Federal-Mogul bank debt firms a bit; Delta bonds earthward bound as oil prices take off

By Paul Deckelman and Sara Rosenberg

New York, July 28- Federal-Mogul Corp.'s bank debt was stronger on the session Wednesday, with the investors possibly reacting to company statements on the progress of its bankruptcy case.

Among bond investors, Delta Air Lines Inc.'s notes were on a downward spiral, as the Atlanta-based air carrier was seen as the hardest hit among a generally softer airline sector in the wake of sharp rises in world crude prices - rises which are likely to translate into more expensive jet fuel down the road.

Federal-Mogul's bank paper was up by a quarter to a half a point on the day with the paper quoted at 92.5 bid, 93.25 offered, a trader said.

On Wednesday, the Southfield, Mich. Automotive components maker - driven into bankruptcy several years ago under a flood of asbestos-related lawsuits - reiterated in an announcement that the U.S. Bankruptcy Court in Wilmington, Del. had approved Federal-Mogul's disclosure statement, setting a Nov. 3 voting deadline and a Dec. 9 confirmation hearing.

The news had previously surfaced in court filings and was reported by Prospect News on June 4.

It was theorized that the company's statement Wednesday and the resultant news coverage and stories moving across the tape made market players not aware of the information, aware of it, helping to push the bank debt higher.

Meantime, Federal-Mogul's bonds, which had firmed recently to around the 29 bid level from prior levels around 26 after the company released favorable earnings data, remained anchored around that 29 level.

Federal-Mogul sought bankruptcy protection in October 2001.

Elsewhere on the asbestos front, a trader said there was "no movement" in the bonds of other companies currently in reorganization as a result of their exposure to legal claims stemming from asbestos products they or their subsidiaries may have made in decades past. Toledo, Ohio-based Owens Corning Inc.'s bonds remain in a 43 bid, 44 offered context, while Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc.'s bonds remain around 61 bid, 62 offered.

Energy loans unchanged

Elsewhere, with all the bank debt allocations that took place on Wednesday in the par market, investors had little time to focus on the energy "crossover" names that suffered in Tuesday's weaker market, leaving many of those names pretty much unchanged on the day.

For example, Calpine Corp.'s second lien (not the San Jose, Calif.-based independent power producer's CalGen unit's second lien, as was incorrectly reported in Tuesday's issue) remained around 86 bid, 87 offered, or if quoted wide, 85.5 bid, 87.5 offered, according to a trader.

And, Houston-based energy operator Reliant Energy Inc.'s bank debt remained quoted at 99.5 bid, 100.25 offered, according to another trader.

"It hasn't really traded out there," the first trader said. "The new issue allocations took guys' attention away [from energy and cable] so pretty much unchanged but that's on little volume."

On Tuesday, Calpine's second lien debt had fallen by about three points before ending in the 86 bid, 87 offered context, and Reliant Energy's bank paper fell by about

Airlines suffer as oil rises

Back on the bond front, the news that crude oil prices had climbed almost to the $43 a barrel mark - the highest they've been in at least 21 years - after authorities in Russia told embattled petroleum giant Yukos to halt sales while its straightens out an alleged $3.4 billion tax debt were seen having an impact on sectors of the economy that are heavily dependent on oil - which translated into bad news for the high yield airline sector in general and for struggling Delta Air Lines in particular.

Crude ended Nymex trading Wednesday at $42.90 a barrel, and those higher prices are likely to be passed along to end users - including the airline companies that buy huge amounts of jet fuel from the refiners.

The airlines were "getting smoked" as oil prices "went to the moon," a trader said during the session, although after the close, he said that after the carriers "got hit, they caught a bid and began to move back up a little."

He saw Delta's 8.30% notes due 2029 having traded down to about 34 bid before coming up from that trough to end around 35.5 bid, 36 offered. On the short end of the curve, Delta's 7.70% notes due 2005 bottomed out around 59.5 bid, 61.5 offered, he said, before firming a little from that low to 60 bid, 61 offered.

"All of the airlines got hit," he said, although Delta was clearly the worst performer; he quoted Northwest Airlines Corp.'s 7 7/8% notes due 2005 at 96.5 bid, 98 offered at the close, while Continental Airlines Inc.'s 8% notes due 2005 finished around 87.5 bid, 89.5 offered.

Another trader said that the Delta bonds "got beat up," as the 8.30s, which he called "the most volatile" Delta issue, dropped to around 35 bid from Tuesday levels at 39 bid, 40 offered, and then came back up slightly to 36. He pointed out, though that "from the news last week, when the pilots offered a more than 20% cut in pay and the notes traded up to 44, they're down nearly 10 points on the week."

Likewise, he said, the 7.70s, offered around 60-61, were down four points on the day and well down from their recent highs in a 70 bid, 72 offered context, following the pilots' offer to the company of 23.5% in pay concessions.

Delta has continued to publicly jawbone its pilots' union on the need for larger pay concessions if the airline is to have a viable cost structure for the long-term - give-backs even beyond the 23.5% the line's 7,500 captains indicated last week that they'd be willing to make. The company's insistence that the Air Line Pilots Association offer was just a first step but would have to be enlarged, helped knock Delta's bonds off the relatively high perch to which investors had taken them to on the initial news of the pilots' offer.

He also saw Delta's 7.90% notes due 2009 at 41 bid, 43 offered, down from levels in the high 40s just a few days ago, on the pilot news.

"Delta continues to get weak," yet a third trader said, "even lower in the gutter," pegging the Atlanta-based air carrier's 8.30% notes as having come down to around 35 bid, 36 offered from the 36 bid, 38 offered context in which the bonds had traded previously, so they are off a point or two.

Commenting on the pilots' offer last week of more substantial give-backs than the 13.5% the union had previously offered, he opined that "I don't care how much in concessions you get out of the employees - [if] at a certain point, oil is going to be up there for an extended period of time - [several] quarters, a year, or even higher, like $50 a barrel, there's no amount of concessions that's going to make this company be OK.

"So that's what we're seeing. [Investors] are saying 'okay, we have some good news [with the pilots being willing to compromise], but guess what? They have other expenses that are huge as well, and getting higher.' So they have that to deal with."

He saw the carrier's 7.90% notes "off as well," dropping to 41 bid from prior levels around 45, while Delta's 7.70% notes, which had traded in a 63 bid, 65 offered context on Tuesday, were being offered at 61.

"Man, UGGGGGGLY," he exclaimed.

Atlas up on emergence

Also among the airlines, news that Atlas Air Worldwide Holdings Inc. had emerged from Chapter 11 pushed the Purchase, N.Y.-based air cargo operator's notes up about three points on the session, traders said, with one quoting its 9¼% notes due 2008 at 53.25 bid, up from recent levels at 50. He also noted that Atlas Air notes trading with stock-purchase rights attached trade about three points higher than those levels.

Another trader saw the Atlas bonds without rights at 54 bid, 55 offered, and with rights at 57 bid, 60 offered.

Atlas sought protection in a filing in January with the U.S. Bankruptcy Court for the Southern District of Florida, in Miami. Its Plan of Reorganization was confirmed by the court on July 16.

Adelphia convertibles active

Meanwhile Adelphia Communications Corp.'s convertibles were active Wednesday, bouncing all over the map, as the debate rekindled about consolidation in the cable sector. While higher at some points in the session, they nonetheless ended the day lower.

Adelphia convertibles were "bouncing all over," trading up as well as lower anywhere from 22 to 26, a sellside dealer said, on the merger chatter abounding in the cable sector.

Another sellside convertible dealer said the Adelphia 3.25% convertible bonds ended off about a half point on the bid side and the Adelphia 6% convertible bonds off about a half point of the offer side.

"I can see [Paul Allen, chairman of Charter Communications] going in with partners" to buy Adelphia out of bankruptcy, the trader said.

"If the price for the whole shebang is $18 billion, then $8 billion of that is the assumption of the debtor-in-possession facility. Of the $10 billion remaining, Paul puts up $3 billion and gets a partner or partners to put up $7 billion," he continued.

"Then, [Carl Vogel, chief executive of Charter] steps in, administering all the Adelphia assets for a fee. Vogel leads the executive group that starts to swap, trade, and sell off Adelphia assets to Comcast, Cox, Time Warner, et cetera.

"Charter keeps what's most valuable to its systems and pockets up to $7 billion cash in the process and pays off some of Charter's debt with the cash."

(Ronda Fears contributed to this report.)

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