Leap Wireless readies exit from Chapter 11; Delta bonds fall as carrier eyes turnaround strategy

By Paul Deckelman and Sara Rosenberg

New York, Aug. 16 - With an exit from Chapter 11 expected any day now, Leap Wireless International Inc.'s bank debt has ceased trading the "old way" and is now trading on a "when-issued" equity and bonds basis, bank debt traders said Monday.

Bond players meantime noted the continued erosion of Delta Air Lines Inc.'s notes, even as the beleaguered Atlanta-based air carrier gets ready to unveil what it hopes will be a strategy for turning around its faltering operations - one that includes possible cuts in its far-flung domestic network and a greater emphasis on premium-priced long-haul routes offering greater customer amenities.

Leap's reorganization plan calls for senior secured vendor debt claims to get 96.5% of the 60 million new shares of stock that will be issued and a share of $350 million of new senior secured pay-in-kind notes. The remaining 3.5% of the new common stock will go to the creditor trust.

Since people know how much their bank debt claim is worth in terms of equity and PIK notes, the equity and notes are now what is trading as opposed to the actual bank debt, a trader explained.

"It's a sad day here," another trader said, apparently missing the usually active and somewhat volatile Leap bank debt.

Leap is a San Diego-based wireless communications company that filed for bankruptcy on April 13, 2003.

Delta 7.7s break 40 barrier

Delta, meantime is hoping to avoid having to file for bankruptcy, although its bonds are continuing to trade more and more as though bankruptcy is a foregone conclusion.

On Monday, Delta's 7.70% notes due 2005 were heard to have breached 40 cents on the dollar, falling to 38 bid, 39 offered, from prior levels at 41 bid, 42 offered.

At the other end of the maturity curve, Delta's 8.30% notes due 2029 were seen as low as 25 bid, 26 offered from prior levels in the 28-29 area.

A trader also saw the company's 2010 notes trading at 29 bid, 30.5 offered, down from prior levels at 31 bid, 33 offered. He also saw Delta's 7.90% notes due 2009 at 28.5 bid, 29.5 offered, unchanged.

"There wasn't much change" in most of the Delta paper, he said, but "the 7.70s of '05 definitely seem to have lost their bid, a little bit, he said. "The shorter paper got hit." He quoted another, less traded short Delta issue, the 7.779% notes due 2005, also down two points on the session at 38 bid, 40 offered from 40 bid, 42 offered on Friday.

It may be a horror story for noteholders still unfolding, but, he quipped, "they're ready when you are" - a reference to a long-ago Delta advertising campaign when the Atlanta-based carrier was aggressively fighting its way into the Number-3 U.S. carrier position by offering more flights round the clock than may of its rivals.

Delta's plan

Delta's survival strategy might well involve offering fewer flights around the clock, conceding market share to both its hub-and-spoke network carrier rivals and the upstart low-price carriers like Jet Blue and Air Tran that, along with veteran low-pricer Southwest Airlines, are increasingly eating Delta's lunch - and that of the other big network operations as well.

Delta's chief executive officer, Gerald Grinstein, and other senior execs are scheduled to brief members of the company's board on Wednesday on the closely guarded turnaround plan Delta has been working on for many months now - a plan that they hope will keep Delta from following the lead of such recently bankrupt carriers as US air Group and United Airlines.

Delta for the past roughly six months has been engaged in a comprehensive examination of every aspect of the way the company does business, from its route structure to how and where it buys large quantities of such mundane items as plastic forks and packets of salt and pepper, in hopes of being able to shave off a few nickels here and a few dimes there - which add up - and reinvent itself as a leaner, smarter, more efficient company.

Once Grinstein and his crew finish briefing them on how to save money and generate greater returns through changes large and small, the board will review the plan and make recommendations and decisions on certain initiatives.

Those initiatives would then be rolled out in what the company considers an appropriate manner.

Grinstein was quoted in news reports Monday as saying that a key part of the turnaround is for Delta to seek new markets, domestically and internationally - while abandoning some of its old ones, although he named no specific names. The Wall Street Journal, citing people familiar with Grinstein's discussions with company executives and in closed-door meetings with employees over the past month or so, said that the CEO envisions a new focus on long-haul routes - where revenues are typically higher because of premium offerings - and abandoning some shorter routes to avoid the cutthroat competition with JetBlue and the other low-cost challengers.

Grinstein has also reportedly said that Delta should offer more amenities to passengers that would justify charging higher fares on the long-haul routes and would differentiate Delta from its rivals. Part of Delta's problem - as is the problem with the entire airline industry - is that fares are being kept low by competition at a time when costs, notably for fuel, continue to spiral skyward.

Delta is also burdened with one of the highest labor cost structures in the industry. It is trying to convince its pilots' union to go along with a package of $1 billion in pay cuts that the airline says it needs in order to bring its costs down to reasonably competitive levels. Delta's 7,500 pilots, among the highest paid in the industry, have so far offered about $750 million of pay cuts.

Also among the carriers, United's bonds were heard continuing to languish at the same 5.5-6 bid level they've recently held.

United, currently in Chapter 11, is battling in the courts against its unions and federal pension regulators, who want the Elk Grove Village, Ill.-based carrier to be forced to continue to live up to its pension obligations - even if that puts them afoul of its lenders.

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