Delta bonds gyrate, end up modestly; Horizon bank debt in correction

By Paul Deckelman and Sara Rosenberg

New York, Aug. 19 - Delta Air Lines Inc. bonds were being batted around Thursday like a small regional service plane flying into the teeth of a storm - first zooming sharply skyward on the prospects for a restructuring of the troubled Atlanta-based carrier, but then giving back most of those gains, though not all of them, after Standard & Poor's downgraded the company's ratings.

Among bank debt investors, the debt of Horizon Natural Resources - formerly AEI Resources - headed lower, correcting itself after a sharp pop on Wednesday.

Delta's benchmark 7.70% notes due 2005 hit highs of 52 bid, 53 offered, well up from their Wednesday close at 45 bid, 46 offered - but then came "right back down," a trader said, after S&P cut the ratings on the company's corporate credit and senior secured debt to CCC from CCC+ previously, while knocking the senior unsecured debt rating down to CC from CCC- previously. It said the outlook was negative.

The downgraded was based on the ratings agency's concern that Delta might try to force some of its bondholders - who have $1.7 billion face amount of aircraft-secured certificates - to accept below face value for their certificates in an out-of-court debt restructuring, which S&P said would be tantamount to a default. After the S&P downgrade, the Delta bonds quickly lost altitude, with the 7.70s closing at 47.5 bid, 48.5 offered, "still up a couple [of points] on the day, but way off the high," the trader said.

Delta's 8.30% notes due 2029, which had closed Wednesday at 28 bid, 29 offered - well up from prior lows around 25 - shot up to 32 bid, 33 offered in the early going Wednesday, but then came right back down after S&P announced the downgrade, with the bonds finishing at 29 bid, 30 offered, well below their day's highs, though still up one point on the session.

Loral higher on plan filing

Elsewhere, traders saw Loral Space & Communications bonds, and those of its Loral Orion subsidiary, shoot up after the New York-based communications satellite company filed its Chapter 11 reorganization plan with the U.S. Bankruptcy Court for the Southern District of New York.

"That was the name that was really trading on an otherwise pretty lackluster day," a trader said. He saw the Loral Orion 10% due 2006 climb to 79.5 bid, 80.5 offered from prior levels around 74 bid, 76 offered.

At another desk, a trader saw the company's 9½% notes rise to 34 bid, 36 offered from previous levels around 31 bid, 33 offered.

Loral, in Chapter 11 since July 2003, envisions emerging from bankruptcy by year's end.

The company said that under its plan, Loral's two businesses - Space Systems/Loral and Loral Skynet - will emerge intact as separate subsidiaries of a reorganized Loral. Space Systems/Loral, the satellite design and manufacturing business, will emerge debt-free.

Bondholders and other Loral Orion creditors would own the revamped company's common stock and would also receive an aggregate of $200 million in new senior secured notes to be issued by the reorganized Loral Skynet, Loral's satellite services subsidiary.

Loral said that its plan is supported by a committee of unsecured creditors.

Trico steady, Twinlab up

And Trico Marine Corp,'s bonds were seen little changed, despite the "going concern" warning included in the Houma, La.-based offshore oil drilling services' provider's latest quarterly figures. The bonds were seen tethered to their recent 48 bid, 50 offered level.

Vitamin-maker Twinlabs' bonds seemed to be a little healthier Thursday, as they firmed to 26.5 bid, 27.5 offered, from prior levels around 22 bid, 23 offered. The bonds, he said, had been around that prior level "forever," and then "just fell off everyone's radar screen" before re-emerging. He saw no fresh news out on the company, however.

Horizon loan drops

Back on the bank debt side of the fence, Horizon Natural Resources' debt was quoted having slid to 101 bid, 103 offered from 104 bid, 106 offered on Wednesday, basically as a way of correcting itself, since although "it popped up [before], there were no real bids out there," a trader said.

The company's bank debt has consistently been moving higher over the past week or so, with the rally started after a federal bankruptcy judge ruling that the Ashland, Ky.-based coal producer's does not have to honor union contracts, eliminating medical coverage and retirement benefits, and making the company more attractive to buyers.

Things got even better once Wilbur Ross' Newcoal LLC, Oldcoal LLC, in partnership with A.T. Massey Coal Co., won the court mandated auction, subject to court approval, for the company with a $786 million bid - split between $304 million in cash, $482 million in second-lien notes - plus the assumption of liabilities.

So, with all this positive news creating positive momentum, the bank paper is now quoted very much over par, which begs the question of what bank debt holders are expecting to get in return for their paper since - based on trading levels - it is obviously not a straightforward par paydown.

"Bank holders will have equity at the end of the day," the trader said. "Like James River, a comparable company. James River on the bank equivalent us over 200. It's all equity now."

On May 6, James River Coal Co., a Richmond, Va. coal mine operator, emerged from its year-long-plus Chapter 11 process, and, as part of the restructuring, exchanged approximately $266 million of bank debt for restructured term debt of approximately $75 million secured by a second lien on substantially all assets and 6.9 million shares of new common stock.

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