Delta continues retreat as big loss looms, Chapter 11 talk heard; National Energy bank paper firmer

By Paul Deckelman and Sara Rosenberg

New York, Oct. 19 - Delta Air Lines Inc. bonds were losing altitude for a third straight session Tuesday, although the loss was nowhere near as steep as the earthbound nosedive seen on Friday and again on Monday in response to the company's warnings of much wider than expected third-quarter losses.

In the bank debt market, National Energy & Gas Transmission Inc.'s paper was seen about a point higher on the session.

Delta's 7.90% notes due 2009 were seen having fallen to 29.5 bid Tuesday from Monday's close at 31.5, while the company's 8.30% notes due 2029 dropped to 25 bid from 26. Delta's benchmark 7.70% notes due 2005 were at 49 bid, around the levels they held late Monday.

All three issues of bonds had fallen sharply on Friday, and again on Monday, after the troubled Atlanta-based air carrier warned in a filing Friday with the Securities and Exchange Commission that it expects its net loss for the third quarter to be between $625 million and $675 million ($4.99 to $5.39 a share) - far wider than the $3.79 a share analysts had expected. Those numbers are scheduled to be officially released on Wednesday before the market opens.

Delta also told the SEC that says it had just $1.45 billion in unrestricted cash as of Sept. 30 - versus a $2.7 billion cash cushion at the end of 2003, reduced to about $2 billion by June 30.

The frighteningly rapid cash-burn rate has analysts speculating that a bankruptcy filing is near, since some have said that a fall below $1.5 billion is a signal that the company's will soon have insufficient cash to meet the payments on its $20 billion of debt.

Adding to the bankruptcy buzz was Delta's announcement that it will eschew the customary conference call following the release of its numbers. Delta said it would not conduct a conference call with investors, citing in part as a reason its efforts to avoid bankruptcy, including its attempts to cajole its unionized pilots, considered the best paid in the industry, to cough up $1 billion of permanent wage cut concessions. Delta is also trying to push qualified institutional holders of some $2 billion of its unsecured bonds and secured passthrough certificates to go along with a company plan to swap new debt for their existing bonds and certificates, though at a substantial discount from the existing securities' face value.

Another trader on Tuesday saw the 7.70% notes offered as low as 51 bid, although he saw no bid side on those bonds.

ATA lower on S&P cut

Also among the airline names, ATA Holdings' bonds were seen easier, after Standard & Poor's cut the troubled Indianapolis-based low-fare carrier's credit ratings, including that on its unsecured bonds, which were slashed to C from CC. The outlook is negative.

S&P cited ATA's precarious cash position and the growing likelihood that the company might be forced into Chapter 11 soon.

The industry has continued to be negatively affected by a weak fare environment and high fuel costs, which has resulted in ongoing losses for most airlines - including ATA - in the normally seasonal profitable third quarter, according to S&P.

Northwest Airlines Corp.'s 7 7/8% notes due 2008 were seen off two points, at 65 bid. Traders saw no activity and were unable to give any fresh levels on Continental Airlines bonds, even as the Houston-based carrier released third-quarter results, which showed a net loss for the quarter, normally the seasonally strongest quarter for the airline industry (see related story elsewhere in this issue).

National Energy loans higher

Among investors in distressed bank debt, National Energy & Gas Transmission's bank debt is "continuing to grind away in expectation of an end of year, early 2005 takeout", according to a trader who placed the paper at 68 bid, 69 offered on Tuesday, up a point from previous levels.

Bankrupt since July 2003, Bethesda, Md.-based NEGT recently received court approval to sell its equity interests in 12 power plants and a natural gas pipeline for $656 million to Goldman Sachs' GS Power Holdings II LLC. The transaction with GS Power is expected to close in the first quarter of 2005.

Mirant loans better

Another distressed power generation name, Mirant Corp.'s 2003 bank debt felt "a little firmer" at 62 bid, 63 offered on Tuesday, according to a trader.

"Supposedly, there's a bank meeting in the beginning of November," the trader said, unable to disclose any other details on why the Atlanta-based energy company may be holding this meeting. "That's firming things up."

Tower bonds, loans gain

Tower Automotive Inc.'s bank debt, bonds and convertibles were all firmer Tuesday, after the company approached lenders with an amendment proposal that would allow the company to get a $200 million accounts receivable securitization facility, according to a market source.

The first lien bank debt of the Novi, Mich. designer and producer of automotive structural components and assemblies was up half a point at 97.5 bid, 98.5 offered.

Bond traders meanwhile saw the 12% notes due 2013 issued by its R.J. Tower subsidiary up solidly on the news. One saw the bonds having firmed up to 71 bid from prior levels at 66. However, another said that after having breached the 70 mark from prior levels at 65, "they traded back off," to end at 67.5 bid, 68.5 offered, "still up two points on the day but four points off their highs."

Tower's convertibles bounced slightly on the news the company was seeking the credit facility amendment, with its 5¾% notes in the 25 area and its 6¾% converts around 45.

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