Delta bonds lower as oil stays near $55; DS Waters bank debt up on sale rumors

By Paul Deckelman and Sara Rosenberg

New York, June 6 - Delta Air Lines Inc. bonds - which had firmed smartly last week on a combination of positive factors - were seen heading down to lower altitudes Monday, in part because crude oil prices remained at fairly high levels by recent standards.

In the bank debt market, DS Waters of America LP's paper headed higher Monday by close to two points - pushed up by rumors that the Atlanta-based bottled water company may be sold at auction.

Delta's bonds were lower in a generally lackluster bond market, stilled by a lack of real activity in either stocks or Treasuries ahead of economic testimony this week by Alan Greenspan. Until the Fed chief definitively explains the central bank's plans for enacting more interest rate hikes - or, alternatively, not enacting them - the financial markets are in a holding pattern.

"Nothing really stands out," said one market source, in looking over the day's movements.

He did see Delta's benchmark 7.70% notes due 2005 half a point lower at 86 bid, while the troubled Atlanta-based carrier's 7.90% notes due 2009 retreated to 37.5 bid from 40 previously, its 9¾% notes due 2021 dropped a point to 28.5, and its 8.30% notes due 2029 were likewise a point lower at 28.

At another desk, a trader the 7.70s at 85.5 bid, 86.5 offered, down from 86.25 bid, 87.25 offered, while the 8.30s eased to 27 bid, 28 offered from Friday's close at 28.5 bid, 30.5 offered.

Delta's bonds had risen, along with the bonds of such sector peers as American Airlines parent AMR Corp., Northwest Airlines Corp., Continental Airlines Corp., and even the bonds of UAL Corp., the parent of the bankrupt United Airlines.

Among the factors which had pushed those airline issues higher were Delta's having gotten its main lender to agree to relaxing a key credit facility financial covenant; equity analyst chatter at several investment banks about the possibly better outlook for the traditional "hub and spoke" carriers, notably American, Continental and Northwest; and UAL chief Glen Tilton's bold prediction that his bankrupt company will not only emerge from Chapter 11 this year, but will be back in the black next year.

However, that rally seemed to fade on Monday. A key reason is the continued high price of oil; after having been as low as $47 per barrel late last month, crude prices pushed back above $55 last week, and while they came down by 54 cents in Monday's trading on the New York Mercantile Exchange, prices for light sweet crude for July delivery, the current benchmark in the energy market, remain at very high historical levels, ending Monday at $54.49. Crude prices are seen as an indicator of possible future trends in jet fuel prices, whose rise over the past year has battered the bottom lines of the carriers, particularly cash-strapped Delta.

Elan quiet

Elsewhere, a trader saw "surprisingly little movement" in Elan Corp. plc's bonds, which were knocked around late last week on news reports of a fourth case of a rare - and potentially fatal - brain illness possibly linked to the Irish drugmaker's Tysabri drug.

Elan and partner Biogen Idec pulled the new multiple sclerosis drug from the market earlier this year, after discovery of three earlier cases, which resulted in two fatalities. The companies had hoped to get the drug back on pharmacy shelves perhaps later this year but now the fourth reported case complicates matters.

The trader said that he had seen the company's 7¼% notes due 2008 offered at 92 while its 7¾% notes due 2011 were offered at 86.5 bid, but he said he had not seen any actual two-sided trading.

A market source at another shop saw the 73/4s more than a point lower on the day at 84 bid, although the 71/4s lost just a quarter point to 92.25.

Adelphia unmoved by sale

News that Adelphia Communications Corp. has found buyers for its Puerto Rican operations - considered a non-core holding of the bankrupt Greenwood Village, Colo,-based cable operator - did little for its bonds Monday.

A trader saw the bonds down ¼ to ½ point on the session, with Adelphia's 10 7/8% notes due 201 easing to 88 bid, its 10¼% notes due 2006 dipping to 85.5, and its 10¼% notes due 2011 ending at 90.75 bid.

Adelphia was "not a big deal," said a trader who quoted the company's 10¼% notes due 2011 pretty much unchanged at 89.5 bid, 90.5 offered.

Adelphia said that it will sell the Puerto Rico cable operations venture to two private equity firms - London-based MidOcean Partners and New York-based Crestview Partners - for $520 million.

Calpine down

Calpine Corp. - whose bonds had powered up last week on the news that the San Jose, Calif.-based electric generating company had reached a deal to sell its non-core Saltend power generating station in England for $925 million, with some the proceeds slated for debt reduction - was in retreat on Monday, its 8½% notes due 2011 a point lower at 60 bid, 61.5 offered, its 8¼% notes coming due later this year half a point down at 96.5 bid, 97.5 offered, and its 10½% notes due 2006 also down half a point, at 87 bid, 89 offered.

Another source had Calpine "down a point across the board," with the 8½% 2011s and 8 5/8% notes due 2010 both at 60.5 bid, and its benchmark 8½% notes due 2008 at 61.

DS Waters higher on sale talk

Back in bank debt trading, DS Waters' paper was quoted at 95 bid, 96.5 offered, with no real trades, compared to previous levels of 93.5 bid, 94.5 offered, a trader said.

He said there was "no real news out there. People are talking about rumors that the company is being sold. It's nothing really new. I think people were just bored today so they pushed it up."

DS Waters was formed from the North American operations of Groupe Danone and Suntory International.

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