Northwest Air bonds lower on Chapter 11 buzz, labor meltdown; Mirant bank debt gains

By Paul Deckelman and Sara Rosenberg

New York, Aug. 4 - Northwest Airlines Corp. bonds continued to lose altitude Thursday, traders said, amid investor speculation about a possible bankruptcy filing soon, combined with the latest bad news from labor front for the Eagan, Minn.-based Number-Four U.S. airline carrier.

Northwest rival Delta - also the subject of intense market speculation this week about a possible Chapter 11 filing in the not-too-distant future - was likewise lower Thursday, although the loss was quite modest compared with the pounding that the Atlanta-based Number-Three U.S airline operator's bonds had taken over the previous two days.

Apart from the airlines, Mirant Corp.'s bank debt was seen about a point higher on the day, with the bankrupt Atlanta-based energy company's 2003 paper quoted at 86 bid, 86.5 offered and its 2005 paper quoted at 88 bid, 89 offered, according to a trader.

"All the power stocks have been trading up," the trader said in explanation of Mirant's strengthening.

That would also explain the rise in the company's bond debt. A trader in distressed notes pegged Mirant's 7.40% notes that were to have come due last year at 97 bid, 99 offered, up two points on the day, while its 7.90% notes due 2009 likewise moved up a deuce, to 98 bid, par offered.

Mirant's 5¾% convertible notes were two points better at 93 bid, 95 offered, while its 2½% converts were a point ahead at 87 bid, 89 offered.

Also in the energy sphere, the trader said that Calpine Corp.'s bonds - which had fallen anywhere from two to four points during Wednesday's session in response to the wider loss it posted on Wednesday - seemed to have stabilized Thursday. A trader quoted the San Jose, Calif.-based power generating company's 8½% notes due 2008 - which lost three points Wednesday to end at 71 bid, 72 offered - as "pretty firm" at those same levels Thursday.

Another trader said that there was a negative article about the company in Thursday's editions of The Wall Street Journal, but said "it really didn't affect the bonds," with the 8½% 2008s at 71 bid, 72 offered and the company's 8½% bonds due 2011 at 69 bid, 70 offered, both unchanged on the day.

However, another market source saw Calpine's 8¾% notes due 2007 down a point, around the 78 level.

Northwest, Delta the focus of trading

The airlines, however, remained the major focus of distressed-debt traders on Thursday, and not even the whole group, as much as Northwest and Delta.

A trader saw Northwest's benchmark 8 7/8% notes due 2006 down six points on the session at 56 bid, 58 offered - this on top of the loss of several points that those notes had taken in each of the previous two sessions, on what several traders had called "sector sympathy" along with the pounding the Delta notes had been taking.

Another trader saw those bonds at that same 56 bid, 58 offered, although he pegged the bonds down six points on the session, and saw Northwest's 9 7/8% notes due 2007 three points down at 44 bid, 46 offered, while its 10% notes due 2009 lost two points at 39 bid, 41 offered.

A market source saw Northwest 7 7/8% notes due 2008 down 3½ points at 38.5 bid.

Northwest's Nasdaq-traded shares were off 18 cents (4.12%), to $4.19. Volume of 4.3 million was up slightly from the usual 3.8 million.

Northwest, which has lost hundreds of millions of dollars over the last several quarters and hasn't turned a quarterly profit in several years, is beset by the same problems all the other "legacy carriers" have - sky-high fuel costs (crude oil, a barometer of likely trends in jet fuel prices, pushed back over the $61 per barrel mark Thursday), intense competition from the upstart low-fare carriers, and big pension obligations that the mostly young low-cost airlines don't have.

On top of that, Northwest has a nasty labor situation brewing, with the clock counting down to Aug. 20, after which members of the Aircraft Mechanics Fraternal Association can strike, although Northwest claims to have put a contingency plan in place that would allow it to continue operations uninterrupted.

Northwest - which claims to now have the highest labor costs in the airline industry - says it needs $1.1 billion in permanent wage and benefit cuts from its unions, including $176 million from the mechanics.

After a bargaining session Wednesday, AMFA said that Northwest has not budged off its previous proposal - which the union said would mean 53% of Northwest mechanics would lose their jobs because of outsourcing, and the rest would see their pay cut by more than one quarter. The union, in breaking off talks Wednesday night, termed that proposal a "non-starter," and an official of the labor group charged that "the company's strategy has always been to enter bankruptcy in order to get more concessions."

Bankruptcy talk has swirled around Northwest and around its somewhat more financially troubled rival, Delta, over the past several sessions, following a Washington Post Story which suggested that Delta and Northwest - clearly the shakiest major carriers not already bankrupt (like UAL Corp. unit United Airlines and US Airways Group) - are likely to seek Chapter 11 protection before new changes in the federal bankruptcy code making it less friendly to debtors take effect in mid- October.

Delta has been particularly hard-hit by the speculation, with its flagship 7.70% notes due 2005 having nosedived about 25 points over the past two sessions, into the upper 30s. On Thursday, a trader said, Delta was "going down for the count," although he saw the bonds only falling a little. The 7.70s declined to 37 bid, 39 offered from 39 bid, 42 offered on Wednesday, while its 10% notes due 2008 and 7.90% notes due 2009 were each off a point, at 21 bid, 23 offered and 19 bid, 21 offered, respectively. He saw the company's 8.30% notes due 2029 "actually unchanged" at 18 bid, 20 offered.

Another trader saw those 8.30s down a point at 18 bid, 19 offered, while the 7.70% notes were 38 bid, 40 offered, down two points.

Delta's New York Stock Exchange-traded shares lost eight cents (3.45%) to end at $2.24. Volume of 7.5 million shares was half-again as much as the usual 5 million share handle.

Besides the speculation that Delta may file to beat the deadline on the federal bankruptcy law changes, investor opinion that a filing may be in the cards sooner rather than later was piqued anew by recent pessimistic statements by company chief executive Gerald Grinstein, and by a memo from Grinstein to Delta employees earlier in the week, in which he seemed to say that Delta might not be able to hold out much longer, absent held from Washington on pension costs and an amelioration of the carrier's high fuel costs.

Auto sector gains further

Back on solid ground, a trader saw some of the automotive supplier names in the distressed arena better, continuing to firm a bit in the wake of good sales numbers reported for July by Detroit's "Big Three" - the key customers for the recently hard-hit suppliers.

One such name, the bankrupt Troy, Mich.-based interior components maker Collins & Aikman Corp., was a point better, its 10¾% senior notes due 2011 at 30 bid, 32 offered.

Another gainer was Federal-Mogul Corp., up about a point at 29 bid.

Asbestos names higher

Bankrupt Southfield, Mich.-based brakes maker Federal-Mogul is also being watched by investors interested in the fate of companies with big asbestos liability problems, since it was the asbestos lawsuits that drove FedMo into Chapter 11, long before the auto parts makers like Collins & Aikman or Tower Automotive Inc. without asbestos difficulties got there.

A trader saw bankrupt Lancaster, Pa.-based asbestos-challenged floorcovering maker Armstrong World Industries' bonds a point better Thursday at 80 bid, 82 offered, while bankrupt Toledo, Ohio-based insulation maker Owens Corning's 7½% notes due 2018 pushed up to 80 bid, 82 offered from 77 bid, 79 offered on Wednesday and from 75 bid, 77 offered a few days before that.

Owens' 7% notes due 2019 were two points better on the day at 79 bid, 81 offered.

The asbestos bonds, after languishing around the same levels for some weeks, seem to have caught a bid over the last several sessions. Perhaps coincidentally, Senate Majority Leader Bill Frist, R.-Tenn., was quoted earlier in the week as saying he hoped to have a vote in early in the fall on the $140 billion asbestos claims fund bill that was approved some weeks back by the Senate Judiciary Committee, but which didn't come up for a vote before the Senate recessed for August.

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