Northwest crushed, Delta mixed; Adelphia case still going...and going...and going

By Stephanie N. Rotondo

Portland, Ore., Jan. 24 - Northwest Airlines Corp.'s bonds "got crushed on equity news," one trader said Wednesday, in a continued reaction to the bankrupt Eagan, Minn.-based airline company's estimate earlier in the week of as much as $9.5 billion in allowable unsecured claims, and no recovery for shareholders.

The debt continued its downward spiral in Wednesday's session, dropping another 3 points on top of the previous day's losses of as much as 5 points. But trading slowed to almost a halt on the notes, as investors waited to hear what would happen next.

Delta Air Lines Inc. meantime took a slight hit, traders said, as the company's chief executive officer told the Senate Commerce Committee that a merger with rival carrier U.S. Airways Inc. - looking to acquire an unwilling Delta - would not be in the best interest of his company.

And it seems like it's the Chapter 11 case that will never end - but a federal district judge's ruling Wednesday continuing to stay the implementation of Adelphia Communications Corp.'s hotly contested reorganization plan gives dissident bondholders more time to prove wrong the bankruptcy court judge who earlier this month confirmed the plan.

But some players in the distressed markets are simply tired of waiting - the case has been going on since 2002 - and trading in Adelphia's bonds and bank debt was muted.

Overall, traders reported a quiet day, with many of their colleagues having jetted off to South Florida for the three-day JP Morgan bond conference - a well-attended event on the annual bond market calendar that was scheduled to wrap up on Wednesday.

"We all got in early thinking we were going to have this big, busy day," said one bond salesperson. "We didn't."

Northwest dealt another blow

Northwest Air's bonds saw a "tremendous move in the tail that wags the dog," according to one trader.

In reaction to Tuesday's news of a larger-than-expected level of potentially allowable unsecured claims and the devaluation of the company's equity, along with yet another increase in the price of crude oil, Northwest, the parent company of the Number-Five domestic air carrier, saw its notes dip about 3 points.

One trader placed the company's 7 5/8% notes due 2023 around 97, and pegged its 10% notes due 2009 at 63.5 bid, 64 offered.

At another desk, a trader said that Northwest's 8 7/8% notes were down 2 points at 97 bid, 99 offered, its 9 7/8% notes maturing later this year 3 points lower at par bid, 102 offered, and the 10s also down a pair at 99 bid, par offered.

However, yet another trader said that while prices were down, trading had hit a "lull."

"I think everyone's waiting for the other shoe to drop," he said, pointing to the claims news.

Northwest revealed Tuesday that it estimates that anywhere from $8.8 billion to $9.5 billion in unsecured claims could be allowed in its bankruptcy case. The company also reiterated that shareholders would not receive any recovery under the terms of the company's recently filed plan of reorganization.

Despite the carrier's Pink Sheets-traded stock dropping 16 cents (3.85%) to an even $4 in Wednesday dealings, on three times the normal volume, a debt trader indicated that "bondholders seem to think there is value," in the company's paper.

Also probably helping to drag prices down, a trader said, was another increase in crude oil prices, which have been steadily rising since hitting 19-month lows around $50 a barrel earlier in the month. Despite an early dip on government figures showing increased crude, gasoline and distillate inventories, oil prices rallied on the prospect of increasingly cold weather in much of the northern United States, and potential output cuts by OPEC aimed at propping up price levels. Light sweet crude for March delivery closed up 33 cents at $55.37 on the New York Mercantile Exchange.

Crude prices are seen by many observers as a barometer forecasting the probable future price direction of jet fuel, a key distillate. Skyrocketing fuel prices helped to drive both Northwest and Delta into bankruptcy in the fall of 2005.

Northwest filed its reorganization plan earlier than anticipated, but without a disclosure statement. The company received an extension to file the statement by Feb. 15. So far there has been little talk from the company and lots of speculation from the market as to what that disclosure statement might include.

Delta: Just say 'no' to merger

While Northwest's bonds were down several points, Delta investors saw more mixed results as one trader placed the bankrupt Atlanta-based Number-Three U.S. airline company's 8.30% notes due 2029 at 63.5 bid, 64 offer - a 1 point dip from the previous day.

While another trader said that from where he sat, Delta's 8.30s were "3 or 4 points weaker," also at 63.5 bid, 64 offered, yet a third said that Delta had already suffered its big move downward to the 63 area on Tuesday, and called the bonds unchanged on the day at 63.5 bid, 64.5 offered.

While Delta's bonds pretty much fizzled, its stock sizzled, its Pink Sheets-traded shares emerging from the clouds to rise 12 cents (11.32%) to $1.18, after an earlier crash-landing.

"As the merger was discounted by Delta's CEO, the stock made a comeback. Generally, Delta stockholders have a better chance of recovery without a merger. Under a merger, in a combined company, the Delta bondholders will get more of the equity value," said one distressed stock trader.

In Delta chief Gerald Grinstein's testimony before the Senate's Commerce panel, he reiterated his adamant opposition to U.S. Airways' hostile takeover proposal, claiming Delta has already come far in the last 16 months since filing bankruptcy.

The committee was holding hearings to look at the impact consolidation might have on the airline industry and its customers.

"The stage is set for Delta to emerge as a powerful, competitive force to be reckoned with - unless US Airways' takeover bid is allowed to derail our momentum and jeopardize our hard-won gains," Grinstein told the Senate committee.

The committee was reviewing U.S. Airways' $10.2 billion bid for Delta, which expires on Feb. 1.

Grinstein also denied a Wall Street Journal report Tuesday that the company was in "detailed talks" with Northwest on a possible merger of the two bankrupt competitors. He said the company's investment banker recently looked into other possible options, as requested by the official creditors' committee.

Delta filed for bankruptcy in September 2005 - ironically, on the same day and at the same Manhattan bankruptcy court as Northwest. The company has maintained its desire to remain a standalone carrier, a move supported by its labor unions and Georgia state officials. A Feb. 7 bankruptcy court date will discuss the company's reorganization plan.

And the case drags on...

Back on solid ground, "the bankruptcy is dragging on," said one trader in response to the news that U.S. District Court Judge Shira Scheindlin had extended a stay issued earlier this month by the bankruptcy court in Adelphia's Chapter 11 case. That stay prevents, at least for now, the implementation of the company's reorganization plan. That plan details the division of approximately $17 billion in proceeds that Adelphia - once the fifth largest U.S. cable operator - reaped when it sold virtually all of its cable system holdings to Time Warner NY Cable and Comcast Corp last summer.

The Manhattan bankruptcy court had approved the reorganization plan on Jan. 3 - but bondholders unhappy with the proposed distribution of the Greenwood Village, Colo.-based company's assets had requested a delay of implementation on the plan, pending their appeal.

While district judge Schiendlin on Wednesday granted their motion extending the stay, noting the bondholders had shown a "substantial possibility" that bankruptcy judge Robert Gerber had erred in approving the plan, she also required the bondholders to post a $1.3 billion bond - at least 10% of it due within 24 hours - because a delay could cost the bankrupt company more than a billion dollars in additional costs or "could even cause the plan to collapse."

But the news did little to spark movement in the company's bonds, which had risen 1 to 1½ points each of the previous two sessions. One trader said the bonds traded actively, but remained "flat," at 101.5.

Another saw Adelphia down ½ point, its 10¼% notes due 2011 ending at 106 bid, 107 offered, and its 10¼% notes due 2006 at 102 bid, 103 offered.

In the bank debt market, a trader said the company' loan paper didn't trade at all, as agents had stopped processing anything.

Solutia loan solid

Solutia Inc.'s new debtor-in-possession financing debt freed up for trading on Wednesday, with the term loan add-on and repriced existing term loan debt quoted at 100.75 bid, 101.25 offered, according to a bank debt trader.

The bankrupt St. Louis-based chemical company's $325 million term loan add-on was priced at Libor plus 300 bps after being reverse flexed during syndication from original talk of Libor plus 350 bps. In conjunction with the reverse flex, pricing on the company's existing $650 million of term loan debt was repriced at Libor plus 300 bps from Libor plus 350 bps.

Solutia's $400 million of new DIP debt also includes a $75 million revolver add-on that is priced at Libor plus 225 bps.

Proceeds from the incremental bank debt are being used to fund the acquisition of Akzo Nobel's stake in Flexsys, the joint venture between Akzo Nobel and Solutia, and provide the company with further liquidity for operations and the ability to fund mandatory pension payments that come due this year.

With the add-ons, the company extended the maturity on its entire DIP facility by one year to March 31, 2008.

Citigroup is the lead arranger on the deal.

A mixed day for Salton

Investors in Salton Inc. got a decidedly mixed message, as reaction to merger and acquisition news in the small-appliance sector spurred lots of activity in the stock market, but very little in its bonds.

Stock buyers were excited at the idea that Harbinger Capital Partners could make a play for Salton, the maker of the "George Foreman" line of grills, now that Harbinger has successfully won a bidding war to acquire Salton competitor Applica Inc.

But those dealing in Salton bonds were a little less excited.

One trader said a merger of the newly-merged Applica and Salton would probably do very well, as Salton is "right on the verge of not making money."

They are highly levered," he said. "If they could cut [capital costs], I think they could make it."

Another trader said the 12¼% bonds were floating around an 88 bid, though there were no offers to be found.

The Salton bonds had firmed about 8 points Tuesday on the Applica news,

But on Wednesday, a trader said the bonds had come off those peak levels on Wednesday, ending at 91.75 bid, down from 93 previously, although noting that this was "just a small trade."

Two other traders quoted Salton around the 88-90 level, but said they really had seen no trades.

However, Salton's New York Stock Exchange-traded shares soared 25 cents (9.26%) to close at $2.70 after trading as high as $2.99 during the session. The day before, Salton shares had gained over 16.38% the Applica news.

Movie Gallery moving up

In other distressed names, Movie Gallery Inc. bonds were up for a third straight session, its 11% notes due 2012 better by 1½ points at 81 bid, 82 offered.

The Dothan, Ala.-based video rental chain operator's bonds have risen despite the company's report Monday of a wider quarterly loss from a year ago and language in its filing warning of possible credit facility covenant violations.

In the automotive realm, a trader said he saw no movement from prior day-levels in Delphi Corp. or Dana Corp., as Delphi's 6.55% notes due 2006 stayed around 111 bid, 112 offered, while Dana's 6½% notes due 2008 hovered around 75.5 bid, 76.5 offered.

Also unchanged was Canadian forest products company Tembec Inc., whose 8 5/8% notes due 2009 held at 84 bid, 85 offered.

And Technical Olympic USA Inc.'s bonds - which fell on Tuesday - were unchanged to a little easier Wednesday, with the 7½% notes due 2015 down ½ point at 79.75, and the 9% notes due 2010 at 99.25, down 1¼ point from Tuesday's close. The company's most actively traded issue, the 10 3/8% notes due 2012, were unchanged from Tuesday at 91.5, but well down from Monday's levels at 95, seen before the news hit that the Florida homebuilder has held talks with the lenders for its troubled Transeastern joint venture, which could lead to Technical Olympic putting more money into the company, despite its earlier assertions that it had no plans to do so.

Sara Rosenberg, Ronda Fears and Paul Deckelman contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.