Delta bonds continue oil-fueled gains; Mirant bank debt seen

By Paul Deckelman and Sara Rosenberg

New York, Dec. 3 - Delta Air Lines Inc.'s bonds were seen continuing to climb towards the wild blue yonder Friday, given a big boost by the continued slide in world crude oil prices and the hope that this might - eventually - take some of the sting out of the high fuel prices that have been battering the bottom lines of Delta and other air carriers in recent months

In bank debt dealings, Mirant Corp.'s paper saw some activity on Friday, although there was no clear reason seen for the renewed interest in the bankrupt Atlanta-based energy company's paper.

Delta's benchmark 7.70% notes due 2005 were being quoted late Friday at 91.5 bid, up from 90 on Thursday, while its 7.90% notes due 2009 had gained a point to end at 59.5 bid, and its 8.30% notes due 2029 got as good as 45 bid, up from 44.5 on Thursday.

At another desk, a trader saw the 7.70s in a 90-91 context, although he had only seen the 7.90s continuing to hover around the middle 50s and the 8.30s holding in the lower 40s.

However, yet another trader confirmed that the 8.30s had managed to reach the 45 level, up a point on the day, and roughly double where those bonds had been when Delta began its amazing surge about three months ago, in early September, when the troubled Atlanta-based air carrier revealed its wide-ranging turnaround plan and pressed its pilots for big paycut concessions, which it eventually got.

He also the 7.90s at 59 bid, 60 offered and the 7.70s at 91 bid, 93 offered - again, both up about a point on the day and double where they had been a quarter ago.

Delta's 8% convertible notes were meantime off 1.75 points, although its 2 7/8% converts added 1.25 points, as hedged players began short-covering, a convertibles market source said.

With Delta having now put its turnaround plan into operation, and having now gotten its more than 7,000 pilots to go along with the $1 billion paycut it sought, and having also made some progress in getting rid of some of its debt - although not as much as it would have liked - and having additionally gotten lenders to front it up to $1 billion in new cash - Delta's bonds are these days riding on the wings of another development - the massive slide that world oil prices have taken since peaking in mid-October.

Back then, light, sweet crude for January delivery was trading at prices above $55 a barrel on the New York Mercantile Exchange - but now, those prices have come down, particularly over the past four sessions, and on Friday they closed at $42.54 per barrel - down 71 cents on the day and off roughly 23% below the recent peak settlement price of $55.17 per barrel, on Oct. 17.

While oil prices have come sharply down - and airline shares and bond prices have headed sharply up, since fuel costs are the second largest expense for most airlines after labor costs - there is still a considerable way to go to get the carriers out of their hole, since the price of oil is still 37% above what it was a year ago. Higher crude prices usually translate to higher prices for distillates, including jet fuel, further down the line.

Still, a trader said, "all of the airlines were a little better" Friday, and he attributed that to the continued decline in oil costs.

He saw Continental Airlines Corp.'s 8% notes due 2005 a point better at 96 bid, 97 offered, while Northwest Airlines Corp.'s 9 7/8% notes due 2007 were half a point better at 90 bid, 92 offered.

However, he added, the Eagan, Minn.-based carrier's "short [dated] stuff did not move."

Mirant loans gain

In bank loan dealings, Mirant's paper was moving around, with the '03 and '04 paper up about a quarter of a point on the day, while the '05 paper was basically unchanged, according to a trader, who saw no particular news as the culprit behind the activity.

The '03 and '04 bank debt was trading in a 69.5 context, while the '05 paper was quoted at 73.5 bid, 74 offered, the trader added.

In another energy name making the rounds of the bank-loan market, there was some talk that an auction for $75 million of Boston Exelon, a project energy loan, took place on Friday morning, according to one trader; however confirmation of this rumor was hard to come by.

"There was noise about there being a piece around this week but I haven't seen it," a second trader said, quoting the paper at 93 bid, 94 offered.

A third trader also had not seen the auction but thought $75 million was a pretty large number.

However, if an auction did take place, it does seem to fit with the recent trend in which energy project finance bank debt, such as Teco Panda and Lake Road, have been unusually active, as banks are trying to sell off some of their positions before year-end.

The Boston Exelon project was owned by Exelon Corp. at one point, but now it is owned by lenders.

Tower bonds gain

Back among the bond investors, R.J. Tower Corp.'s 12 % notes due 2013 were seen having improved - even after the Novi, Mich.-based automotive components maker announced that it would defer the scheduled Dec. 31 dividend payment on its 6¾% preferred shares as a means of conserving cash, citing the "adverse impact" on its liquidity paying the dividend might have. On top of that, Standard & Poor's lowered the company's debt ratings, dropping the affected issue to a defaulted D from CCC+ and the corporate credit to B from B+.

But the notes were seen having firmed to 77 bid from 75.75 previously.

"Go figure," a market source said, in trying to come up with an explanation why an admission that the company is having liquidity problems enough to force it to defer a dividend, and a ratings cut, would push the bonds upward rather than downward.

A trader in distressed issues saw the Tower bonds even better, at 78 bid, 79 offered, up "a couple of points" from prior levels.

Tower's New York Stock Exchange-traded shares were meantime down six cents (2.75%) to $2.12 Friday. Corporate parent Tower Automotive's 5¾% convertible notes were heard to have slipped about a point, with a bid of 63, although a trader said volume was light, as the preferred shares "grabbed all the attention."

Those 6¾% convertible preferred shares shed two-thirds of a point to 10.25, on heavy volume, in response to the news of the deferred dividend.

Mississippi Chemical rise continues

Another name besides Tower seen up was Mississippi Chemical Corp. whose 7¼% notes due 2017 were seen at 68 bid - up about a point on the session, but up a rollicking 10 points from a week before when the bonds were trading in the upper 50s.

A trader observed that "everything is looking happy," in the wake of the rise in Treasuries Friday after the government reported weaker-than-expected November non-farm job creation numbers (112,000, Washington says). But the bankrupt Yazoo City, Miss.-based chemicals company bonds may have been rising on anticipation of the company's Monday court date. Mississippi Chemical will seek confirmation of a plan that gives creditors a 66% recovery on their claims.

It will ask Judge Edward Ellington of the federal bankruptcy court for the Southern District of Mississippi, in Jackson, to approve a plan that would see Mississippi Chemical sold to rival agricultural chemicals maker Terra Industries Inc. for an estimated $315 million.

Sioux City, Iowa-based Terra would provide between 18 million and 20 million of its existing shares to creditors on Mississippi Chemical's emergence and it is negotiating the possible assumption of some of Mississippi's current $160 million in debt. Trade creditors and holders of $215 million in unsecured bonds would own the Mississippi Phosphate division.

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