Northwest Airlines better; Insight Health recovers; Fedders down; Danka up

By Stephanie N. Rotondo

Portland, Ore., Feb. 15 - Northwest Airlines Corp.'s notes took flight Thursday as the airline filed its disclosure statement in the company's bankruptcy case.

As bondholders will realize a significant recovery, the company's notes gained 1 to 2 points during the day. The airline's stock also saw a jump, despite the fact that stockholders will not see any distribution upon emergence from bankruptcy.

Insight Health Services Corp. recovered nicely after getting shot down in Wednesday trading. The company's 10% notes due 2011 gained 11 points, while its 9 7/8% bonds due 2011 also increased amid news of a debt-for-equity swap.

Elsewhere, Fedders Corp., the distressed manufacturer of air quality solutions, is continuing its spiral downward as default rumors are gaining momentum. The company previously declined comment on the validity of the rumor.

An expectation of an early call on one of its notes sent Danka Business Systems plc up. The company had said earlier this month that proceeds from a recent asset sale would be used to pay down some of its debt, though, at that time, it was unsure which debt.

Meanwhile, possible courtroom drama is unnerving investors of Iridium LLC. Statements made in the company's trial against Motorola Inc. caused a drop in the company's debt Wednesday and continued into Thursday.

Overall, traders saw more activity in the day, though some market participants left early to get a jump on the long weekend. The bond market will close early on Friday and will also take off Monday to honor Presidents Day.

Northwest Airlines better

Northwest Airlines "took off," according to one distressed trader, as the company filed its disclosure statement.

The statement gave a detailed description of the bankrupt airline's reorganization plan, which shows a recovery of 66% to 83% for general unsecured claims.

One trader pegged the 10% notes due 2009 as up almost 2 points at 99, while another trader said the notes were basically unchanged at 98.5 bid, 99.5 offered. Another trader claimed the 10s were trading over par at one point during the day. The 9 7/8% due 2007 came in at 101.75.

"I think investors are somewhat comfortable there are other people investing," a trader said. He added that, "One of the reasons it went up is Goldman Sachs bought up a big chunk of stock."

The plan shows, as expected, that there will be no recovery for equity holders. Despite that, stocks in the No. 5 airline jumped 23 cents, closing at $2.87.

The company also stated in its plan it is focusing on a second-quarter emergence from bankruptcy, at which point the company is expected to be worth about $7 billion.

In other bankrupt airline paper, traders were mixed on Delta Air Lines Inc.'s notes. Some said the 8.30% bonds due 2029 were unchanged, while others said the notes were up a bit.

Insight Health soars

Insight Health's 10.61% bonds due 2011 saw an "11 point turnaround," one trader said, amid heavy morning trading. The trader noted that, once the afternoon hit, trading on the notes "went dead."

The 10.61% notes fell to as low as 83 during Wednesday trading amid less-than-spectacular quarterly results, which included a $55.7 million net loss for the six months ended Dec. 31.

The company also indicated in filings with the Securities and Exchange Commission that there were concerns about the company's ability to continue, as well as a possible default on its debt.

"There is talk they will file [for bankruptcy]," the trader said. He added that it was possible the surge in activity in the notes could be "someone who is buying ahead of time, buying as much as he can, then go restricted," he said.

On the heels of those filings came the announcement that holders of the company's 9 7/8% senior subordinated notes due 2011 will be offered 87% of the company's common stock in exchange for all the notes.

If the offering is successful, it will eliminate $194.5 million of the principal amount of the notes, and decrease interest expenses by $19 million annually. The aim of the offering and subsequent reduction of interest is to improve the overall stability of the company.

The senior subordinated notes jumped to 31 bid, 32 offered, after falling into the mid-20s during Wednesday trading.

Fedders falls

Fedders saw its notes fall yet again as talk of default continues to swirl around the company. A trader said the 9 7/8% notes due 2014 fell back to 60.

The company has declined to comment on a speculated default on its term loan and coupon payment due in a couple weeks, but traders are hearing the term loan is being renegotiated.

As the term loan rumor continues to gain momentum, a trader said he does not understand why the bonds fell.

"The bonds went the wrong way," he said. "They fell instead of rising."

He added a term loan renegotiation would signal better things in the way of their bond debt.

Danka gains

Market insiders are reporting that there is an expectation that Danka will call its 11% notes due 2010 early. On that news, the notes gained half a point, closing the day at 104.

A trader said a recent asset sale of its European businesses could give the St. Petersburg, Fla.-based company enough to cover the payment. The sale to Ricoh Europe BV closed on Jan. 31.

During its quarterly conference call on Feb. 6, Danka executives said proceeds from the sale would be used to pay down its debt, though it had not been decided which of its notes - the 11% or the 10% due 2008 - would be paid off.

The supplier of office imaging systems posted a net loss of $11.1 million for the third quarter of fiscal 2007.

Iridium loses

Iridium's bonds lost another 1 to 2 points as concerns over statements made in court are worrying investors. The notes traded around 26 bid, 27 offered.

"Iridium came back down," a distressed trader said. "There's some nervousness on comments the judge made in trial."

The recent comments that have prompted the fall in the company's debt are unknown.

Holders of the satellite telecommunications company's defaulted debt are suing electronics giant Motorola for more than $3 billion, alleging that Motorola's actions and omissions contributed to Iridium's eventual slide into bankruptcy in the late 1990s.

Iridium owned and operated a global telecommunications system. The company filed for bankruptcy in August 1999.

Paul Deckelman contributed to this article.

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