Delta bonds retreat from Thursday levels; Adelphia-related bank debt seen active

By Paul Deckelman, Sara Rosenberg and Ronda Fears

New York, Aug. 20 - Delta Air Lines Inc. bonds were seen lower in relatively quiet trading on a sleepy summer Friday, traders said - a sharp contrast to the wild, turbulent ride, bouncing around at higher levels, which the bonds had taken during Thursday's session.

Among bank debt investors, Adelphia Communications Corp.'s non-co-borrower Parnassos bank debt was seen trading Friday in the 99 bid, 99.75 offered context, according to a trader, who said that levels were pretty much unchanged on the day.

There was no specific reason for the activity other than an investor decided to sell his debt, the trader added.

There was meanwhile no fresh news seen out on the bankrupt Greenwood Village, Colo.-based cable operator, and little activity reported in Adelphia's own bank debt or bonds.

Elsewhere, the new 101 bid, 103 offered level that surfaced on Thursday for Horizon Natural Resources' bank debt apparently has some staying power, as quotes were unchanged in Friday's quiet market, a trader said.

The paper had moved down to those levels from the 104 bid, 106 offered peak seen on Wednesday, in an attempt to correct itself, as no real bids were seen at those higher quotes.

Earlier in the week, 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 bankrupt Ashland, Ky.-based coal producer - formerly known as AEI Resources - with a $786 million bid.

That bid was split between $304 million in cash and $482 million in new second-lien notes - plus the assumption of the company's liabilities.

And, as part of this acquisition, bank debt holders anticipate receiving some equity in the company, as opposed to just a straightforward par paydown.

The notion that Delta Air Lines might be able to get its pilots' union to swallow a 35% pay cut that would save the troubled Atlanta-based airline $1 billion annually, possibly by offering them equity in the company, helped to fuel a rise in Delta's bonds for most of the past week, particularly on Wednesday, when the company confirmed that it would restart talks with the union representing its 7,500 captains the following day. But after additional strong gains early in Thursday's trading, on the hopes that Delta could get the pilots to come up from the 23% pay cut they had offered to take - that would save Delta about $700 million annually, which the airline said was not enough - the bonds fell back from their early highs and in fact gave up most of the day's gains, after Standard & Poor's downgraded the company's ratings,.

That negative momentum continued into Friday. It caused the bonds to finish pretty much where they had been at the close on Wednesday, as though Thursday's wild and crazy session had never even occurred.

A trader pegged the Delta's 7.70% notes due 2005 at 45 bid, 47 offered, down from 49 bid, 50 offered late Thursday, and saw the company's 8.30% bonds due 2029 drop to 27 bid, 28 offered from 29 bid, 30 offered previously.

Another trader saw "the long stuff in the high 20s, while the shorter stuff was in the low-to-mid 30s," for instance, the company's 10% notes due 2008 at 34 bid. He saw the 7.70s at 46 bid, 48 offered, opining that "I don't know if it was much of a move" from Thursday's close.

Yet a third trader quoted the 7.70s at 44.5 bid, 45.5 offered, "a little weaker" than Thursday's 46 bid, 48 offered.

"Everything was moving around in the capital structure," he said, "but there were no dramatic moves."

The trader said that one would think that with the price of crude oil, the airline industry's recent main nemesis, backing away from the threatened $50 a barrel (it ended at $47.86 per barrel for U.S. light crude for September delivery, down 84 cents on the New York Mercantile Exchange, retreating from Thursday's record close of $48.70), the airlines might take heart. But noting that Northwest Airlines Corp.'s 9 7/8% notes due 2007 were likewise lower, ending off half a point at 71.5 bid, 73.5 offered, he opined that "I guess oil [price declines] wasn't that big a deal for these guys."

Convertibles moving around

Delta's convertibles were meanwhile still a bit volatile, or "bi-polar, manic-depressive" as one buyside trader put it, with players in that market weighing all of the different things that had gone on during the week with Delta, including the S&P downgrade, and wondering whether any further developments would transpire over the weekend, particularly with regard to wage concession talks with union pilots.

"I think Delta is going to push pretty hard to get something done, at least with the pilots, by Monday," a trader said. "The deal needs to be done quickly in order to get debtholders to fall into line. People are afraid that a deal will be announced this weekend and this is their last opportunity."

The Delta 8% convertibles were quoted at a bulge bracket shop up 1.5 points at 37 bid, 38 offered and the 2.875% converts steady at 40 bid, 42 offered. At a smaller sellside shop, however, the 2.875s were quoted moving 3 points lower to 37 bid, 38 offered.

Delta shares gained 16 cents, or 3.94%, to $4.22.

"The common is totally absurd," said a sellside trader. "You can't borrow it [to sell short] - and idiots speculate."

Another trader noted, though, that, as with other airline stocks Friday, there was a good deal of short covering pushing the Delta shares higher. He added that with the backtrack in oil prices, Delta may not be in such a rush to iron out a deal with the pilots.

"There will be a lot more posturing by the company and [union pilots] before a deal is announced," the trader said. "We have a ways to go yet. I think there's still plenty of upside. Look at all the airlines today, good news on oil and gains across the board. There's more incentive for the pilots and company to hold any announcement."

After gaining in progress in the debt restructuring effort midweek, traders said bondholders were thinking that unless some radical development occurred, and soon, the company would still have to file bankruptcy to ultimately wrangle the restructuring that is needed.

ATA lower

Elsewhere on the airline front, ATA Holdings Corp.'s 12 1/8% notes were quoted offered around 38 bid, which a trader estimated was "down a few points," apparently unmoved by the news that the union representing the pilots at the Indianapolis-based company's ATA Airlines Inc. subsidiary had agreed to talks with the airlines on cost relief under their contract.

ATA had warned in a filing earlier in the week with the Securities and Exchange Commission that it likely will run out of cash in early 2005, and said it might sell some assets or restructure.

"Under current operating assumptions and absent any changes to existing aircraft lease obligations, the company does not expect to have sufficient cash to meet its cash obligations in the first quarter of 2005," ATA said in its report to the SEC for the quarter ended June 30.

ATA had $150 million in cash on hand at the end of the quarter - down from $186 million at the same time last year.

It blamed higher fuel costs and declining military charter business for its losses, which totaled $90.7 million during the first half of the year.

Another trader saw ATA's 12 7/8% notes offered at 38.5 and its 13% notes bid at 35.

UAL unchanged

UAL Corp.'s bonds were meantime unchanged, continuing to languish at the 5-6 level. Late Friday, after the markets had closed for the day, a federal bankruptcy judge approved UAL subsidiary United Airlines' amended financing plan, which would which would give insolvent Elk Grove Village, Il.-based airline an additional $500 million and allow it an additional six months to pay it off, through June 2005.

The judge also approved a 30-day extension for United to work on its restructuring plan with its creditors and unions before it would lose its exclusivity.

But while U.S. Bankruptcy Judge Eugene Wedoff in Chicago rejected union arguments that United had not tried hard enough to come up with an alternative that would continue company contributions to employee pension funds, he also gave the rhetorical back of his hand to the airline, which had claimed that it would probably have to terminate its pension plans, over the objection of the company's unions, because its proposed financing contained prohibitions against making such pension payments.

"It's very clear that the proposed financing does not prohibit contributions" to United's pension plan, news reports quoted Wedoff as having said in approving the financing plan.

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