Airlines weaker; Default rumors follow Fedders; Earnings boost Federal-Mogul

By Stephanie N. Rotondo

Portland, Ore., March 1 - The distressed bond market was still reacting to Tuesday's equity plunge on Thursday, with the airlines being the most active in trading.

Northwest Airlines Corp. saw its bonds softer during trading, as the company's shareholder committee disbanded, withdrawing its motion to have a say in payment distributions post-bankruptcy.

Delta Air Lines Inc. was also weaker, though the bonds traded heavily. A trader said the airlines were losing ground as investors were seeing a lower general market.

Oil prices could also be affecting the sector. Light, sweet crude oil prices rose 21 cents to settle at $62.11 a barrel, the highest it has been since December.

Another factor cited was investor skepticism about some of the valuations the two bankrupt airline companies have assigned themselves as they estimate what they will look like when they emerge from Chapter 11, where they have been since September 2005.

Questions of default continue to follow Fedders Corp., as its coupon payment comes due. Traders are speculating the payment may not be made, despite the company's attempts to refinance its debt.

In the autosphere, Federal-Mogul Corp. released its net earnings for January, which prompted a slight boost in its bonds.

Traders are still calling the bond market volatile, a reaction to heavy equity.

"Everything is off a couple of points," one trader said.

Airlines drop

A trader saw "a lot of volume" in airlines, which he said, "went down, but then came back up" off their day's lows to end only moderately lower.

He saw Northwest Airlines' 10% notes due 2009 fall as low as 89 during early trading, but then end at 91 bid, 92 offered, down from closing levels Wednesday around 94.

"A pretty good size traded," he observed.

Another trader placed Northwest Airlines' 10% notes at 92. He also said the bonds traded as low as 89 and as high as 95 during the trading day.

At another desk, a distressed trader called the bonds down 2 points at 92 bid, 93 offered.

In a surprising move, shareholders of Northwest's stock withdrew their claim in the airline's bankruptcy case. The group, led by the Owl Creek Hedge Fund, had made repeated attempts to have a say in payment distributions.

Northwest has said shareholders will receive no relief post-bankruptcy and all shares will be cancelled. Unsecured creditors, however, are expecting to receive about three-quarters of what they are owed.

In other Northwest news, the airline posted a $349 million net loss for January. Total revenue for the period was reported at $892 million.

Fellow bankrupt airline Delta Air Lines saw a lot of trading, according to one trader. The trader said the 8.30% bonds due 2029 dipped to 58.75 bid, 59.25 offered, trading as low as 56.5.

Elsewhere, a distressed trader placed the notes at 57.25 bid, 58.25 offered, with trades dipping as low as 56.25. Another trader called the notes down about 2 points, ending at 57 bid, 58 offered.

"They tried multiple times to rally," a trader said, "but couldn't do it with the equity market so unstable."

Fedders sees little activity

Air quality solutions producer Fedders has a coupon payment due on its 9 7/8% bonds due 2014, but one trader is wondering if it will be paid.

The trader said he had not heard if the payment would default or not but was skeptical that the payment would be made.

The Liberty Corner, N.J.-based company announced on Feb. 20 it had amended its term loan, after weeks of rumors of default. In the announcement, the company also said it was searching for refinancing on its existing credit facility. No word is out on whether a deal has surfaced.

Asset sale rumors also have been circulating. Some expected news this week on whether the company had sold its indoor air quality businesses. No sale has been announced.

Calls made to the company Thursday were not returned.

The bonds have been relatively inactive since the loan amendment. A distressed trader said he briefly saw the bonds with a 60 bid, 66 offered.

Federal-Mogul up

A trader saw Federal-Mogul's 7½% notes due 2009 about a point better from Wednesday on the company's January's earnings results. He pegged the notes at 84.25 bid, 85.25 offered.

The automotive parts supplier posted net earnings of $48.3 million on $253.7 million in net sales. That compares to $196.1 million in net earnings for December on net sales of $221 million.

According to the report, filed with a bankruptcy court, the January net income included $45.4 million in interest expense.

Cash and cash equivalents on Jan. 31 were $42.8 million, compared with $50.8 million at the end of December.

Auto paper mixed

Back on solid ground, a trader saw Delphi Corp.'s short paper, like its 6.55% notes due 2006, at 111 bid, "down a little bit on the day," while he saw "quotes, but not a lot of trading" in longer issues like the 6½% notes due 2013, which ended at 108.5 bid, 109.5 offered.

He saw longer-dated Dana Corp. paper, like the bankrupt Toledo, Ohio-based automotive components company's 7% notes due 2028 and 2029 at 72.5 bid, 73.5 offered, "about unchanged from where they ended [Wednesday].

"There was not much change, and not much volume," he said.

Paul Deckelman contributed to this article.

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