Airline bonds steady despite Northwest, AMR losses; Mirant bank debt up as plan filed

By Paul Deckelman and Sara Rosenberg

New York, Jan. 19 - The deluge of bad earnings news from the airline industry began in earnest on Wednesday, as both Northwest Airlines Corp. and American Airlines parent AMR Corp. reported wider fourth-quarter losses than a year ago. Nonetheless, those bonds - and those of such other sector names as Delta Air Lines Inc. and Continental Airlines Corp., which are scheduled to report Thursday - were generally little changed.

In bank debt dealings, Mirant Corp. was by far the most active and most watched name by distressed loan players, as the company filed its disclosure statement and reorganization plan with the U.S. Bankruptcy Court for the Northern District of Texas.

Immediately following news of the filing, Mirant's '03 paper traded up by a point to 74 bid, 75 offered, according to traders.

However, the Atlanta-based power company's paper then headed lower with the stock market, since the outstanding Mirant debt will be replaced with equity. It ended the day at 73.25 bid, 74 offered, compared to Tuesday's closing levels of 73 bid, 74 offered, a trader remarked.

Under the proposed plan, holders of general unsecured claims would get nearly all of the reorganized company's common stock, while holders of Mirant Americas Generation LLC's general unsecured claims would get 90% of their claim in new notes and the remaining 10% of their claim in the reorganized company's common stock. Holders of Mirant Americas' senior notes due 2011, 2021 and 2031 would have their notes reinstated and existing shareholders would get a share of junior trust interests, any shares remaining after the general unsecured creditors have received their shares.

A trader in distressed bonds saw Mirant's 2½% busted converts starting the day at 73 bid, 75 offered, then trade up to 77.5 bid, 78.5 offered on the news, before falling back from that high to end the day at 75 bid, 76 offered.

The same pattern was seen in Mirant Corp.'s 7.40% and 7.90% notes. Both series of bonds opened at 75 bid 77 offered, went as high as 79.5 bid, and then came in later in the day to end at 76 bid, 78 offered.

The 5.75% convertible preferreds added 2.75 points to 17.5 on the news, a sellside trader said, and he had the 2.25% convertible bonds rose similarly to close at 75.75 bid, 76.25 offered. Mirant shares, however, dropped 7 cents, or 18.92%, to 30 cents in over-the-counter trading Wednesday.

Airline bonds active

The distressed-bond trader "didn't see prices change much" on the airline bonds, although he acknowledged that he had seen "a lot of paper trading out there.

AMR's 9% notes due 2016 and 2012, he said, were unchanged at 72 bid, 74 offered.

He also saw little or no change in Delta's benchmark 7.70% notes due later this year hovering at their recent levels around 88 bid, 90 offered, while its 8.30% notes due 2029 continued to languish around 41 bid, 43 offered.

He also saw the bonds of bankrupt United Airlines perhaps up a quarter point at 8.25 bid, 9.25 offered.

Delta "has been under pressure," another trader said, pegging the 8.30s down in the lower 40s area. He noted that those bonds had come down about 10 points from the levels they had jumped to in December after the Atlanta-based airline announced a radical lowering of many of its fares and other rule changes aimed at streamlining the fare structure and positioning Delta to better compete with low-fare carriers like Southwest Airlines and such upstarts as JetBlue, AirTran, and the now-bankrupt ATA Airlines.

The trader said that those earlier, higher levels were unrealistic anyway, given the fact that the fare cuts will likely result in a sharp lowering of Delta's revenues, something which the carrier can hardly afford.

"What Delta gained from its pilots," he said, referring to the $1 billion of pay cuts and other concessions coughed up by the captains as part of an effort to cut costs by $2 billion annually, "they're giving it all right back on the revenue side" with the fare cuts.

Delta is expected to post a sizable loss for the fourth quarter and for 2004, but if the numbers are "really ugly," he said, the bonds could fall and drag other airline issues down with them.

The same, he said, could not be said of Northwest, which on Wednesday reported a fourth-quarter loss of $420 million ($4.84 per share) on revenue of $2.75 billion, versus its year-earlier profit of $363 million ($3.60 per share). Excluding the one-time gain from the sale of Northwest's share in the Orbitz online travel service and other special items, the fourth-largest U.S. carrier lost $359 million ($4.14 per share) - somewhat wider than the $3.97 per share loss analysts had predicted, and considerably wider than the $129 million ($1.49 per share) loss on that basis a year ago (see related story elsewhere in this issue).

Even with that big loss, he said, Northwest's bonds really went nowhere.

Its short paper, like its 8 7/8% notes due 2006 "didn't move much at all," another trader said, quoting the bonds at 89 bid, 90 offered, although its 10% notes due 2009 lost a point to 72 bid, 73 offered.

AMR's bonds were seen hanging around the 74 bid area, pretty much unchanged, after the Fort Worth, Tex.-based air carrier lost $387 million ($2.40 per share) on revenue of $4.54 billion in the fourth quarter, a deterioration from its year-earlier loss of $111 million (70 cents per share). However, excluding one-time gains - notably what the airline giant got from selling its Orbitz stake - the per-share loss of $2.94 was actually not as bad as Wall Street's expectations of $3.18 per share of red ink.

Federal-Mogul better

Apart from the airlines, there was news on the asbestos front, as Sen. Arlen Specter (R.-Pa.), the chairman of the Senate Judiciary Committee, introduced legislation that would set up a $140 billion payment mechanism for medical claims related to asbestos, while also curbing the proliferation of asbestos-related lawsuits that drove such companies as Federal Mogul Corp., Owens Corning and Armstrong World Industries Inc. to seek bankruptcy protection.

Federal-Mogul's bonds were seen "better bid," a trader said, with another source quoting them at 32.25.

Owens Corning, however, was unchanged at 79 bid, 81 offered, while Armstrong held steady at 74 bid, 75 offered. A trader noted that the Specter news had come late in the day, and might still "propel" the bonds upward.

Fleming Cos. 10 1/8% and 9¼% notes were quoted "up a couple," the trader said, moving up to 39 bid, 41 offered, from 36 bid, 38 offered previously.

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