Airlines stronger on UAL traffic report; Collins & Aikman better on lender call news

By Carlise Newman

Chicago, Oct. 7- Various airlines had a strong finish in distressed debt trading Tuesday, led by UAL Inc., which reported healthier air traffic for the month of September.

UAL's operating unit United Airlines reported a passenger load factor of 74.9%, up 5.4 points versus September 2002. Total scheduled revenue passenger miles declined by 4.1% on a capacity decrease of 11% versus the same period in 2002.

United said it set a company record in September 2003, with 80.4% of its domestic and international flights departing exactly on time.

UAL's 9¾% notes due 2021 were seen at 19 bid, 21¼ offered Tuesday, a rise of 1 point from Monday, a trader said.

He said Delta Airlines Inc.'s 8.30% notes due 2029 were up 1 point at 70 bid, 72 offered. American Airlines parent AMR Corp.'s 9.73% notes due 2014 were up 1.5 points at 62 bid, 64 offered.

"When UAL has a good day, all of the distressed airline names follow suit," the trader said.

Air Canada Inc. bonds did well Tuesday also after news Friday that it had reached an agreement with four different aircraft lessors to restructure the terms on 14 of its aircraft, bringing to 184 the total number of aircraft with new leases.

The news was announced as part of Air Canada's restructuring under the Companies' Creditors Arrangement Act.

Air Canada's 10¼% notes due 2011 were up 2 points to 48 bid, traders said.

"Air Canada paper jumps every time they make these announcements. Frankly we don't see them trade very much. But every so often they cross the desk," one trader said.

The Montreal-based airline said it and its Air Canada Jazz division were about to finalize a deal on another 23 aircraft with six different lessors.

Meanwhile, Collins & Aikman Corp. bonds improved Tuesday, after being weighted by news that the auto parts supplier may be dropped from DaimlerChrysler AG's Chrysler Group list of contractors.

The Detroit Free Press said Friday that Chrysler Group is ready to drop all current and future contracts with the auto parts supplier. Chrysler's current and planned business with Collins & Aikman is worth $1 billion, according to the newspaper.

Collins & Aikman's 10¼% notes due 2006 were seen at 79 bid, 80½ offered, 3 points higher than Monday. The 11½% notes due 2006 were seen at 60 bid, 2 points higher.

Collins & Aikman's term loan B headed higher on Tuesday following a private bank lender call, which people walked away from feeling more positive about the potential to eventually get par back on the bank loan, according to market sources.

"The gist of it is that Chrysler needs Collins & Aikman at least for the short-term. You can't just yank $1 billion of contracts. It takes years to roll over that kind of business," a market source told Prospect News regarding the call during which David Stockman, chairman and chief executive officer of Collins & Aikman, apparently addressed lender concerns.

Although the possibility of Chrysler sending its business elsewhere is a worthy concern, it affects equity and long-term bond guys more than bank lenders due to the relatively near-term maturity of the bank debt with the term loan B due in 2005, the source added.

News reports have said that losing Chrysler's business would be a huge blow to Collins & Aikman, which analysts expect to report a loss this year of $65 million on sales of about $4 billion.

Elsewhere, Fleming Cos. Inc. debt was seen rising a bit Tuesday on news that Core-Mark International Inc., which distributes packaged goods to convenience stores, said it will add three eastern distribution centers, formerly part of Fleming, to its network.

Bankrupt food distributor Fleming will close three convenience business divisions, Core-Mark said.

On Oct. 1, San Francisco-based Core-Mark, the last remaining piece of Fleming, said it is entertaining bids for the company.

Fleming's 9¼% notes due 2010 were quoted at 15½ bid, 17½ offered, a trader said, a rise of about 3 points.

"The bonds were higher because they got rid of more assets, and the fact that they have a potential buyer helped too," he added.

Fleming announced the sale of the company's grocery wholesale assets was completed on Aug. 23.

The Garland Division was acquired by Grocers Supply. The Miami Division was acquired by Associated Grocers of Florida. Associated Wholesale Grocers of Kansas City acquired the Nashville, Memphis, Memphis GMD, Tulsa, Lincoln and Topeka Divisions. C&S acquired the Hawaii, Fresno, Sacramento, Sacramento GMD, LaCrosse, LaCrosse GMD, Massillon and Milwaukee Divisions.

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