Delta bonds firmer as company unveils turnaround plan; Interstate loans active

By Paul Deckelman , Sara Rosenberg and Ronda Fears

New York, Sept. 8 - Delta Air Lines Inc. bonds were seen firming several points Wednesday after the airline operator unveiled its eagerly awaited massive turnaround plan. Also among bond investors, Winn-Dixie Stores Inc.'s bonds were seen up perhaps a point as the troubled Jacksonville, Fla.-based supermarket operator announced an asset sale, as part of its effort to get out of underperforming, non-core businesses and focus on its core grocery store operations.

Among bank debt investors, much attention is still focused on Interstate Bakeries Corp.'s paper, which traded very actively in the 95 bid, 96.5 offered context, according to a trader, who said levels were unchanged to slightly stronger on the day.

On Tuesday another trader had the paper quoted at 94.5 bid, 96 offered. That was up a couple of points from previous levels of 92 bid, 94 offered.

Last week, the bank debt of the Kansas City, Mo.-based wholesale baker of Wonder Bread, Drake's Cakes and Hostess Twinkies took a considerable hit after the company announced that it had missed its deadline and would delay filing its 10-K annual report for the fiscal year ended May 29 for a second time.

The losses continued as Moody's Investors Service downgraded Interstate Bakeries' bank debt rating to Caa1 from B2.

All in all, the bank debt had dropped to as low as 91 bid from levels in the low 98s prior to last week's events, before having bounced back to current levels.

Back in the distressed-bond trading pits, Atlanta-based air carrier Delta's shorter-dated junk bonds were seen having gained ground in apparent reaction to the morning presentation by chief executive officer Gerald Grinstein.

A trader quoted the Delta 7.70% notes due 2005 at 49 bid, 50 offered, up two points on the session, he said, while its 8.30% bonds due 2029 were actually half a point off the previous levels he had seen, to end around 28 bid, 29 offered.

While Grinstein's comments were widely seen as the likely catalyst for the rise in the 7.70s, the trader dismissed the news as really having not much impact, declaring that "the market had seen it coming."

He also noted that that Grinstein, while acknowledging that Delta has a major problem in the form of over $20 billion of debt on its books, had nothing specific to say about debt reduction, other than a generalized pledge to bring the debt load down.

Another trader, however, saw the 8.30s firming to 29 bid, 31 offered from 27 bid, 29 offered, and quoted the 7.70s as having moved up to 48 bid, 50 offered from prior levels at 45 bid, 47 offered,. He said all of the activity came in the morning following Grinstein's webcast presentation, and the bonds "pretty much stayed up there."

Convertible traders meantime reported that Delta's 8% convertibles due 2023 ended at 36.75 bid, 37.25 offered, down from the 38 area on Tuesday, while the company's 2.875% convertibles due 2024 closed at 39.75 bid, 40.25 offered, off from 40.25 bid, 40.75 offered.

The company's New York Stock Exchange-traded shares, to which the converts are closely tied, dropped 44 cents on the day, or 9.82%, to end at $4.04.

"There are still some buyers for the converts," one sellside convertibles trader said, but he added that there are some fixed-income funds that play a lot of convertibles switching out of the Delta converts into the more senior paper in JunkLand.

"You can tell they are picking carefully because of the coupons and, to some degree, the pecking order if it comes down to a bankruptcy."

Grinstein on Wednesday said that about 10% of the airline's workforce will be cut - roughly 6,000 to 7,000 jobs - and even with that and other measures targeting more than $5 billion in annual cash savings by 2006, including $2.3 billion by the end of this year, "bankruptcy is a real possibility."

"We're working hard and fast to avoid it [bankruptcy]," Grinstein said, "but if the pilot early retirement issue is not resolved before the end of the month, or if all of the pieces don't come together in the near term, we will have to restructure through the courts."

Unsuccessful negotiations with union pilots on wage concessions - $1 billion requested by the airline, compared with around $750 million offered by the pilots - has been a major obstacle in Delta's efforts to reduce costs, along with the refusal from holders of notes secured with plane assets to agree to consents that would allow out-of-court restructurings of specific bond debt (see related story elsewhere in this issue).

The convertible traders said that because of the lingering bankruptcy threat, the Delta convertibles were sold off by more traditional convertible investors - but there were a few mavericks jumping in, along with the standard special situation funds when bankruptcy is a possibility.

Winn-Dixie gains on sale

Elsewhere, Winn-Dixie's 8 7/8% notes due 2008 were quoted up a point at 88 bid, 89 offered, after the company announced that it had it sold its Dixie Packers manufacturing facility in Florida to The Smithfield Packing Co. Inc. Financial terms of the transaction were not disclosed.

At another desk, the notes were seen offered at 89, versus earlier two-sided levels of 87.5 bid, 98.5 offered.

Winn-Dixie - which several months ago announced a turnaround plan that included the sale of Dixie Packers and several other food-processing businesses so it could focus on its supermarket operations - said that the sale of Dixie Packers "is an important step forward with the strategic initiatives we announced last January to improve the company's competitive positioning."

As part of the transaction, Winn-Dixie and Smithfield have entered into a supply agreement under which Smithfield will continue to provide Winn-Dixie with products manufactured at the Dixie Packers facility. Dixie Packers currently produces a range of smoked hams, hot dogs, sausage, sliced lunchmeats and other processed meat products for Winn-Dixie.

Avecia higher

A trader noted strength in the 11% notes due 2009 of Avecia Corp., up two points on the session, to 83 bid.

Another trader saw the bonds at 83 bid, 84 offered, up from prior levels at 81.5 bid, 82.5 offered.

He noted that such levels were up substantially from 77 bid, 78 offered "as recently as two or three weeks ago." He said that the company's most recent quarterly report "buys them some time."

Salton rises on earnings

He saw a similar phenomenon in the bonds of Salton Inc., which reported quarterly numbers, including a 32% gain in net sales to $249.7 million from $189.2 million a year ago, lifted by an additional $42.5 million in sales from its Amalgamated Appliances Holdings Ltd. unit. Even though, the Lake Forest Ill.-based small appliance maker's net loss widened to $50.2 million ($4.42 per share) compared with a loss of $8.8 million (79 cents), in the year-ago period. However, excluding restructuring and other charges, Salton said it would have lost $19.2 million, or $1.69 per share, in the latest fourth quarter. Salton has said it expects to save more than $40 million annually from its restructuring program.

"The numbers were good enough to buy them some more time," the trader said, quoting the company's 12¼% notes due 2008 as having firmed as high as 76 bid from 71 bid, 72 offered previously, before ending at 74.5 bid, 75.5 offered, and its 10¾% notes due 2005 as having risen to 88 bid from 83.5 bid, 84.5 offered, before coming down a point or two from that peak.

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