as they loom toward the crapper," with some analysts predicting that a Chapter 11 filing is near - and even the airline itself now warning that it could make an emergency landing in the bankruptcy courts if it gets no satisfaction from the pilots' union. "The short paper is gonna get dumped out [of] and is gonna be trading on top of the long paper."

Another trader agreed: "The long end stuff is not down as much as the shorter pieces," as the company's bonds are "compressing." He saw Delta's 8.30s at 27 bid, 28 offered, down perhaps a point - while the 7.70s retreated to 41 bid, 43 offered, down from 45 bid, 46 offered at the end of trading Friday. He saw the company's 7.90% notes due 2009 "down a few [points]" at 31 bid, 33 offered.

Delta "was the big one today," he said, pretty much in the absence of anything else.

Asked about other airline bond activity in the wake of the ongoing Delta debacle, he said that he was seeing "more and more" activity in AMR Corp., which a year ago was able to do what Delta is trying to do now - dragoon its pilots and other unionized employees into accepting hefty pay cuts to keep the airline out of bankruptcy. But he saw no levels Monday on the Fort Worth, Tex.-based parent of the world's largest air carrier, American Airlines.

Air Canada lower, Northwest higher

Air Canada, he said, was "offered a couple of points cheaper," with the insolvent Canadian air carrier's bonds down maybe a point to 21 bid, 23 offered.

Another trader didn't see any activity Monday in Air Canada that he could quote, but marveled about how a company "that has a virtual monopoly" can still go bankrupt.

Northwest Airlines Corp.'s 8 7/8% notes due 2008 were quoted up a point at 69 bid.

RCN gains as plan filed

Back on solid ground, RCN's bonds were seen up a point to 54 bid. In filing its reorganization plan with the U.S. Bankruptcy Court for the Southern District of New York, RCN envisions giving its current bondholders all the equity in the restructured company, subject to dilution by management incentive options and new warrants. Its bank debt will be repaid in full (see report elsewhere in this issue).

Kaiser Aluminum's 10 7/8% notes due 2006 were seen down a point at 98 bid.

But otherwise, a trader said, things were super slow. "I sat here and did absolutely nothing," he quipped, "or maybe even less than that."

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