aaiPharma continues recovery; Delta bonds continue slide

By Paul Deckelman

New York, March 14 - aaiPharma Inc.'s bonds were seen a little firmer Monday, as the Wilmington, N.C.-based drugmaker's issue continued its modest recovery from the vastly oversold condition that pushed the bonds down earlier this month.

Not so, though, for Delta Air Lines Inc.'s bonds, which continued to lose altitude in the wake of the problem-plagued Atlanta air carrier's revelations last week of new troubles ahead in meeting its financing needs.

aaiPharma's 11% notes due 2010 had been beaten down into the upper 50s from previous levels in the 70s, but on Monday a trader in distressed securities saw those bonds get a little healthier to 62 bid, 64 offered, well up from prior levels around 59 bid, 61 offered.

The company has been wrestling for the past year with the fallout from accounting problems growing out of apparently inflated sales of a key product, as well as what seems to resemble a revolving door in the executive suite, which saw several CEOs and other key executives leave in quick succession over a matter of months last year.

Those problems had beaten the bonds down into the 70s from levels around par early last year. There seemed to be no fresh news out late that could explain the renewed drop - or Monday's bounce.

Elsewhere, Delta's bonds continued to gyrate around at lower levels, with its benchmark 7.70% notes due 2005 seen dropping to 80 bid, 82 offered from prior levels at 82 bid, 84 offered.

A trader saw Delta's 10% notes due 2008 lose a point to 47 bid, 49 offered, and its 7.90% notes due 2009 likewise a point down at 40 bid, 42 offered. He did see the company's 8.30% notes due 2029 unchanged at 33 bid, 35 offered.

Delta's bonds were down about five to six points last week after the airline warned in its 10-K annual filing with the Securities and Exchange Commission that it expects a "substantial" loss in 2005, and faces a severe liquidity crunch that could conceivably drive it into bankruptcy.

A trader said the news should have been no great shock since the company has said all of this before, in one form or another. He opined that the bonds fell as much as they did perhaps because "maybe putting it in print makes it seem more real."

Delta said in its filing that it has $3.4 billion in obligations in 2005 related to leases, interest on debt, debt maturities and funding of employee pensions - and it doesn't think its cash flows from operations will be sufficient to meet all of its needs. Delta will thus have to tap its available cash as well as the final $250 million it borrowed late last year from American Express Co.

Delta cautioned in its filing that its cash reserves would be much lower at the end of 2005 than they were last year unless it can sell assets or raise money in other ways - but it acknowledged that it will have a hard time trying to borrow money since it has already pledged most of its assets as collateral on previous loans.

Delta further warned in the filing that if it cannot access the capital markets to meet its operational needs or its cash levels fall to an "unacceptably low" level, or if the assumptions in its turnaround plan fail to materialize it might be forced to seek Chapter 11 protection.

Auto suppliers lower

The battered automotive supplier sector continued to spin its wheels, amid problems caused by high raw materials prices and sagging orders from its customers among Detroit's Big Three, who have slated production cutbacks to bring inventories in line with soft vehicle sales.

Collins & Aikman Products Co.'s 10¾% senior notes due 2011 were seen down a point at 91 bid, 92 offered and the Troy, Mich.-based auto components supplier's 12 7/8% subordinated notes due 2012 losing two points at 68 bid, 69 offered.

Bankrupt Novi, Mich.-based automotive frame-maker RJ Tower Corp.'s 12% notes due 2013 were seen down a point on Monday to 59.5 bid.

Foamex slightly higher

But Foamex International Inc. - whose bonds were getting smacked around last week - seemed to be better Monday. The 9 7/8% notes due 2007 of the Linwood, Pa.-based maker of foam rubber for auto seats and dashboards were half a point better at 59 bid while its 10¾% notes due 2009 were a full point better at 90.

Winn-Dixie steady

Elsewhere, Winn-Dixie Stores Inc.'s bonds "pretty much stayed where they were," a trader said, quoting the bankrupt Jacksonville, Fla.-based supermarket operator's 8 5/8% unsecured notes due 2008 at 57 bid, 58 offered, while its several issues of real-estate secured passthrough bonds stayed around 76 bid, 77 offered.

Those bonds - which had been trading with their interest even after the company filed for bankruptcy and the 8 5/8s went flat - also began trading flat on Friday after Standard & Poor's downgraded them.

S&P said Friday that "the certificates are secured by mortgage notes secured by 15 properties that are leased to Winn-Dixie. The lowered ratings follow Winn-Dixie's rejection of two leases. Due to the rejections, the A-1 and A-2 certificates did not receive full and timely interest payments for the March 2005 distribution. Consequently, the ratings on classes A-1 and A-2 are being lowered to D. The A-3 certificates accrete, with the next payment due Sept. 1, 2024. The rating on this certificate is being lowered due to anticipated losses associated with the lease rejections."

Traders in the bank debt market meantime reported extremely quiet dealings in distressed loan paper on Monday.

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