Delta bonds continue to lose altitude; Owens Corning up on Senate action

By Paul Deckelman and Sara Rosenberg

New York, March 11- Delta Air Lines Inc. bonds were being hammered down for a second consecutive session Wednesday following the troubled Atlanta-based air carrier's liquidity warning.

Asbestos-challenged building products maker Owens Corning's bank debt and bonds were heard to have firmed, on the prospect that some progress is actually being made in Senate committee deliberations about a proposed asbestos claims fund mechanism.

Delta's bonds "really got hurt," said a trader in distressed debt, with the bloodiest carnage taking place in its flagship 7.70% notes due 2005, which tumbled to 71 bid, 73 offered from prior levels at 78 bid, 79 offered. He also saw the company's 10% notes due 2008 down "just a point," at 31 bid, 33 offered, while its 7.90% notes due 2009 and 8.30% notes due 2029 were at 22 bid, 24 offered, both "basically unchanged" on the day.

"It was Delta Day," another distressed trader observed, "as we watched that continue to melt down. The bonds are actually at all-time lows, lower than where they were the last time Delta was on the edge."

On Tuesday, Delta had warned in a filing with the Securities and Exchange Commission that it will record a "substantial" loss for the rest of the year, and said 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.

"We knew all of this was there," the second trader said. "They're just coming out and saying it in print, and that made everybody believe it. They've got a major liquidity problem that's not easily solved.

He saw the 7.70s around 71 bid, and the 8.30s around 22, "an all-time low" on the latter bond. When asked rhetorically "how low can they go?" he replied, only half-jokingly that "UAL [United Air Lines] paper trades at 8. Wait till they file."

A third trader saw the 8.30s at 21.5 bid, 22.5 offered, down three points on the day, while the 7.90s were at 27.5 bid, 28.5 offered, "as low as I can remember them ever being."

He also saw the 7.70s drop to a day's low of 70 from 79 bid on Tuesday, before ending at 71.5 bid, 72.5 offered.

Late in the day, after the market had finished trading, Delta said in an SEC filing that holders of $10 million of the 7.70% notes had agreed to exchange their debt for stock (see related story elsewhere in this issue).

Delta's New York Stock Exchange-traded shares, which fell 10% on Tuesday, were down another 23 cents (7.74%) to $2.74 - a new 32-year low - on volume of 10.5 million shares, more than three times the usual turnover.

Owens Corning loans rise

In bank loan dealings, Owens Corning's paper headed up by about half a point Wednesday, as the Senate Judiciary Committee met, with levels in the bankrupt Toledo, Ohio-based insulation maker's debt going to 113.5 bid, 114.5 offered, according to a trader.

"Everybody was focused on the asbestos hearing today," the trader added, even though a vote on the bill wasn't actually scheduled to take place until Thursday.

The company's bonds were meantime seen about two points better at 77 bid, 79 offered, although the bonds of another bankrupt asbestos-challenged company - Lancaster, Pa.-based floor-covering maker Armstrong World Industries Inc. - were seen unchanged on the day at 78 bid, 80 offered.

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, promising quicker payoffs than the courts could provide to people filing claims of having been medically damaged by their asbestos exposure, while effectively capping the companies prospective exposure at the amount that each would contribute to the fund, which would also be partly funded by the insurance industry.

However, critics of the bill on the committee, both Republican and Democrat, introduced more than 80 amendments, causing the committee to not mark up the bill at the end of April as Specter had earlier planned, but delaying a vote until this week.

In Wednesday's session - cut short by the evacuation of the Capitol Building after a small plane strayed into the no-fly zone around the White House and the Capitol - committee members approved some of the amendments. One would fast-track the claims of the sickest of the claimants, those suffering from mesothelioma, a particularly lethal cancer of the chest lining, who are entitled to $1.1 million each from the fund, as well as other terminally ill patients. Such claims would be paid within 30 days from the time their claims are approved by the fund's administrator, or within six months from when the claims are filed, whichever comes first.

Another change approved in committee eases the burden on smaller manufacturers contributing to the fund, who feared that the larger manufacturers might be able to off-load some of their responsibilities onto the smaller payers.

The committee was expected to continue considering its amendments on Thursday, and it is now considered unlikely that a finished bill can be reported out to the Senate floor by then. Further committee sessions are scheduled for next week, and Specter has said he hopes he can have the bill done and ready to go to the floor by the end of the month.

Mirant lower

Elsewhere, Mirant Corp.'s 2003 and 2004 bank debt were weaker again on Wednesday, falling off by about half a point to a point to 70 bid, 71 offered, according to a trader.

"The whole market was really heavy," the trader added.

On Tuesday, the Atlanta-based energy company's bank debt traded off by about 1½ points over the course of the session after the release of earnings numbers that included cash flow from operations of $104 million, versus $44 million for the first quarter of 2004; gross margin $56 million lower for the first quarter of 2005 compared to the first quarter of 2004; and operating income of $90 million compared to operating income of $140 million for the same period in 2004.

Calpine 2nd lien loans down

Calpine Corp.'s second-lien term loan fell off by about two points on Wednesday as the company issued a liquidity warning in its 10-Q SEC filing, according to a trader.

Also, putting some pressure on the paper was Calpine's announcement on Tuesday that it would be getting additional bank debt in the form of a new term loan for its Metcalf project.

Calpine's second-lien bank debt was quoted at 73 bid, 74 offered by one trader and 72 bid, 74 offered by a second trader. Both traders, however, placed the debt down by two points on the day.

Calpine's bonds were also seen lower, with a trader quoting its 8½% notes due 2008 as having fallen two points to 52.5 bid, 53.5 offered, although at other desks, those bonds were seen down three points on the day to that level. Its 8¾% notes due 2007 were seen down four points at 62, while its 8½% notes due 2010 were down more than two points to 69.

On Wednesday, Calpine admitted in its 10-Q filing that it faces several challenges in satisfying debt obligations, and funding anticipated capital expenditures and working capital requirements over the next twelve months being that these cash requirements are expected to exceed unrestricted cash on hand and cash from operations.

A bond trader said that like Delta, Calpine's warning "was something everybody already knew - but at the same point in time, when the company actually puts it into print" in an SEC filing, "it becomes more viable."

Another trader, while seeing the bonds trade off, agreed that the Calpine announcement in the filing was basically "old news."

The San Jose, Calif.-based energy company does have a liquidity-enhancing program in place - but this program depends heavily on possible sales or monetizations of certain assets - a prospect that is not entirely favorable to lenders.

Also, affecting the second-lien paper was Calpine's Tuesday announcement that its indirect subsidiary, Metcalf Energy Center LLC, plans on getting a new $100 million senior term loan - since this is just more bank debt being piled on to an already highly leveraged company.

Proceeds from the new term loan will be used to refinance Metcalf's existing $100 million non-recourse construction credit facility and complete construction of the Metcalf Energy Center power plant in San Jose, Calif.

Concurrent with the refinancing, Metcalf plans on selling $155 million of 51/2-year redeemable preferred shares.

Collins & Aikman sinks

Back among the bonds, Collins & Aikman Products Co.'s paper was lower amid a generally weak, sloppy auto supplier sector, responding to Visteon Corp. and Delphi Corp.'s warnings that their quarterly reports would be delayed while the two companies deal with accounting problems.

Troy Mich.-based components supplier Collins & Aikman's 10¾% senior notes due 2011 were at 66 bid, 67 offered and its 12 7/8% senior subordinated notes due 2012 were at 24 bid, 26 offered, both down a point.

A trader said that those notes - like Delta's - were "the lowest they've ever been."

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