Leap Wireless bank debt continues to retreat; Delta bonds down

By Paul Deckelman and Sara Rosenberg

New York, June 24 - Leap Wireless Inc. bank debt continued to retreat from its recent highs, apparently pushed lower by a bearish research report on the San Diego-based telecommunications company put out this week. Elsewhere, Delta Air Lines Inc. bonds were seen lower, following Wednesday's downgrade of the Atlanta-based air carrier by Moody's Investors Service. On the upside, Armstrong World Industries Inc. bonds were quoted higher, although there was no fresh news out on the bankrupt Lancaster, Pa.-based maker of floorcoverings, now ensnared in the whole asbestos claims litigation mess.

Leap's bank debt was "all over the place," a trader said, quoting it down anywhere from one to two points from Wednesday's already lower levels.

The paper went down to the "lower 123s, then bounced back slightly around day's end," the trader said, quoting it going home finally at 123 bid, 124 offered, down from 124 bid, 125 offered on Wednesday - and that level was at least two points lower than where it began the week.

The trader said that the negative report on the company from Imperial Capital "was the only recent news - but the paper has been under a lot of technical pressure lately. It was getting a little heavy.

"It's correcting for the time being. Imperial may have just been the catalyst."

Before being brought lower by the Imperial Capital Report, which was described as "not too favorable," Leap's bank debt had recently jumped as high as 126 bid - well up from levels around 110 bid seen earlier in the month.

Many in the market had cited new valuations as the primary driver behind the recent surge, with a generally held belief that there is great equity value behind the company's name - and because the bank debt holders get equity, along with some new debt, as part of the Chapter 11 reorganization plan, the more equity value people attribute to the company, the better the bank debt trades.

Leap's bondholders, on the other hand, did not buy its distressed bonds with the same fervor, since they are well down the totem pole from the bank debt holders and not likely to get very much out of the restructured company's presumably stronger equity. Their pessimism is reflected in trading levels for the company's zero-coupon discount notes due 2010 which have recently languished around 13.5 bid, while its 12½% notes are still marooned around 16.5.

Besides equity valuations, bank debt market participants have also been anticipating the release shortly of the company's latest monthly financial results, and again, the overall consensus has been that the numbers will show the company turning in good operating performance, even as it restructures its debt.

United steady on figures

United Airlines reported Thursday that it had lost $93 million in the month of May - an improvement from recent performance - and had a cash balance at the end of the month of about $2.2 billion.

Those positives didn't much affect the bankrupt Elk Grove Village, Ill-based air carrier's bonds, which remain tethered around the 9 cents on the dollar level.

Vulture investors are waiting to see how parent UAL Corp.'s latest attempt to line up federal loan guarantees and get private financing plays out.

The Airline Transportation Stabilization Board last week nixed UAL's request for $1.6 billion of federal guarantees, which the airline said were crucial to getting lenders to give it about $2 billion.

However, the three member board left the door open for United to revise its request and come back - and on Tuesday it did just that, coming back with a loan guarantee request of around $1.1 billion - a $500 million difference.

News reports meantime quoted Glenn Tilton, United's chairman and chief executive, as telling employees late Wednesday that the company was focusing on new cost cuts and seeking sources to raise $500 million.

Tilton said that the troubled carrier would "soon be getting feedback from the capital markets on what we need to do to attract investment to the company and its business plan,"

Delta lower

Also in the air, Delta Airlines' bonds were seen continuing to lose altitude Thursday, a day after Moody's cut the company's senior implied rating a notch to Caa1 and lowered its senior unsecured rating a notch to Caa3, expressing concern about whether Delta would be able to get sufficient cost concessions from its pilots, the highest-paid in the airline industry.

A trader saw Delta's 9¾% bonds due 2021 dip to 40 bid from 42.5 bid previously and its 7.90% notes due 2009 were likewise lower at 48.

At another desk a trader saw Delta's 8.30% bonds due 2020 a point lower at 39 bid.

He saw the 10% notes due 2008 half a point down at 52 bid and opined that Delta investors might be better off "if the airline were dead [i.e. bankrupt] than alive." It has so far steadfastly denied any plans to seek Chapter 11 protection as UAL did.

With Delta facing such problems, he said that there was a lot of activity in the secured airline passthrough bonds of Delta and its corporate rivals.

"Airline investors are nervous," he said, "there's lot's of bidding on the passthroughs," which are secured by liens against a carrier's aircraft. "Some are not worth the paper they are written on and some are pretty good. It all depends on the planes - and some of the carriers have some pretty good planes."

Armstrong rises

Back on the ground, Armstrong World paper was seen a point-and-a-half better, its 7.45% bonds due 2029 and defaulted 6.35% notes due 2003 seen at 59.5 and 59.375 respectively, although there was no fresh news on the asbestos situation seen out, a trader said. Armstrong was driven into Chapter 11, like a number of other companies, under a flood of asbestos-related medical claims. The trader saw no activity Thursday in the paper of another asbestos-challenged name, Owens Corning.

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