Airlines keep losing altitude as oil prices gain; American Commercial bank debt busy in quiet market

By Paul Deckelman and Sara Rosenberg

New York, Jan. 14 - Airline bonds - already under pressure from Delta Air Lines Inc.'s recent imposition of lower fares on many of its routes and the expected negative impact on revenues - continued to fly lower in a holiday-shortened session Friday, pushed down by four straight days of seeing oil prices push up to levels not seen since last November.

In bank debt dealings, American Commercial Lines LLC's recently distributed restructured loan paper traded around a bit during an otherwise quiet pre-holiday distressed market at unchanged levels.

A trader in distressed bonds was quoting Delta's 8.30% notes due 2029 as having dropped about four points from recent levels to trade at 40 bid, 42 offered. He saw the financially struggling Atlanta-based legacy carrier's 7.90% notes due 2009 likewise down four points at 52 bid, 54 offered, while the company's 10% notes due 2008 were a full five points lower at 62 bid, 64 offered, and its benchmark 7.70% notes due 2005 were two points lower at 86 bid, 88 offered.

He also saw industry leader AMR Corp.'s 9% notes due 2012 and 2016 "down another two points," to 72 bid, 74 offered, while bankrupt low-fare carrier ATA Airlines' 13% notes due 2009 and 12 1/8% notes due 2010 traded down to 48 bid from prior levels at 50 bid, 52 offered, before coming back from that nadir to end around 50, little changed.

The airlines, another trader said, "got mushed then they came back."

He saw Delta's 7.90% notes due 2009, which he had seen at 55 bid, 56 offered Thursday, open well down at 51.5 bid, 52.5 offered Friday, before coming back to close at 54 bid, 55 offered, "so they're down a point - but they were off a couple, right off the bat."

He saw the Delta 7.70s following a similar flight plan, closing Thursday around 90.5 bid, 91.5 offered, then opening Friday at 88.5 bid, 89.5 offered, before coming off that low to end at 89 bid, 90 offered.

Yet another trader saw the Delta 8.30s languishing in a 42 bid, 43 offered context, essentially unchanged on the day, and noted that Prudential Securities "surprisingly" put a buy recommendation out on Continental Airlines and Northwest Airlines, as well as AMR, "which is odd." He saw the bonds of those companies mostly unchanged.

At another desk, Delta's 10 3/8% notes due 2011 were quoted three points lower at 53.5, while Continental's 8% notes due 2005 were a point lower at 96, and Northwest's 7 7/8% notes due 2008 were 1½ points lower at 73.5.

End of firming trend

The airlines - which had recently been on a firming trend as oil prices were continuing to trend lower and major carriers, notably Delta, were able to make progress in their efforts at cutting labor costs - seem to have lost momentum and now are spiraling lower.

One factor has been a rebound in oil prices over the past few sessions - they closed at $48.38 a barrel on the New York Mercantile Exchange for light sweet crude for February delivery - up 34 cents on the session, the fourth rise in a row, and well up from $45.43 per barrel just a week earlier. Crude prices - considered a reliable indicator of future airline fuel costs - are now at their highest levels since mid- November.

Another factor has been predictions and projections by analysts and other airline industry watchers that the carriers could post cumulative losses of $2 billion for the fourth quarter when they start releasing their results. The airlines were seen coming under pressure to emulate Delta's efforts to, in turn, emulate such successful low-fare carriers as Southwest Airlines and JetBlue. Delta announced a broad program of fare cuts and other changes aimed at simplifying its fare structure. While analysts have said that such changes are necessary if the old-line "legacy carriers" like AMR's American Airlines unit, Delta, Northwest, Continental and the bankrupt United Air Lines and US Airways Group are to survive, in the short run, they are expected to cannibalize the airlines' already thin revenues.

American Commercial loans trade

Transport of another sort was on the minds of bank debt market participants, as American Commercial Lines' $225 million second-lien term loan A was quoted Friday at 101 bid, 101.5 to 101.75 offered, and the $139 million third-lien term loan B was quoted at 102 bid, 102.5 offered.

The term loan A is priced with an interest rate of Libor plus 400 basis points and the term loan B is priced with an interest rate of 10% and a 3% PIK.

There is no call protection on the deal.

JPMorgan and Bank of New York are the agents on the restructured debt that is being obtained in connection with the Jeffersonville, Ind.-based marine transportation and services company's exit from bankruptcy, two years after it entered, to satisfy obligations to senior secured lenders.

The restructured debt first started trading on Thursday.

A bond trader meantime quoted the company's 11¼% notes due 2008 offered at 140 with no bids, although he had heard of bids as low as the 130 area.

The bonds had most recently been quoted trading at a wide 140 bid, 145 offered level. Those bonds, over the past year, had sunk as low as 8 cents on the dollar and risen as high as 149.

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