Northwest Air bonds, bank debt recoup Thursday losses; Mirant continues climb

By Paul Deckelman and Sara Rosenberg

New York, July 8 - Northwest Airlines Corp.'s bank debt was seen quoted higher by about half a point across the board by mid-day Friday, and its bonds - which lost anywhere from two to four points on Thursday - pushed upward by a like amount, essentially recouping all losses seen in the name Thursday on the news of bombings in London's subways and a London bus.

Elsewhere, Mirant Corp. bonds were again seen higher, as investors in the bankrupt Atlanta-based energy company apparently continued to be heartened by a recent ruling by the judge in its case, which directed Mirant and its financial advisors to use different methods to estimate the valuation of the company, something that could work to the advantage of stockholders, especially, and unsecured creditors such as its bondholders.

A fund manager said that Northwest's term loan A was at 94 bid, 95 offered, the term loan B was at 97 bid, 98 offered and the term loan C was at 95 bid, 96 offered.

The Eagan, Minn.-based Number-Four U.S.-based airline carrier's bank debt had shifted about half a point lower on Thursday, as investors were concerned that a near-term decline in transatlantic airline travel could potentially result from the London attacks.

The same knee-jerk response was seen in trading in the company's bonds on Thursday, but on Friday, they headed right back upward.

A trader saw Northwest's 8 7/8% notes due 2006 push up to 60 bid, 62 offered from Thursday's close at 57 bid, 59. He also saw the company's 9 7/8% notes due 2007 four points better at 47 bid, 49 offered, its 7 7/8% notes due 2008 five points up at 41 bid, 43 offered, and its 10% notes due 2009 likewise five points ahead, at 42 bid, 44 offered.

Several other traders also quoted those bonds at similar levels, although one saw the bonds in general at somewhat lower levels, with the 8 7/8s moving up to 57 bid, 59 offered from prior levels at 55 bid, 56 offered.

The company's Nasdaq-traded stock gained 28 cents (6.78%) to close at $4.41 Friday, on volume of five million shares, a bit more than the 3.2 million usually traded.

Several factors helped to bring the bank debt, the bonds and the stock back up, market participants said.

Perhaps the most important was a report that Standard & Poor's put out, saying that the terrorist attacks will likely hurt the transatlantic business of some airlines, but, barring further incidents, is not expected to affect ratings or outlooks of those companies.

Also seen helping out was a steep fall in world crude oil prices, which are frequently seen as a reliable indicator of future price trends for jet fuel. After ticking as high as $61.90 on an intraday basis for a barrel of August delivery light, sweet crude on the Nymex, the price tumbled to a close at $59.63, down $1.10 on the day, as players took profits on recent gains.

Those factors - as well as a generally stronger junk market, in line with a strong equity performance on a relatively benign June jobs creation report (146,000 new non-farm positions created during the month, somewhat below expectations but still considered a respectable total), were credited with sparking the rise.

Other airlines move less

However, those favorable dynamics were seen having had nowhere near as great an impact on the bonds of Northwest's competitors, such as Delta Air Lines Inc., AMR Corp. - the parent company of American Airlines - and Continental Airlines Corp.

A trader theorized that Northwest's fall Thursday and rebound Friday were greater than those of the other airlines because the carrier had more news attached to itself; Northwest is trying to come to an agreement with its mechanics that would give the airlines substantial permanent labor cost savings, but so far, no accord has been reached. Northwest is trying to wring $1.1 billion from its cost structure, including at least $176 million from the mechanics, who have offered $143 million. The union recently asked federal mediators overseeing the talks to declare an impasse, which could pave the way for a strike.

Among the other carriers, AMR's 9% notes due 2012 were unchanged at 78 bid, 80 offered, a trader said, while Delta's 7.70% notes due 2005 were also steady at 85 bid, 87 offered.

Another trader pegged those bonds at 86 bid, 88 offered, and saw its 8.30% notes due 2029 at 24.5 bid, 26 offered.

Mirant continues gaining

Mirant Corp. continues to gain in the wake of the recent bankruptcy court ruling mandating a different way of setting the company's valuation. Shareholders complained that they would receive no recovery under the scheme originally submitted to the court.

Mirant's 7.90% notes due 2009 rose to 93 bid, 95 offered from 88 bid, 90 offered previously, while its 7.40% notes that had been scheduled to come due last year rose to 90 bid, 92 offered, up from 86 bid, 88 offered. The company's 2½% convertible notes jumped to 85 bid, 87 offered, from 81 bid, 83 offered.

Equity holders had challenged the method used by Mirant and its banks to set the value of the company, saying that it underestimated the value by as much as $1.74 billion - which would leave them out of the money when the company restructures.

Exide edges higher

In the automotive sphere, Exide Technologies' 10½% notes were seen up "a smidge" on the session at 78 bid, 80 offered, apparently unaffected by the news that the Lawrenceville, N.J.-based maker of automotive storage batteries is the subject of a preliminary inquiry by the Securities and Exchange Commission, which cited statements the company has made about its ability to comply with fiscal 2005 loan covenants, as well as a "going concern" qualification in an audit report filed as part of Exide's 10-K report last month.

Foamex lower

Foamex International Inc.'s bonds were seen having eased over several sessions, culminating Friday when the Linwood, Pa.-based maker of foam rubber's 10¾% notes were quoted at 82.5 bid, 83.5 offered, well below levels at the beginning of the week around 84 bid. Its 9 7/8% notes dipped to 43 bid, 45 offered, down from the previous week's highs around 53.

Traders cited news reports of what one trader called "war in the capital structure," with holders of its 103/4s said to have petitioned the company to block the scheduled paydown next month of its 13½% notes when they come due.

Collins & Aikman heads up

Collins & Aikman Corp.'s bonds - which had jumped around at higher levels Wednesday before moderating its gains and ending up only a couple of points, and which had then retreated about a point Thursday, were back in positive territory Friday - but not by much, with the bankrupt Troy, Mich.-based automotive components supplier's 10¾% senior notes due 2011 up perhaps half a point, a trader said, at 27.5 bid, 28.5 offered.

Another trader saw the bonds up ¾ of a point at 27.75 bid, 28.75 offered.

Collins & Aikman announced Friday that the U.S. Bankruptcy Court for the Eastern District of Michigan had given its OK to a $165 million emergency aid package offered the company by its six biggest customers - the Big Three, plus the three top Japanese automakers. Under the terms of the agreement, which was approved at a hearing Thursday afternoon before judge Steven W. Rhodes in Detroit, the customers will loan Collins & Aikman $82.5 million, have agreed to price increases amounting to 15%, which will provide the cash-trapped company with another $82.5 million of new revenue, and will directly absorb $140 million of capital costs related to existing product lines as well as new-product launches.

The company was forced to turn to its customers for the funds when its J.P. Morgan-led bank group balked at providing the second $150 million installment of its $300 million debtor-in-possession financing, after Collins & Aikman burned through the first $150 million tranche too quickly and was left with an insufficient borrowing base to support the full $300 million loan. However, the bank group took part in the negotiations that led to the latest financing, and supported the deal approved by Rhodes.

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