Airline bonds better on UAL profit prediction; Adelphia bank debt trades around

By Paul Deckelman and Sara Rosenberg

New York, June 3 - Airline bonds continued to fly higher Friday with the most beleaguered name in the sector - the bankrupt UAL Corp. - seen leading the way, after its chief executive officer predicted that the troubled carrier would not only emerge from Chapter 11 by the fall, but would show a profit in 2006.

That optimistic take, coming on top of other recent signs of hope for the industry, also helped to boost the bonds of such competitors as Delta Air Lines Inc. and Northwest Airlines Corp.

Away from the airlines, Adelphia Communications Corp.'s non-co-borrower bank debt, such as FrontierVision and Parnassos, saw a good flow of activity at unchanged levels, with no particular news prompting the relatively active trading, according to a trader.

But clearly, said a trader in distressed bonds, "UAL was the standout of the day."

He quoted the insolvent Elk Grove Village, Ill.-based parent of Number-2 U.S. air carrier United Airlines' bonds "up at least a point, a solid price" of 10 bid, 11 offered - the first time UAL's bonds have been flying in double-digit territory in a number of months.

He cited several factors, including favorable mention of the company in a Wall Street Journal story, short-covering, but especially, statements by UAL boss Glen Tilton, who was quoted in Friday's editions of UAL's hometown paper, the Chicago Tribune, as predicting that United - which has lost some $6 billion since it was forced into Chapter 11 in December 2002 - will successfully emerge from Chapter 11 later this year and will be back in the black next year.

Even with those losses, including $1.2 billion of red ink so far this year, UAL still has a cash balance of $2.4 billion, which Tilton called encouraging.

He also noted that recent labor agreements will save the company $700 million, but said that UAL would have to do more to keep from being swept under again in the face of sky-high fuel prices.

One key battle will be financing. The airline was forced into Chapter 11 after it failed on several occasions to get a federal loan guarantee. Having made sharp cuts in expenses, including big concessions from the company's employee unions, Tilton is confident that this time around, lining up financing shouldn't be an insurmountable obstacle.

He told the Tribune that "we find ourselves in a position to be selective in securing the financing that is most appropriate and properly priced for exit financing."

The paper reported Friday that UAL has talked with four potential lenders - Citibank, JPMorgan Chase & Co., Deutsche Bank and GE Commercial Finance.

Tilton's bullish comments come on the heels of recent successes in getting two of the airline's unions, representing its mechanics and its baggage handlers and other ground workers, to agree to new contracts rather than to strike. The contracts call for sizable labor savings.

UAL also reported this week that while United recorded a loss of $124 million in April, it ended the month with $2.4 billion in cash - a significant increase from a year ago. The company said its operating loss shrank by $28 million from a year ago to $47 million, despite surging fuel costs and a 4% decrease in capacity.

UAL's good news helped to give other air carriers a boost as well, including Delta Airlines. The troubled Atlanta-based carrier's bonds were "up two points for the ones trading in the 80s and the 40s, and one point for the others," a trader said.

He quoted Delta's benchmark 7.70% notes due 2005 two points better at 86 bid, 88 offered, and its 7.90% notes due 2009 also up a deuce at 40 bid, 42 offered, while its 8.30% notes due 2029 were a point ahead, at 29 bid, 31 offered.

Another trader quoted UAL as having moved up to around 9.5 from "an 8ish range this week," helped by the news of the labor pacts with the ground workers and the mechanics, and saw Delta's 7.70s at 86.5 bid, 87.5 offered, "up 2½ to three points."

Northwest's bonds, meantime were "half a point better across the board."

The Eagan, Minn.-based carrier's 7 7/8% notes due 2008 were around 54.5 Friday. A source at another desk, however, had the bonds starting lower and thus rising about two points to get to that level.

Several equity analysts had expressed hopeful sentiments during the week about Northwest, Delta, and American Airlines parent AMR Corp., helping to boost the shares of those companies and, in turn bring their bonds up. Delta got an added boost when GE Commercial Finance agreed to loosen its minimum EBITDAR covenant, thus giving hard-pressed Delta more financial flexibility.

Loral keeps gaining

Elsewhere, a trader saw Loral Space & Electronics Ltd.'s bonds continuing to orbit higher, after the bankrupt New York-based communications satellite company won approval of its disclosure statement by the bankruptcy judge overseeing its reorganization, thus moving an important step closer to its goal of emerging from Chapter 11.

He saw the company's Loral Orion 10% notes due 2006, which had risen over the two previous sessions, up another two points Friday to 80 bid, 82 offered. Loral Space's 9½% notes due 2006 did even better, he said, "maybe up as much as four points" to 32 bid, 34 offered.

Elan keeps dropping

Going the other way were the bonds of Irish drugmaker Elan Corp. plc, which had fallen sharply Thursday on a newspaper report linking the company's Tysabri multiple sclerosis drug to the onset of a rare - and potentially fatal - brain illness in a fourth patient who had been taking it. Reports of the three previous cases, which included two fatalities, prompted Elan and partner Biogen Idec Inc. to voluntarily withdraw the drug from the market for further evaluation of its safety.

On Friday, Elan's 7¼% notes due 2008 were seen falling further to 93 bid, 95 offered, from 94 bid, 96 offered on Thursday, while its 7¾% notes due 2011 dropped two points to 86 bid, 88 offered.

Adelphia loans active

In bank debt trading, Adelphia Communications unit FrontierVision's paper was quoted at par bid, 100.5 offered and the Parnassos bank debt was quoted at 99 bid, 99.75 offered, a trader said - active, but essentially unchanged.

Adelphia, a Greenwood Village, Colo., cable television operator filed for bankruptcy on June 25, 2002.

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