Northwest, AMR post gains in first half of day before trading back down; Continental stays up

By Sara Rosenberg

New York, Dec. 23 - Airlines were somewhat active in the pre-holiday session Thursday with many of them feeling stronger during the early hours before coming back down by the close. Notable names included Continental Airlines Inc., Northwest Airlines Corp. and AMR Corp. - although Continental stood out as ending higher on the day.

"Oil's off a bunch. The credit default swap markets are getting better as well and the strong rally in high-yield airline debt over the last week all helps push the paper up," a trader said about the early day strengthening.

"Maybe people are positive on the holiday travel numbers," a second source added.

Houston-based Continental saw its 4.5% convertible close at 83.875 bid, 84.875 offered, up 0.312 and its 5% convertible close at 93.6875 bid, 95.6875 offered, up 0.688, according to a trader. The stock closed at $13.60, up $0.18 or 1.34%.

During the session, Continental's 5% convertible was quoted at 95½ bid, 96½ offered and its 4 ½% convertible quoted at 82 bid, 83 offered versus a stock price of $13.68, according to another trader. The 5s were seen by the market source as trading at 97 5/8 versus a $13.50 stock price.

Eagan, Minn.-based Northwest saw its 6.625% convertible close at 96.8125 bid, 97.8125 offered, down 0.438 and its 7.625% convertible close at 79.6875 bid, 80.6875 offered, down 0.312, according to a trader. The stock closed at $10.85, down $0.08 or 0.73%.

Those closing levels were down from highs touched intra-day. Earlier in the session, Northwest's 6 5/8% convertible was quoted at 99 bid, par offered and its 7 5/8% convertible was quoted at 81 bid, 82 offered versus a stock price of $11.15, a different trader said. The market source saw the 6 5/8% convertible trading around par ¼ versus a stock price of $11.

Also lower on the session was Fort Worth, Tex.-based AMR as, at close, its 4.25% was quoted at 85.375 bid, 87.375 offered, down 0.375 on the day, according to a trader. The 4.5% convertible was quoted at 75 bid, 77 offered, down 0.312 on the day. The stock closed at $10.67, down $0.08 or 0.74%.

During market hours, AMR saw its 4¼% convertible quoted at 86¼ bid, 87¼ offered and its 4½% convertible quoted at 77¼ bid, 78¼ offered versus a stock price of $10.68, a different trader said, while the market source saw AMR's 4½% trading around 88 versus a stock price of $10.75.

Brinker still catching interest

Also trading around on Thursday was Brinker International Inc.'s zero-coupon convertible as investors to continue to play the option value ahead of the upcoming redemption at a price of $633.54.

The convertible was trading around 64 3/8 versus a stock price of $34.85, a market source said around noon. On Wednesday, the convertible closed at 64.19 bid, 64.31 offered versus a closing stock price of $34.84.

At close, however, the convertible was quoted at 64.05 bid, 64.3 offered, down 0.01 on the day, according to a trader. The stock closed at $34.83, down $0.01 or 0.03%.

Holders have the right to convert each $1,000 principal amount at maturity of the debentures into 18.08 shares of Brinker common stock at any time beginning Dec. 23 until the close of business on Jan. 20. The convertible will be redeemed on Jan. 24.

While announcing the redemption on Wednesday, the company also said that it resolved its previously disclosed dispute with the Internal Revenue Service concerning the Tip Reporting Alternative Commitment agreement and that it will be restating its financial statements through the first quarter of fiscal 2005 to correct its computation of straight-line rent expense and the related deferred rent liability.

As a result of the change in straightline rent accounting and the IRS resolution, the company now expects that its second quarter net earnings will be reduced by approximately $1.2 million, its fiscal 2005 net earnings will be reduced by approximately $3.8 million, second quarter earnings per diluted share estimates will be reduced by approximately $0.01 and it fiscal 2005 earnings per diluted share estimates will be reduced by $0.04.

The company's current estimates of earnings per diluted share are now $0.44 to $0.46 for the second quarter and $2.02 to $2.15 for fiscal 2005.

Brinker is a Dallas-based owner, operator and franchiser of restaurants under the names of Chili's Grill & Bar, Romano's Macaroni Grill, Maggiano's Little Italy, On The Border Mexican Grill & Cantina, Corner Bakery Cafe, Big Bowl Asian Kitchen, and Rockfish Seafood Grill.

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