Airline bonds off on jet fuel price concerns; Delphi bonds pushed lower on bankruptcy buzz

By Paul Deckelman and Sara Rosenberg

New York, Sept. 1 - Northwest Airlines Corp.'s bonds and those of rival legacy carrier Delta Air Lines were seen continuing to fall on Thursday amid investor worries about the steadily increasing price of jet fuel - or even its availability in some places.

Elsewhere, Delphi Corp.'s bonds continued to be dragged lower, with investors worried about the increasing chances that the company could file for bankruptcy soon - something Delphi itself has warned of if help for its high labor costs is not soon forthcoming from former corporate parent General Motors Corp. and the United Auto Workers union.

A trader saw Northwest Airlines' 8 7/8% notes due 2006 fall to 56 bid, 58 offered, well down from 62 bid, 64 offered earlier. He saw its 9 7/8% notes due 2007 at 44 bid, 46 offered, down from 50 bid, 52 offered previously, while its 10% notes due 2009 fell to 39 bid, 41 offered from 44 bid, 46 offered.

Northwest's Nasdaq-traded shares swooned $1.06 (21.07%) to $3.97 on volume of 17.4 million, more than triple the norm.

Northwest, in an SEC filing, said that rising jet fuel prices were eroding its financial stability, and predicted that its total fuel expense in 2005 will be approximately $3.3 billion versus the $2.2 billion spent in 2004 and more than double the $1.6 billion spent on fuel in 2003.

Jet fuel prices - which were already sky high and costing the carriers millions of dollars extra even before Hurricane Katrina - were higher Thursday in line with overall higher energy costs, and supply shortages were reported in some regions. Katrina is blamed for the shutdown of as many as eight refineries in Louisiana and the Gulf Coast areas, as well as pipelines and other infrastructure needed to produce energy from petroleum and distribute it.

Those fuel price rises are bad news for Delta, which is approaching the point when it will have to file for Chapter 11, according to a Standard & Poor's research note issued Wednesday.

Delta's 7.70% notes coming due on Dec. 15 dropped to 21 bid, 23 offered from 23 bid, 25 offered at the opening while its other bonds all continued to trade in the mid-teens, each off a point on the day, with the 10% notes due 2008 easing to 17 bid, 18 offered, the 7.90% notes due 2009 at 16 bid, 17 offered, and its 8.30% notes due 2029 at 15-16.

A trader, noting the larger fall in 7.70% notes than in the other bonds, and the fact that the gap between the respective prices of the 7.70s and the others has narrowed and continues to come in, declared that "they're getting closer and closer. When they file [for bankruptcy], they'll all trade the same."

Delta's NYSE-traded shares lost 12 cents (10.34%) to $1.04, their lowest ever, traders said.

Delphi loans stabilize, bonds keep falling

Elsewhere, Delphi Corp.'s bank debt levels ended the day unchanged from the previous session, an improvement from the last couple of days during which the paper was consistently slowly ticking its way downward.

However, the company's bonds continued to retreat steadily.

Delphi's term loan was quoted at 102.25 bid, 103 offered, and the revolver was quoted at 94.5 bid, 95½ offered, according to a trader.

"It was weaker at one point and then ended the day unchanged. It didn't trade though. Levels were just weaker earlier in the day," the trader said.

Delphi is currently looking to former corporate parent GM for some sort of financial bailout - and has warned that it could be forced into Chapter 11 if it does not get concessions from the United Auto Workers union and help from GM. Company CEO Steve Miller has indicated that a filing could come before the Oct. 17 change in the U.S. Bankruptcy Code that makes it less advantageous to filing debtors.

Its bank debt had opened on Monday around 103 bid, 104 offered on the term loan and around 95.5 bid, 96.5 offered on the revolver, but the name has been on a downward slide all week because media reports emerged over the weekend saying that UAW wouldn't support all the concessions being sought by the companies, which sparked concerns over the company's future.

But while the bank debt of the Troy, Mich.-based company - which supplies vehicle electronics, transportation components, integrated systems and modules, and other electronic technology to vehicle manufacturers - was seen having steadied, its bond debt was quite another story.

"Today was pretty much Delphi," a trader said, and the company's bonds were seen trading solidly lower, with the benchmark 6.55% notes due 2006 seen having fallen all the way into the mid-to-high 70s - one trader pegged them at 78 bid, while another saw them swoon to 75 - from the mid-80s, on an intraday basis. A trader said that the bonds did manage to bounce off those lows - but still finished down "four, five points" to 81 bid, 83 offered.

At another desk, Delphi's 6½% notes due 2009 were seen going home at 76 bid, 78 offered, well down from 80 bid, 82 offered at the opening, while its 2013 61/2s declined three points to 72 bid, 74 offered, and its 7 1/8% notes due 2029 lost a point to 68 bid, 70 offered.

Another trader saw the 6.55% bonds at 81 bid, 82 offered, down from 85 bid, 86 offered, but said that he had not seen much trading in the company's other issues as he had in the '06s.

"There were all sorts of rumors," yet another trader said, including talk that the UAW - which is in talks with Delphi, along with the company's one-time parent, GM - is going to rely on the carmaker to bail its big supplier out, rather than offer concessions. Yet another rumor making the rounds spoke of a research report by one of the major investment banking houses, which once put the chances of a bankruptcy filing at no better than 30%, but now sees an 80% chance of a Chapter 11 case.

Delphi has asked GM and the UAW to work out an arrangement that would give Delphi a hand with its spiraling labor costs, a legacy from its spin-off from GM a few years back. Delphi has indicated that it might have to seek bankruptcy protection if no solution to the labor cost problem is found.

GM's benchmark 8 3/8% notes due 2033 were meantime seen at 82 bid, 83 offered, down 1½ points on the day.

In other distressed-debt names, a trader saw Anchor Glass company's 11% notes due 2013 at 68 bid, 70 offered, up from recent levels at 64 bid, 66 offered.

And Mirant Corp.'s bonds continued to firm, its 7.90% notes due 2009 rising to 103 bid, 104 offered, and its 7.40% notes that were to have matured last year likewise gained a point, to 102 bid, 103 offered.

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