Delta surges on financing news; Federal-Mogul bank debt continues to firm

By Paul Deckelman and Sara Rosenberg

New York, Oct. 25 - Delta Air Lines Inc.'s recently volatile bonds continued their up-and-down saga Monday, this time heading solidly upward after the cash-burning Atlanta-based air carrier announced that it had secured $600 million of badly needed liquidity, contingent upon it being able to convince its pilots to make substantial concessions.

In bank-debt trading, Federal-Mogul Corp.'s revolver popped up by another half a point or so on Monday, still pushed up by recently revealed positive financial projections and syndication of its new loans, which are combining to create more focus in the name.

Delta's benchmark 7.70% notes due 2005, which fell sharply most of last week on poor earnings, but which seemed to catch a bid on Friday, ended last week quoted in a 48-50 context; they were seen by traders Monday to have pushed up to the 55-56 area, and one even saw some quotes as high as 59.5 bid late in the session.

He also pegged Delta's 10% notes at 40 bid, 41 offered, and its 7.90% notes due 20109 at 35 bid, 36 offered, with its longest bond, the 8.30% notes due 2029, at 28 bid, 29 offered, up from 24.25-25 previously.

At another desk, a trader saw the bonds "way up," with the 7.70s ending at 55 bid, 57 offered, up from 48 bid, 50 offered on Friday, which in turn was an improvement on Thursday's 44-46 level. He saw the 7.90s advance from 27 bid, 29 offered on Thursday to 30 bid, 32 offered Friday, and from there to 34 bid in Monday's dealings. And he saw the 8.30s firm Monday to 28 bid, 30 offered, up from 24 bid, 26 offered on Friday, and up even further from Thursday's close at 22 bid, 24 offered.

The airline's New York Stock Exchange-traded shares jumped 54 cents (16.67%) to $3.78, on volume of 17.3 million, more than triple the usual turnover.

Delta, after having been slapped around during most of last week's trading after it reported sharply wider than initially expected losses for the historically strong third quarter - $646 million of red ink, or $5.16 a share - and revealed that it was burning through planeloads of cash at an alarming rate, seemed to reverse course Friday, and continued heading skyward Monday.

Pushing up the bonds, according to market observers, are expectations that the carrier might be near an agreement with its pilots union on a concession package that could help Delta dodge the bankruptcy bullet. Delta and its captains, who are considered the best-paid in the industry, have been wrangling for months over the size of the concessions the airline will finally wring from the pilots, with Delta demanding $1 billion in annual savings and the captains offering somewhat less.

However, the pilots recently presented Delta with a new offer, seen as a likely improvement on their earlier offer of $705 million of concessions.

Delta's new financing

Besides needing the $1 billion to stay out of Chapter 11, Delta has an added incentive to get the pilots to fall in line. In a news release and Securities and Exchange Commission filing Monday, Delta indicated that a unit of American Express Co. had agreed provide up to $600 million in financing, if Delta can cinch a deal with the Air Line Pilots Association, which represents some 7,500 Delta pilots.

Under terms of the tentative agreement, American Express Travel Related Services Co. Inc. will front Delta up to $100 million in loans, and give the airline the remaining $500 million by prepaying SkyMiles, part of Delta's frequent flier miles program. American Express and Delta already have an arrangement that lets the credit card company's card holders earn frequent flyer miles from Delta with their purchases. There was no specific time frame given for the financing, although as outlined in the filing, Delta would get the first half of the $500 million when it meets the conditions of the agreement, and the rest at least 90 days afterward.

After the market had closed for the day, Delta had further good news on the financial front; it said that it had reached an agreement with holders of some $135 million face amount of the 7.70% notes to defer receiving payment, by exchanging those notes for newly issued 8% notes due 2007, plus Delta shares under a pro-ration formula.

Other airlines steady to firm

While Delta's notes were climbing, other air carriers continued to merely hover around their recent levels, or were perhaps just a bit higher.

A trader said he "hadn't seen any movement in AMR, United or Northwest Airlines, nor had he seen the troubled bonds of ATA Holdings Inc., the latter issue last seen languishing around 26 bid, 28 offered on concerns the Indianapolis-based carrier might soon run out of money.

Another trader, meantime saw the bonds of some other airlines up perhaps half a point, given a little bit of lift from Delta's surge. He quoted Continental Airlines' 8% notes due 2005 at 90.5 bid, 92.5 offered, while AMR's 9% bonds were at 57 bid and NorthwestAirlines short-dated bonds firmed to 98.

Federal-Mogul loans up again

Back among the bank debt players, Federal-Mogul's revolver was quoted Monday at 93 bid, 94.5 offered, a trader said, up from 92.5 bid, 93.5 offered on Friday.

In fact, since the Southfield, Mich.-based automotive parts maker's filing of financial projections with the bankruptcy court on Wednesday, its bank debt has been steadily climbing.

Those projections included estimates for the fiscal year ending Dec. 31, of $1.23 billion in profits on projected revenues of $5.89 billion, $55 million in earnings on net sales of $5.94 billion for 2005, $202 million in net profits on revenues of $6.09 billion in 2006 and $246 million in earnings on sales of $6.23 billion in 2007.

Furthermore, EBITDA for the fiscal year ending Dec. 31 is estimated at $585 million, $683 million in 2005, $860 million in 2006 and $929 million in 2007.

Also, pushing the paper higher was Wednesday's launch of its $500 million 12-month revolving replacement debtor-in-possession facility and $1.43 billion exit facility, since it created an environment in which there's more information available on the credit and brought the name back into the spotlight.

However, a trader in distressed bonds said that after their having firmed last week on the earnings projection, Federal-Mogul's bonds have since been anchored around the 28.5 bid, 29.5 offered area.

Armstrong, Owens Corning better

However, he saw the bonds of other bankrupt companies with asbestos-related problems a bit firmer, with Armstrong World Industries notes at 64 bid, 66 offered, and Owens Corning's bonds at 49 bid, 51 offered, both up a point on the day. But he said that "with two-point spreads like that, I don't consider that to be anything."

He also saw bonds of RCN Corp. a point better, with the bankrupt Princeton, N.J. -based telecom operator's 10% and 11% bonds at 52 bid, 54 offered, and its 10 1/8% notes and 9.80% notes at 53 bid, 55 offered.

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