Delta bonds dive on Q2 loss, Wall Street Journal bankruptcy story; Collins & Aikman bank debt active

By Paul Deckelman and Sara Rosenberg

New York, July 21- Delta Air Lines Inc. bonds were heading earthward Thursday as market players reacted to a Wall Street Journal report that some of the struggling Atlanta-based Number-Three U.S. airline carrier's senior executives now believe that a bankruptcy filing is virtually inevitable, sooner or later. Delta also posted a big second-quarter loss and noted on its conference call that high fuel prices and heavy pension contribution obligations remain problematic.

In bank loan dealings, Collins & Aikman Corp. was probably the most active distressed name, players said, although not much price movement was seen.

Delta's bonds were seen lower across the board, after the air carrier reported a quarterly loss for the second quarter ended June 30 - historically the airline industry's strongest seasonal period.

A trader saw Delta's benchmark 7.70% notes scheduled to come due Dec. 1 off four points on the session to 83 bid, 85 offered; its 10% notes due 2008 four points down at 35 bid, 37 offered; its 7.90% notes due 2009 as five-point losers, from 35 bid, 37 offered to 30 bid, 32 offered; and its 8.30% notes due 2029 down three points at 24 bid, 26 offered.

"Delta had terrible numbers and the bonds fell," said another trader, who quoted the 8.30s as having dropped to 24 bid at the opening from Wednesday closing levels at 25 bid, 27 offered, before firming slightly off the lows to end at 24.5 bid, 25 offered.

"Delta's earnings were not as bad as expected," yet another trader argued and indeed, the $382 million net loss posted for the quarter ($2.64 per diluted share) represented a considerable improvement over the yawning year-earlier deficit of $2 billion ($15.79 per share) - although it should be noted that $1.65 billion of that year-earlier red ink was attributable to two non-cash charges for deferred income taxes and pension contributions.

Excluding special items related to pension costs and to tax considerations, the June 2005 quarter net loss was $304 million ($2.11 per share), somewhat improved from the comparable year-ago loss of $312 million ($2.55 per share) ex-items, and better than the consensus $2.39 per share loss Wall Street was looking for.

However, the trader said "there was an article in The Wall Street Journal saying they may have to file for Chapter 11, so that pushed the bonds down a little bit," with the 8.30s down two points on the day at 25 bid, 26 offered, the 7.90s at 31.75 bid, 32.75 offered, down three points on the day, and the 7.70s at 84.5 bid, 86.5 offered, down 2½ points.

Citing the Journal article, some of the analysts participating in Delta's conference call peppered management with questions about whether a bankruptcy filing is in the cards. Delta's chief executive officer, Gerald Grinstein, and his team continued to insist that it has no plans for such a step (see related story elsewhere in this issue).

Other airline bonds were seen quiet and little changed. "It was all about Delta," a trader said.

For instance, Northwest Airlines Corp. - whose bonds were seen lower on Wednesday as the threat of a possible strike by its mechanics moved a step closer to becoming reality with the official government declaration of a bargaining impasse - "were pretty much the same, no change," a trader said. Northwest's 8 7/8% notes due 2006 had ended Wednesday's dealings at 63.5 bid, 65.5 offered, while its 7 7/8% notes due 2008 were at 40 bid, 42 offered, both easier on the day Wednesday and unchanged Thursday.

Collins & Aikman loans trade

Elsewhere, Collins & Aikman was probably the most active distressed name during Thursday's bank debt market session, with the paper quoted basically unchanged by some and lower by others.

According to one trader, the bankrupt Troy, Mich.-based automotive interior components maker's bank debt went out at 85 bid, 85.5 offered - essentially unchanged, although somewhat of a tighter market when compared to Wednesday's levels of 84 bid, 86 offered.

However, according to a second trader, the paper fell off by about half a point before the day was over to be quoted at 84.5 bid, 85 offered.

The second trader attributed the downfall to "market technicals."

A trader in distressed bonds meantime saw the company's Collins & Aikman Products Co.'s 10¾% senior notes due 2011 hanging in at 28 bid, 30 offered, unchanged on the session, while its 12 7/8% subordinated notes due 2012 continued to languish around their recent levels at 5 bid, 6 offered.

Winn-Dixie bonds rise

A trader saw Winn-Dixie Stores Inc.'s 8 7/8% notes due 2008 continuing to push higher for a second consecutive session Thursday, following the announcement late Tuesday that the bankrupt Jacksonville, Fla.-based supermarket operator had some 102 of its store locations in a court-supervised auction.

He quoted the notes as having firmed another two points to 74 bid, 76 offered.

Those notes had moved up to around the 72 bid, 74 offered level on Wednesday in apparent reaction to the announcement late Tuesday that the company it had managed to sell 102 of its stores at a bankruptcy auction - a gain of 23 stores above the 79 announced earlier in the month. With more stores being sold, proceeds are also greater - $45.6 million versus the $38 million initially announced.

Winn-Dixie filed for Chapter 11 in May after having struggled for over a year with declining sales and intense competition from larger rivals such as Wal-Mart Stores Corp. and another Florida-based store operator, Publix. Subsequent to that filing, the company, announced plans to close 326 of its 913 stores, located mostly in the U.S. Southeast, leaving a hard core of 587 stores.

Since Winn-Dixie does not own most of its properties, the assets being sold mostly involve leases and equipment.

The Jacksonville bankruptcy court overseeing the company's reorganization is slated to hold a hearing next week to approve the sale.

Mirant notes gain

A trader saw Mirant Corp.'s notes "about a point higher on the bid side" across the board, although there was no new news seen out on the bankrupt Atlanta-based power generating company.

The trader pegged Mirant's 2½% convertible notes due 2021 having risen to 86 bid, 87 offered, while its 5¾% converts due 2007 firmed to 91 bid, 92 offered. Its 7.40% straight bonds that were to have matured last year moved up to 96 bid, 97 offered, while its 7.90% notes due 2009, were also up a point, at 97 bid, 98 offered.

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