Airline bonds gain despite US Air merger deal; Collins & Aikman bank debt firmer

By Paul Deckelman and Sara Rosenberg

New York, May 20 - Bonds of beleaguered high-yield issuer airlines were seen taking wing Friday, pushed up several points in apparent favorable investor reaction to the news that bankrupt US Airways Group Inc. will be acquired by America West Airlines - even though some analysts and other industry observers believe that the last thing companies like Delta Air Lines Inc. need is a reinvigorated US Air coming out of bankruptcy and combining with America West to create a more formidable challenge to the larger traditional legacy carriers as the latter continue to wrestle with high fuel prices, labor costs and heavy debt burdens.

Elsewhere, Trump Hotels and Casino Resorts Inc. emerged from Chapter 11 reorganization proceedings on Friday - but bond investors were not impressed, taking the restructured Atlantic City, N.J.-based gaming operator's newly issued secured bonds several points lower.

In the auto sphere, levels on Collins & Aikman Corp.'s bank debt finally found some firm ground, after having spent the past couple of sessions inching higher and higher. Meanwhile, the Troy, Mich.-based automotive interior component maker's bonds, recently moving up smartly, were seen pulling off the road Friday, even as most of the other names in the automotive supplier sector were continuing to firm, led by Visteon Corp.

A trader saw Delta's benchmark 7.70% notes due 2005 up four points on the session at 76 bid, 78 offered, and saw the struggling Atlanta-based carrier's 10% notes due 2008 up 2½ points at 37 bid, 39 offered. He also noted the 7.90% notes due 2009 and 9¾% notes due 2021 each up a point, at 32.75 bid, 33.75 offered, and 26 bid, respectively, while the Delta 8.30% notes due 2029 were a quarter point better at 25.5 bid, 26.5 offered.

Another trader also saw Delta gaining altitude, "even though this [merger] looks like another disaster in the making," he opined, quoting the 7.70s at 76.5 bid, 78 offered, up three points on the day, and the 8.30s at 25 bid, 26 offered, half a point better.

"I don't see how this US Air merger is helpful" to other carriers, "since it doesn't take very much capacity out," said yet another trader, even as he quoted the Delta issues higher by several points, particularly on the shorter end of the curve. "Still, oil is down [price wise] and comments in Delta's 10-Q indicate that they may be around longer than we think."

Besides Delta, he saw Northwest Airlines Corp.'s 10% notes due 2009 up two points at 51 bid, 52 offered, while the Eagan, Minn.-based carrier's 8 7/8% notes due 2006 "bounced around a lot" before finally ending a point better at 73.5 bid, 74.5 offered.

Conventional wisdom among most analysts quoted in media reports Friday seemed to echo the view of the bond traders, who were puzzled and skeptical about why investors in names like Delta or Northwest - or, for that matter, Continental Airlines Corp. or AMR Corp. - would find anything positive in the planned merger of US Air and America West.

Right now, US Air, currently reorganizing in the bankruptcy courts, is the seventh-largest domestic carrier, and America West is Number 8. Combining the two would create a larger carrier that by some accounts would bump current Number-Six Southwest Airlines back to seventh, and would be nipping at the heels of the struggling legacy carriers just above it - Number Five Continental, Number Four Northwest, Number Three Delta, Number Two United Airlines, and industry leader American Airlines. UAL is currently in bankruptcy like US Air, and Delta has warned that it has liquidity problems and could be forced to crash land in Chapter 11 unless it can come up with more liquidity by year's end.

The analysts note that US Air and America West have a combined fleet of about 400 aircraft, and plan to cut that by 59 planes, or about 15%. Even so, they say that Delta, Northwest and other legacy carriers fighting for share in a market plagued by a glut of capacity would have been better served had US Air not been resurrected by this merger deal, but instead liquidated, and its capacity, of over 200 planes, taken out of the picture permanently.

On the other hand, Southwest CEO Gary Kelly said earlier this week that shedding 50 planes in a US Airways-America West merger could be a positive development for the airline industry, and saw it as a possible start of an industrywide consolidation phase - an idea which apparently appeals to the Delta and Northwest bondholders.

New Trump bonds sink

Back on the ground, Trump Hotel & Casino Resorts - now renamed Trump Entertainment Resorts - emerged Friday from Chapter 11 (see related story elsewhere in this issue).

As part of the transformation of the debt laden company, its old bonds - including the well-known Trump A.C. 11¼% notes due 2006 - were eliminated and $1.25 billion of new 8½% senior secured notes due 2015 were issued.

However, a trader said, the new bonds "were trading down."

"People tried to trade them at 101.5, they tried at 100.75, they tried at par, and finally, they were offered at 99, and looking for a bid."

Another trader saw the bonds quoted at 98.75 bid, 99.75 offered at around 3 p.m. ET - but said that by the time trading had pretty much wrapped up an hour later, they were down to 96 bid, 96.5 offered.

"I think it's shocking and disturbing that people do not have any faith in Mr. Trump," he said, tongue in cheek.

Yet another trader saw the new bonds having fallen as low as 95 bid, 96 offered.

The reorganization gave a big chunk of the ownership of the company to the former bondholders and cut its public debt by $544 million from approximately $1.8 billion to $1.25 billion, producing $102 million of annual cash interest savings and a sharp reduction in the weighted average cost of debt to 7.7% from 12%.

Donald J. Trump remains as the company's chairman and chief executive officer despite having had his share of the company reduced to 25% from more than 50% pre-reorganization, and he enthused: "I am very proud of what we have accomplished in this deal, and I am excited about the opportunities we now have."

The statement also quoted company president and chief operating officer Scott C. Butera as calling the plan "one of the most successful recapitalizations in the history of the gaming industry," and said its completion in such a short time frame (since November) "is a tribute to Mr. Trump and his unparalleled business acumen."

The first trader, looking over the company's formal announcement, chuckled at The Donald's breezy and brassy braggadocio.

"It was funny reading the press release - how many times has he filed Chapter 11?" he demanded rhetorically. (The company also reorganized in the early 1990s.)

"'This is the best recap ever. We are excited.' It sounds like he won something.

"Isn't that great?"

Collins & Aikman rally ends

In bank loan trading, Collins & Aikman's paper reached a plateau Friday, with levels ending the day unchanged around 92 to 92.5 bid, 93.5 offered, according to a trader.

The paper has been on the rise since the company announced its Chapter 11 bankruptcy filing on Tuesday. Prior to the bankruptcy announcement it had been quoted at 88.5 bid, 90 offered.

The company filed for bankruptcy protection in the U.S. Bankruptcy Court for the Eastern District of Michigan on Tuesday, pointing to mounting liquidity issues and the need for immediate cash to fund operations as the drivers behind the move.

A bond trader meantime the trader saw the company's Collins & Aikman Products Co. bonds "not participating" in the overall auto supplier sector rally, quoting its 12 7/8% subordinated notes due 2012 as falling back to levels around six cents on the dollar bid, seven cents on the dollar offered, from prior levels about eight cents on the dollar bid, nine cents on the dollar offered.

He also saw the company's 10¾% senior notes due 2011 come in to end at 43.75 bid, 44.25 offered, from Thursday's levels at 45.5 bid, 47.5 offered.

Likewise, he said, Lawrenceville, N.J.-based battery maker Exide Technologies' 10½% notes due 2013 - which had first gotten clobbered earlier in the week after the company revealed that it would breach several financial covenants, but then recovered nicely in subsequent sessions - "looked a little lower." He had the bonds, which had reached highs of 74.5 bid on Thursday, falling back to 71 bid, 72.75 on Friday.

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