Delta bonds continue nosedive on Friday wider-loss warning

By Paul Deckelman and Sara Rosenberg

New York, Oct. 18 - Delta Air Lines Inc.'s bonds were sharply lower for a second straight session Monday, with the solid two-session upsurge of late last week all but relegated to a memory, putting the troubled Atlanta-based air carrier's notes right back to where they were before they began gaining on the prospect that Delta might soon solve its labor- and debt-cost problems.

Delta's benchmark 7.70% notes due 2005, which had shot as high as 65 bid last week before coming off those peak levels Friday to close south of 60, were seen in freefall on Monday, dropping to about 49 bid.

Its 7.90% notes due 2009, which had managed to push up as high as the 37-38 area last week before retreating Friday to around 35.5, fell four points Monday to 31.5, a market observer said, while the company's 8.30% notes due 2029, having touched levels above 30 last week before ending at 28.5 Friday, continued to lose altitude, to end at 26 bid.

A trader in distressed bonds called the recent movements in the air carrier's bonds "crazy, crazy, crazy" noting the way they have been yo-yoing around.

"They had all traded up [last week] - don't ask me why. They're coming right out and telling you, they ain't gonna make it." He saw the 8.30% notes even lower than others were quoting them, around 25 bid, 27 offered.

At another desk, the 7.70s were seen even lower, at about 47 bid, while the usually little-traded 10 3/8% notes due 2011 were pegged at 32 bid, five points below Friday's levels.

Delta's New York Stock Exchange-traded shares were moving in the same kind of crazy zig-zag pattern as the bonds - up over 21% last Wednesday, then up another 10% Thursday, before swooning nearly 19% on Friday. In Monday's dealings, the shares kept heading southward, dropping another 31 cents (9.06%) to $3.11, on volume of 7.3 million shares, about 1½ times the norm.

The Delta bonds had firmed smartly on Wednesday on the news that the union representing the company's 7,500 pilots had submitted a new proposal in response to management's demand for $1 billion in annual wage cuts from the captains. Previously the pilots had offered about $705 million in salary cuts to Delta, which wants to bring its employment costs into line with those of rival carriers. Delta had called that inadequate, so news that the pilots were making a new proposal was seen as a hopeful sign that the pilots would be willing to make sacrifices to keep Delta flying.

The stock and bonds again pushed skyward even more dramatically Thursday after Delta extended and amended the terms of its previously announced effort to swap up to $680 million face value of new debt for $1.56 billion principal amount of existing unsecured debt and secured equipment passthrough certificates held by qualified institutional buyers.

Although the debt involved represents only a small portion of Delta's total of $20 billion of obligations, the exchange offer is being called crucial to Delta's efforts to restructure that big debt load. So far, it has pretty much fallen on deaf ears, with only a small percentage of the more than $2 billion of eligible debt being exchanged for, at a discount, having been tendered. Delta sweetened the terms of the offer to hype investor participation, including offering more of the new notes for existing debt, and offering stock to some debt holders.

But all of the good vibrations coming from the pilots' offer and extension of the debt exchange vanished suddenly Friday, and continued vanishing Monday, as the company said in an 8-K filing with the Securities and Exchange Commission that it expects to post a loss of between $625 million and $675 million for the quarter - as much as four times the loss it had a year ago. On a per-share basis, Delta sees a loss of $4.99 to $5.39, wider than the $3.78 a share analysts have been projecting, and far wider than the year-ago $164 million of red ink, or $1.36 per share. Delta blamed its anticipated worse-than-expected numbers on weak domestic fares and a spike in fuel costs.

Those factors have helped to accelerate an already worrisome cash-burn rate. Delta had about $2.7 billion of cash or short-term equivalents on hand at the start of the year, but that had been whittled down to $2 billion by June 30. The airline continued to eat through its once-sizable cash stockpile at an even faster rate during the quarter, bringing it down to $1.45 billion by Sept. 30

Delta further warned that even though it is on track to reach about $2.3 billion of its targeted $5 billion in annual cost cuts by the end of the year, its situation is so serious that it will still face a liquidity crunch. Even if it achieves its full $5 billion target of cost cuts by next year, Delta will still need to raise about $800 million of new financing in 2005, and defer $325 million of debt scheduled to mature that year.

Airlines lower

Delta's problems helped to cast a pall over the whole airline sector, a trader said, while acknowledging there was not very much activity among the other carriers. He said he had been "seeing some offerings" on American Airlines, in the 50s. "So those were sympathy pains."

The trader opined that "none of the airlines have any bids to them, really," although he added "I don't know anybody on the ropes like these guys [Delta] right now - except for the whole industry."

Asbestos bonds steady

Elsewhere, the trader saw little movement in the bonds of asbestos-challenged companies, such as Armstrong World Industries, Owens Corning and Federal-Mogul Corp. He pegged Lancaster, Pa.-based floorcovering maker Armstrong's bonds at 63 bid, 65 offered, Toledo, Ohio-based insulation maker Owens Corning's bonds at 48 bid, 50 offered, and Southfield Mich.-based auto parts maker Federal-Mogul's at 28 bid, 30 offered, all unchanged from recent levels.

Parmalat rises

He did see some movement in Parmalat Finanzaria SpA's bonds, up to 17 bid, 18 offered from previous levels at 15 bid, 17 offered, despite a lack of fresh news about the Italian based international dairy products giant, driven into insolvency in late 2003.

Adelphia lower

Back at home the trader reported Adelphia Communications Corp. Bonds "down one or two points, three points," possibly because some investors "think [the sale of the company's assets at auction] might not happen for a while, might be delayed again. There was no fresh news out that would indicate any holdup in the bankrupt Greenwood Village, Colo.-based cable operator's asset sales - but its 10¼% notes due 2006 were seen easing to 86 bid, 88 offered and its 101/4s due 2011 were at 89 bid, 91 offered, "both down two or three points on the day, " the trader said.

Players in distressed bank loans meantime reported a very quiet market Monday, with no new features.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.