Delta bonds down on liquidity warning; Owens Corning bank debt dips

By Paul Deckelman and Sara Rosenberg

New York, March 10 - Delta Air Lines Inc.'s warning that it faces liquidity problems sent the troubled Atlanta-based air carrier's bonds plunging earthward Tuesday and had a negative effect on the whole airline sector.

In bank debt dealings, Owens Corning's paper was softer again in thin trading on investor jitters over whether the upcoming Senate Judiciary Committee meeting will actually produce an asbestos claims payment mechanism bill ready for the full Senate to vote on - or just another in a string of failed attempts to produce such legislation.

Delta "got hit a little bit" after news of its bearish filing with the Securities and Exchange Commission made the rounds of the market, a trader said.

He quoted the company's 7.90% notes due 2009 as having fallen to 29.25 bid, 30.25 offered from 33 bid, 35 offered on Monday.

"How much lower can they go?" another trader said, on seeing the Delta paper. "But they were down at least a point or two across the board, in very thin trading. I don't know how much lower they can go," he said, referring to the Delta long bond, the 8.30% notes due 2029.

That issue was quoted at another desk as having fallen to 23 bid, 25 offered from 26 bid, 28 offered previously. A trader there saw Delta's bonds "down a couple of points, with all the jawboning going on over there," with its benchmark 7.70% notes due 2005 dropping to 78 bid, 80 offered, down from 80 bid, 81 offered previously, its 7.90s a full five points lower at 29 bid, 31 offered, and its 10% notes due 2008 having fallen three points at 33 bid, 35 offered.

Another trader said the 8.30s "were not as active" as the company's other issues, quoting them off four points on the session at 23 bid, 24 offered. The trader pegged the 7.70s at 77 bid, 79 offered, down three points on the day, while the 7.90% notes were four points lower at 29.5 bid, 30.5 offered.

Delta's NYSE-traded shares plunged 33 cents (10%) to $2.97, on volume of 6.9 million shares, more than double the usual.

Delta said in a 10-Q filing with the Securities and Exchange Commission that it will record a "substantial" loss for the rest of the year as it struggles with record-high fuel prices, low air fares and other cost pressures.

It warned that it won't be able to generate enough cash to meet its needs this year, estimated at some $2.4 billion - far more than the $1.8 billion it had on hand at the end of the first quarter.

Delta further cautioned investors that it will need to file for bankruptcy if its cash reserves fall too low or if its lenders seek immediate payment of its debt obligations.

Other airlines weak

A trader said that he saw "very few bids in airline paper," investors apparently spooked by the double whammy of Delta's bad news, plus crude oil prices - a reliable leading indicator of future jet fuel costs - spiking above $52 in trading on the New York Mercantile Exchange.

He noted that Continental Airlines Corp.'s 8% notes due 2005, scheduled to come due later this year, were only trading around 96, down a point on the day - but well below the par level where a soon-to-be maturing bond would normally trade.

Northwest Airlines Corp.'s 7 5/8% notes due 2008 were meantime seen down more than four points on the day at 47 bid.

Bankrupt United Airlines' bonds were seen slightly easier, bid at seven cents on the dollar and offered at eight cents, off half a point. The Elk Grove, Village, Ill.-based carrier, currently restructuring under Chapter 11, got some good news from a Chicago federal bankruptcy judge, who approved UAL's plan to terminate its employees' pension arrangements. Responsibility for United's four defined-benefit plans will now fall to the Pension Benefit Guaranty Corp., the government's pension agency.

That will save cash-strapped United an estimated $645 million a year.

Owens Corning loans down

In the bank debt market, Owens Corning's paper fell about a point and a half to 113 bid, 114½ offered Tuesday, as nervousness continues to mount over the upcoming Judiciary meeting, a trader said.

On Monday, the Toledo, Ohio-based insulation maker's paper had fallen off by about half a point for the same reason.

Towards the end of April, the chairman of the Judiciary Committee, Sen. Arlen Specter, R.-Pa., presented a claims fund bill that would set up a $140 billion claims payment mechanism. However, critics of the bill on the committee introduced more than 80 amendments.

That forced Specter - who originally wanted a bill out by the end of January, and then had to put his goal off till the end of April - to tear up his timetable again, and delay any vote until this Thursday.

Opposition to the bill has been heard from both sides of the political aisle.

Mirant lower on earnings

Mirant Corp.'s 2003 and 2004 bank debt were weaker Tuesday morning, after the company released earnings numbers that disappointed investors, according to a trader.

The Atlanta-based energy company's paper traded as low as 71 immediately after the earnings news and then moved to 71 bid, 72 offered by close, the trader said. On Monday, he'd seen the paper going out at 72.5 bid, 73.5 offered.

For the first quarter, Mirant's cash flow from operations was $104 million compared to $44 million for the first quarter of 2004, gross margin was $56 million lower for the first quarter of 2005 compared to the first quarter of 2004 and operating income was $90 million compared to operating income of $140 million for the same period in 2004.

The primary reason for improved cash flow from operations is the expiration of the transition power agreements in June 2004 and this past January.

The decline in gross margin is primarily a result of lower generation volumes, narrower spark spreads in North American operations and lower unrealized gains on power purchase agreements.

Back among the bonds, a trader saw aaiPharma Inc.'s 11% notes due 2010 unchanged at the same 46 bid, 47 offered level at which those bonds had finally settled after a day of wild swings Monday, on news that the troubled Wilmington, N.C. -based drug maker had agreed to sell its pharmaceuticals unit, and then immediately file for Chapter 11.

He also saw Calpine Corp.'s recently volatile bonds unchanged at generally lower levels, its 8½% notes due 2008 "on a roller coaster," falling as low as 53 bid, 54 offered during the day before ending at 55 bid, 57 offered - unchanged on the session.

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