UAL bonds continue to gain altitude after CEO's forecast; Delta off

By Paul Deckelman

New York, June 8 - Bonds of bankrupt UAL Corp. continued to head skyward Wednesday, mostly given wings by hopeful predictions by the Elk Grove, Village, Ill.-based airline operator's chief executive officer that the parent company of beleaguered United Airlines will be able to emerge from Chapter 11 sometime in the third or fourth quarter, and will be back in the black next year - for the first time in a number of years.

Elsewhere, though, things were quiet and mostly heavier, with the overall junk bond market secondary seen largely inactive, stilled by slumping stocks and a shift of market participant interest to the suddenly active new-deal market, including an upsized $1.75 billion offering for Qwest Communications International Inc.

Trading in the bank debt of distressed companies was seen even quieter than that, with virtually no activity reported by market participants.

But UAL was "up another point or two" Wednesday, a trader said, pegging its bonds at 12.75 bid, 13.75 offered, up from 11 bid, 12 offered on Tuesday, and well up from recent levels in the single digits.

"It's all based on their CEO's statements the other day," the trader said, referring to bullish comments made to the Chicago Tribune several days ago by UAL chief Glen Tilton.

He was quoted in Friday's editions of the 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 profitable 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. UAL last week got the unions representing its mechanics and its baggage handlers and other ground workers, to agree to new contracts calling for sizable labor savings, rather than to strike.

Having made sharp cuts in expenses, including those big concessions from the company's employee unions, Tilton is confident that when UAL goes back to its lenders, lining up whatever additional financing it needs 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 that UAL has recently talked with four potential lenders - Citibank, JPMorgan Chase & Co., Deutsche Bank and GE Commercial Finance.

"I would have loved to see the comments [management] made three or four years ago, before they filed," the trader said ironically in assessing the positive spin Tilton was putting on the UAL story.

The company - parent to the number-two U.S. airline - filed for Chapter 11 in 2002 after failing to win federal loan guarantees for its proposed financing arrangements, with Washington officials expressing extreme skepticism over the business plans the company had been presenting.

Delta declines on Chapter 11 talk

Elsewhere in the sector, even as UAL was gaining, rival Delta Air Lines Inc. was on the downside.

"It looks like some bids got hit in trading late in the day," said the trader, who quoted the troubled Atlanta-based carrier's benchmark 7.70% notes due 2005 as having fallen two points on the day to 84 bid, 86 offered. He also saw Delta's 10% notes due 2008 dip to 40 bid, 42 offered from 43 bid, 45 offered on Tuesday, while its 7.90% notes due 2009 were likewise down a trey, at 37 bid, 39 offered, and its 8.30% notes due 2029 were a point lower at 27 bid, 29 offered.

Another trader saw Delta's 7.70s a point lower at 85 bid, 87 offered, while its 10% notes due 2008 were at 41 bid, 43 offered and the 8.30s were at 27 bid, 29 offered, "not much change there," he said.

He linked the bonds' weakness to comments attributed to Delta CEO Gerald Grinstein, to the effect that Delta "will look at where it is at the end of the summer or early fall," to consider its prospects, including whether the airline will follow rivals United, US Airways and ATA into Chapter 11.

While Delta has in recent months warned that it might be forced to seek court protection if it were unable to raise enough money to continue operations in the face of high airline fuel prices and burdensome pension obligations, among other factors, the published reports indicated that this was the first time the Delta chief had publicly established any kind of timetable for considering a Chapter 11 filing.

"Having that on paper put pressure on the bonds," the trader said.

Bankruptcy-related buzz grew a bit louder Wednesday, as Delta's chief financial officer said that while filing for bankruptcy was not part of the struggling company's transformation plan, it could not be ruled out.

CFO Michael Palumbo made his remarks at the Merrill Lynch Transportation Conference in New York. While he said that Delta would ideally like to complete its transformation plan outside bankruptcy court, "I could not stand here in front of you and say ... we cannot fiducially consider the alternative."

The company's plan targets more than $5 billion in annual savings by 2006.

On Tuesday, CEO Grinstein and his opposite number at Northwest Airlines, Douglas Steenland, were in Washington to testify before the Senate Finance Committee on the need for legislation that would relax the pension obligations that Delta, Northwest, and other large, old-line "legacy" carriers such as UAL, American Airlines and Continental Airlines face.

Both airline executives sought legislation that would give the carriers up to 25 years to repair their pension underfundings - about $2.6 billion for Delta, the nation's third largest carrier, and $3.7 billion for Eagan, Minn.-based Northwest, the nation's fourth-biggest airline. Each warned that his company might find itself crash landing in the bankruptcy courts if the industry did not get relief.

Finance Committee chairman Sen. Charles Grassley, R.-Iowa, indicated that he was willing to let the airlines stretch out their pension obligations - but said that 25 years was a "ridiculous" timeframe.

The trader saw Northwest's bonds, meantime "pretty much as they were," with the carrier's 7 7/8% notes at 53 bid, 55 offered and its 10% notes at 54 bid, 56 offered.

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