Delta jumps as pilots take their lumps; Meridian Auto bank paper bounces

By Paul Deckelman and Sara Rosenberg

New York, Oct. 28 - Delta Air Lines Inc. bonds and shares hit their highest level in months on Thursday, lifted by the news that the embattled Atlanta-based air carrier's pilots have finally agreed to bite the bullet and give the company the $1 billion of annual wage concessions Delta has been seeking to help it stay out of bankruptcy. The pilots had initially balked at the sheer size of the pay cut the company said they must take, but gradually moved closer to Delta's position and finally accepted the demand in order to avoid having a worse deal imposed upon them by the courts.

In bank debt dealings, Meridian Automotive Systems Inc.'s second-lien paper rebounded a bit Thursday, traders said, after having taken a hard fall during Wednesday's session on what one called "bad numbers."

But Delta definitely dominated, distressed-debt denizens declared.

One quoted Delta's 7.70% notes due 2005 as having moved as high as 76 bid, 78 offered on the pilot deal, which was announced very late on Wednesday night. That's up from Wednesday's close at 63 bid, 65 offered - and owing to the sharp upside the bonds had already enjoyed over the previous several sessions on expectations a pilot deal was near and other favorable news, well up from levels in the mid-to-upper 40s that those bonds had languished at late last week.

The trader also saw the Delta 10% notes due 2008 advance to 53 bid, 55 offered from 42 bid, 44 offered Wednesday, saw its 7.90% notes due 2009 rise to 47 bid, 49 offered from 38 bid, 40 offered, and its 8.30% notes due 2030 end at 37 bid, 39 offered, up from 30 bid, 32 offered.

At another desk, a trader pegged the 7.70s at 76, the 10s at 51, the 7.90s at 49, up from 42, and 8.30s at 37.75. He also recorded the normally little-traded 9¾% notes due 2021 pushing up to 38 bid from 27 and the also usually little-seen 9¼% notes due 2022 rising to 37.25 from 25.

"We did see quite a number of issues going up quite a lot," he said.

Over on the equity side of the ledger, Delta's New York Stock Exchange-traded shares - which have been rising along with its bonds all week on expectations of a deal with the pilots and other developments - were also sharply higher Thursday, winging their way up to $5.72, up 78 cents (15.79%), on volume of 29 million, nearly five times the usual turnover.

Delta's convertible notes, which are linked to the equity, were also seen heading skyward, with its 8% converts up 4½ points to end at 48.25, while its 2 7/8% notes were up 5½ points to 50.75. But traders in that market see the bounce off Delta's recent lows as short-lived and expect that the notes will drop back down unless Delta can come up with some positive restructuring news.

While getting the airline's more than 7,000 unionized pilots - considered the best-paid captains in the airline business - to go along with the massive pay cut of 32.5% and no raises for five years is considered absolutely crucial to Delta's efforts to stave off a bankruptcy filing, it is only one piece of the puzzle, as chief executive officer Gerald Grinstein reminded everyone on Thursday. While Grinstein hailed the pilot deal as a sure sign of progress, has said bankruptcy still remains a possibility.

This is especially true if Delta is unsuccessful in its effort to cut its massive $20 billion debt load down to size. Earlier in the week, Delta announced that it had gotten the holders of its $135 million of 7.70% notes to agree to swap their notes for a like amount of 8% notes due 2007. That pushes the maturity of those notes out two years, but does nothing to cut the overall debt amount and will actually increase interest costs slightly as a tradeoff.

Of more importance is Delta's pending offer to swap up to $680 million face amount of new debt for up to $1.56 billion face amount of existing senior unsecured and passthrough debt held by institutional investors. That offer is scheduled to run through Nov. 18 , but the early deadline by which Delta had hoped to get its bondholders on board came and went on Tuesday with no word from the company as to what was happening - not a good sign, according to some in the financial community. That agreement needs the support of holders of at least 75% of the three categories of debt for which Delta is offering to exchange the new notes.

The pilot deal, meantime, requires the approval of a simple majority of the captains represented by the Air Line Pilots Association, who will vote on the agreement starting Monday. If approved, the pay cut would go into effect effective Dec. 1 and stay in effect for five years. There would also be other concessions, such as revisions in the pension plan and in work rules. However, the pilots would receive options to purchase up to 15% of the company's stock in return for their cooperation.

Should the pilots ratify the deal, that would clear the way for $600 million of badly needed new financing for the cash-strapped airline, to be provided by a unit of American Express Corp. This would include a $100 million loan, plus $500 million in prepayments by American Express on miles in Delta's frequent flier program, which would be made available to American Express cardholders.

AMR better, other airlines unchanged

Also on the airline front, a trader said the Delta good news seemed to have "not much impact" on the rest of the industry, bond-wise. While he did see AMR Corp.'s 9% notes due 2016 "firm a couple" of points to 60 bid, 61 offered from 57 bid, 60 offered, he saw no movement in the notes of bankrupt United Airlines, which continued to wallow around 5½ cents on the dollar.

And there was no further movement in the bonds of newly bankrupt ATA Holdings Inc., which filed for Chapter 11 protection late Tuesday night.

The Indianapolis-based low-fare carrier's 13% notes and 12 1/8% notes were seen holding steady around the same 17 bid 20 offered level to which they had sunk following the insolvency filing.

Meridian loans gain

In the bank debt market, Meridian Automotive's second-lien paper was quoted at 82 bid, 85 offered, up about two points on the day Thursday - but still down by about six points since Tuesday, a trader said, in response to unfavorable numbers from the Dearborn, Mich.-based auto parts company.

Also, Calpine Corp.'s second-lien bank debt was up about three quarters of a point, with levels of 83.75 bid, 84.5 offered, according to a trader.

The San Jose, Calif. power company did not put out any news that would account for this movement so the gain was chalked up to market technicals.

aaiPharma bonds gain

Back in the bond-trading pits, aaiPharma Inc.'s 11½% notes due 2010 were seen having firmed to 75 bid from prior levels in the 72-73 area, traders said, following the government's OK of the Wilmington, N.C.-based pharmaceutical company's extended-release modification of French drugmaker Sanofi-Aventis' Allegra-D allergy remedy.

aaiPharma's Nasdaq-traded shares zoomed 40 cents (15.15%) to $3.04, on volume of 617,000, about seven times the norm.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.