Northwest Air bonds lose altitude; Delphi bank debt lower on GM, Ford downgrades

By Paul Deckelman and Sara Rosenberg

New York, Aug. 24 - Northwest Airlines Corp. bonds - which had pretty much managed to hold their own even as the airline was struck by its mechanics union - were seen flying a little lower Wednesday, in line with a fall in the Eagan, Minn.-based Number-Four U.S. airline carrier's shares, which were pulled down by a combination of investor unease about how long the company will manage to keep flying without its regular mechanics - it is using replacements - as well as crude oil prices, which hit a new record.

Elsewhere, Delphi Corp.'s revolving credit facility fell off towards the end of the day, after Moody's Investors Service downgraded both Ford Motor Co. and General Motors Corp. to junk.

And Charter Communications Inc.'s bonds were seen higher across the board, with most of the St. Louis-based cable system operator's shorter bonds seen up as much as six to eight points on the session, after the company announced a massive exchange offer for $8.4 billion face amount of its existing debt.

Northwest's bonds "were pretty strong [Tuesday]," a trader said - but he saw them come in a bit from those higher levels, quoting the airline's 8 7/8% notes due 2006 as having come down to an offered level at 65.875, with no bid seen, down from 66.5 bid on Tuesday.

Another trader saw Northwest's shorter bonds down a point, with the 8 7/8s dipping to 64 bid, 66 offered from 65 bid, 67 offered previously, while its 9 7/8% notes due 2007 were likewise down a point, at 54 bid, 56 offered.

He meantime saw the company's somewhat longer bonds off two points, with its 7 7/8% notes due 2008 dipping to 45 bid, 47 offered from 47 bid, 49 offered, and its 10% notes due 2009 likewise down a deuce at 46 bid, 48 offered.

However, another trader only saw the company's bonds down half a point, with the 10s at 47 bid, 49 offered, and the 8 7/8s at 64 bid, 66 offered.

The company's Nasdaq-traded shares were off 37 cents (6.69%), to $5.16, on volume of 8.6 million, about double the norm.

Although Northwest was still flying on Day Five of the strike by 4,500 mechanics, plane cleaners and custodians, the airline is being forced to cancel an increasing number of flights, according to news reports. Usually, the cancellation rate is about 1% to 2%, but reports say that's gradually risen to the 3% to 4% range. Northwest said on Tuesday that it expects to complete 96% of its flights this week. It runs a weekday schedule of about 1,300 flights a day.

The airline's on-time performance is also slipping, into the 50%-plus range from pre-strike levels around 80%, The Airline Mechanics Fraternal Association points to the reported stats as proof that its strike against the carrier is having an impact, and says Northwest is lying when it says it is maintaining normal operations with its replacement mechanics and supervisors manning the wrenches.

On top of the strike concerns, financial market players were also said to have been spooked by the latest rise in crude oil, whose price rises are often harbingers of higher jet fuel prices going forward. On Wednesday October-delivery light sweet crude rose to a record high close of $67.32 on the NYMEX, up $1.61 on the day, propelled by fears Hurricane Katrina, approaching Florida, might play havoc with oil production facilities in and around the Gulf of Mexico.

Delphi lower on auto downgrades

Meanwhile, Delphi's revolver loan was seen half a point lower Wednesday, traders said, quoted at 95.5 bid, 96 offered by day's end after trading in the 96 bid, 96.25 offered context earlier in the session, according to a trader.

"It came in after Ford and GM were downgraded by Moody's. It's really no surprise, being that they were already junked by S&P. It's really a non-event - but it came in anyway," the trader said.

The company's term loan was unchanged at 103 bid, 103.5 offered, the trader added.

Over in the bond trading pits, a trader said that after the GM news hit, the bonds of automotive parts suppliers like Delphi "got active." He said the bonds were "quoted down - but they came back. There was no real trading."

However, another trader saw the bonds of the Troy, Mich.-based automotive electronics maker down about two points on the session, even before the GM news, as they continue to pull back from the highs they notched on Friday on the strength of a bullish assessment of the company's prospects by a Lehman Brothers equity analyst.

He quoted Delphi's 6.55% notes due 2006 having fallen to 90 bid, 92 offered, its 6½% notes due 2009 at 84 bid, 86 offered, its 6½% notes due 2013 at 79 bid, 81 offered, and its 7 1/8% notes due 2029 at 73 bid, 75 offered, all down two points except the 2013 bonds, which were off three points.

On Wednesday, Moody's lowered Ford's senior unsecured rating to Ba1 from Baa3 with a negative outlook and GM's senior unsecured rating to Ba2 from Baa3 with a negative outlook.

Ford's downgrade reflected further erosion in the operating results and cash flow generation in consideration of weakened market share and continued challenges in addressing its uncompetitive cost structure in North America, Moody's said. Since improvement in the company's cost structure can only be implemented over a period of time, financial performance is expected to remain weak, the rating agency added.

GM's downgrade reflected continuing operating losses in its North American automotive operations as well as challenges in restructuring the company to achieve a viable long-term competitive position as a leading global automaker, Moody's explained.

Earlier this month, both Delphi's revolver and the term loan suffered some losses after the company revealed that it drew $1.5 billion under its revolver in order to have cash readily available to finance operations if needed.

But Delphi's bank levels have been steadily inching their back up from those losses as investors have gotten more comfortable with the idea of a financial bailout of the company by GM - its former corporate parent before Delphi was spun off several years back - and they have also started considering a potential Chapter 11 filing as less and less likely.

Intermet falls, Foamex gains

Also in the auto sphere, a trader saw bankrupt automotive metal stamping fabricator Intermet Corp.'s 9¾% notes due 2009 retreat to 38 bid, 40 offered from 41 bid, 43 offered, although he saw no news out on the company.

And another trader saw "bottom fishers" come out and take the 9 7/8% subordinated notes of Foamex International up 20.5 bid from prior levels at 19.

The beleaguered Linwood, Pa.-based foam rubber products maker's Nasdaq-traded penny stock shares jumped 11 cents (78.57%) to 26 cents, on volume of 4.3 million, more than six times the average daily turnover. The company said last week that it was considering a Chapter 11 filing. Posters on investment-oriented internet bulletin boards speculated Wednesday about all kinds of possible reasons for that big stock gain, from a simple short squeeze to an as-yet unannounced deal to restructure the company and keep it out of bankruptcy.

Charter higher on exchange

Elsewhere, Charter Communications' exchange offer was the big news for most of the day in the market, and according to one trader, accounted for "something like 99% of the activity" Wednesday. Essentially , Charter offered to issue $3.53 billion in new notes due 2015 in exchange for existing notes that mature in 2009 and 2010, and will issue $4.26 billion in notes due in 2014 and 2015 in exchange for notes due in 2011 and 2012 (see related story elsewhere in this issue for full exchange offer details).

The transaction could cut Charter's $19 billion mountain of debt by about $1.5 billion, while extending maturities on several classes of bonds, giving the troubled Charter more time to try to straighten itself out.

The announcement - that Charter is moving to deal with some of its debt-related problems - was "a sign of relief for the market," he said, and caused the company's bonds to rise "across the board," with the nearer-term maturities showing the biggest gains.

He saw Charter's 8 5/8% notes due 2009, for instance, as having firmed a few points to 82.75 bid, 83.75 offered, while its 8¼% notes due 2008, which are not being exchanged for, at 100.5 bid, 101.5 offered. The new bonds that will be issued as part of the debt exchange were quoted at 99 bid on a when-issued basis.

A trader saw the 8 5/8s pushing up to 82 bid, 84 offered from prior levels at 76 bid, 81 offered on the news, while the 8¼% notes due 2007, which are not being exchanged for, at par bid, 102 offered, up perhaps a point at most.

Another trader saw those 81/4s having moved not at all, pegging them at par bid, 101 offered.

The trader saw the Ford and GM news as certainly much more important for the market, but said that "the whole day [before the automaker downgrades], it was all Charter," with the 8 5/8s firming to 82.5 bid, 83.5 offered from prior levels at 74.5 bid, 75.5 offered, while Charter's 11¾% notes due 2010 appreciated to 85.5 bid, 86.5 offered from 78.5 bid, 79.5 offered beforehand.

"The real movement was in the shorter stuff," the trader said. Bonds like the 10% notes due 2011 were "only up a couple." In fact, the trader quoted that issue up a point at best, to 74 bid, 75 offered, even though the '11s are part of the exchange deal.

"Eight points on the '09s, seven points on the '10s - but only a point on the '11s."

A market source saw the 8% notes due 2012 a point better at 101.

Yet another trader said he "didn't really see [Charter's] bonds trade that much," although he saw the stock pop up on the news. That having been said, he opined that "a lot of people are looking to play this thing on the capital structure." He said that he had "talked to a lot of accounts, and they seemed to be pretty apt to play it."

Charter's Nasdaq-traded shares zoomed 47 cents (40.87%), to close at $1.62. Extra-heavy volume of 170 million shares was more than 22 times the usual turnover.

"The stock did pretty well on the news," a hedge fund source said, adding that Charter currently has $5.1 billion of debt due in 2009.

"This could save the company from going bankrupt," the source added.

"Charter has only had one profitable quarter in four years. This could be a big coup if they could roll things out until 2015."

Another source told Prospect News that the exchange is set up so that the unswapped Charter bonds will become subordinated, with claims to the holding company, not to the operating company where the assets are.

Meanwhile the hedge fund source said: "I think you go along with the swap. I don't think you want any part of the holding company."

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