Northwest bank debt, bonds fall on S&P downgrade; asbestos off on Capitol Hill logjam

By Paul Deckelman and Sara Rosenberg

New York, Sept. 6 - Northwest Airlines Corp.'s term loan B dropped off by half a point during Tuesday's session and its bonds were also seen lower as Standard & Poor's downgraded Eagan, Minn.-based Number-Four airline carrier's corporate credit rating to CCC- from CCC+.

However, the other notable troubled air operator, Delta Air Lines Inc., was seen firmer, given a little lift by news of moderating oil prices.

Apart from the airlines, bonds of companies with major asbestos liability problems were seen lower on the prospect that Senate action on the proposed claims mechanism bill may be weeks away, at the earliest, due to a host of competing priorities on Capitol Hill.

Northwest's term loan B was quoted at 98.5 bid, 99 offered at the close Tuesday, off from previous levels of 99 bid, 99.5 offered, a trader said.

On the bond side of the ledger, a trader saw most of the company's bonds down two points, with the 9 7/8% notes due 2007 falling to 39 bid, 41 offered, its 10% notes due 2009 at 34 bid, 36 offered, and its 7 7/8% notes due 2008 at 33 bid, 35 offered, all down a deuce. He did, however, see Northwest's widely quoted 8 7/8% notes due 2006 actually a point better at 49 bid, 51 offered.

Another trader pegged Northwest's 8.70% notes due 2007 three points below Friday's abbreviated-session finish, ending Tuesday at 39 bid, 41 offered, while its 6 5/8% notes due 2023 were down "not quite three points" at 37.5 bid, 38.5 offered.

A market source at another desk saw the 7 7/8s at 35 bid, which he said was down three points.

However, a trader at another desk said the fall was not as bad as others made it out to be; he saw the company's 8 7/8s ending down half a point from Friday at 50.5 bid, 51.5 offered, having bounced off levels as low as 48 bid, 49 offered seen earlier in the day.

"They did come back, taking a little ride with equities moving up, a little ride with oil prices down - but still, nothing great."

Northwest's Nasdaq-traded shares were down four cents on the day (1.10%), at $3.59.

In downgrading Northwest, S&P pointed to fuel and labor issues as the drivers behind the downgrade.

"Northwest is managing through a strike by its mechanics well, but dramatically increased fuel expense and delays in securing needed concessions from other unions have deepened losses and are eroding its liquidity," credit analyst Philip Baggaley wrote in the downgrade message. "The company foresees a loss of $350 million to $400 million in the third quarter, normally its strongest period, and unrestricted cash had declined to $1.7 billion at Aug. 31, from $2.14 billion at June 30, 2005."

In addition, Northwest has suggested a continuing need to restructure its debt and lease obligations to improve future liquidity, raising the possibility that such moves might involve distressed debt exchanges that S&P would consider a selective default, the rating agency added.

Delta higher as oil eases

Meanwhile, Delta Air Lines bonds were seen higher on the session, helped by the oil price decline, market participants said.

Delta's bonds were up a point across the board, said one trader, who quoted its benchmark 7.70% notes scheduled to come due on Dec. 15 at 21 bid, 23 offered, its 10% notes due 2008 at 17 bid, 18 offered, and its 7.90% notes due 2009 at 15 bid, 17 offered. He saw Delta's 8.30% notes due 2029 two points better at 15 bid, 17 offered.

Delta's New York Stock Exchange-traded shares jumped 12 cents (12%) to $1.12, on volume of about 17 million, double the norm.

Crude fell for a second straight session, on the news that some of the hurricane-damaged refineries, pipelines and other energy facilities might be back on line as soon as later in the week. Light sweet crude for October delivery ended down $1.67 at $65.90 per barrel on the New York Mercantile Exchange on Tuesday, well below the panic-induced peak levels of over $70 a barrel at which the black gold traded last week. Experts cautiously believe that oil prices could start trending modestly lower.

Delta was also helped by the Atlanta-based Number-Three carrier's announcement that its passenger traffic and load factor - the percentage of filled seats on the average flight - rose in August.

Systemwide, including Delta's Song low-fare operation and regional airlines, August system traffic rose 6.8% while capacity increased 5.1%. Load factor totaled 80%, up 1.3 percentage points from last year. Delta's mainline traffic - the flagship Delta Air Lines operation alone - rose 6.3% while load factor rose 2.6 percentage points to 81.8%, the company said.

AMR down

While Delta gained on the lower oil price, AMR Corp.'s bonds were lower, with a trader expressing mystification as to why that might be, having seen no fresh news out about the Fort Worth, Tex.-based industry-leading air carrier.

He quoted AMR's 9% notes due 2012 at 74 bid, 76 offered, and its 9% notes due 2016 at 73 bid, 75 offered.

Mirant bonds higher

Back on the ground, traders saw better levels for the bonds of the bankrupt Atlanta-based energy generation company Mirant Corp.

Mirant, one of them said, was "up one to two" points, with its 7.90% notes due 2009 up two points at 105 bid, 106 offered.

He also saw Mirant's 7.40% notes two points up at 104 bid, 105 offered, while its 2½% convertible notes due 2021 went to 93 bid, 94 offered, and its 5¾% converts due 2007 were at 102 bid, 103 offered.

"There was some interest today" in Mirant bonds, a trader said, quoting the 7.90s at 106 bid, 107 offered, up from 103.5 bid, 105 offered on Friday.

"It was a big move," he said, "but I didn't see any news jump out."

Asbestos names lower

Asbestos-challenged bonds were seen off a point or so Tuesday, after Senate Judiciary Committee chairman Sen. Arlen Specter said that he hoped to get final senate action going on the planned $140 billion asbestos claims mechanism by early October, a time frame some observers feel is overly optimistic, given the sudden crush of business on The Hill, including the need to hold a confirmation hearing on a second Supreme Court nominee and Hurricane Katrina-related legislation.

That bill has been kicking around since the beginning of the year, and each time Specter has expressed hope for getting it voted on, the bill somehow keeps getting delayed.

A trader saw the bonds of bankrupt Toledo, Ohio-based insulation maker Owens Corning down two points, like its 7 1/8% notes due 2018 which ended at 86.5 bid, 87.5 offered. Bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries' bonds likewise two points lower, at 81.5 bid, 82.5 offered.

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