Federal-Mogul bonds firmer; Delta up as oil prices head down

By Paul Deckelman and Sara Rosenberg

New York, Aug. 24- Federal-Mogul Corp. bonds were seen up between a point and a point-and-half Tuesday despite a lack of fresh news about the bankrupt Southfield, Mich.-based auto parts maker. Also on the bond front, Delta Air Lines Inc. notes were once again gaining altitude, apparently given wings by continued declines in oil prices; meanwhile, the company's secured bondholders balked at going along with company requests for changes in their bonds' indentures.

Traders in distressed bank paper seem to meanwhile have hung out the "gone fishin'" sign, with little real movement seen in virtually anything, save for some of Mirant Corp.'s 2003 bank debt. That paper was said to have traded Tuesday in the 58 bid, 59 offered context in which the paper has been quoted recently, according to a trader.

"Small size traded," he said of the movements in the restructuring Atlanta-based energy company's loans. "Besides that, nothing is going on," the trader added.

Back among the bond players, a trader said that the major activity he had seen in an otherwise pretty quiet high-yield market was in Federal-Mogul, even though, he said, "I don't know why, there's no [new] information out on them on Bloomberg or anywhere else" where he had looked.

He quoted the company's bonds at 29.5 bid, 30.5 offered, up from their previous levels around 28 bid, 29 offered.

Another trader saw the FedMos at 29 bid, 31 offered, up from around 28 bid, 30 offered.

He saw no activity in the bonds of other companies which, like Federal-Mogul, were driven into bankruptcy by rapidly proliferating asbestos damage claims. Toledo, Ohio-based insulation maker Owens Corning Inc.'s bonds were recently quoted in the lower 40s, while Lancaster, Pa.-based floorcovering producer Armstrong World Holdings Inc.'s bonds were most recently seen tethered around the lower 60s.

Federal-Mogul sought bankruptcy protection in October 2001, chiefly due to claims arising from the use of asbestos at a subsidiary it acquired, British-based engine piston maker Turner & Newall. It is currently in the process of trying to determine what to do about the pension obligations it has to about 40,000 current and former T&N workers, and recently held a meeting in new York with major creditors, including billionaire financier Carl Icahn, and representatives of the pension fund to try to work out a solution.

Major bondholder Icahn's notes are expected to be converted into equity under a plan of reorganization that Federal-Mogul is working to devise.

Delta stronger

Elsewhere, a trader saw Delta Air Lines' benchmark 7.70% notes due 2005 as having firmed to 45 bid, 46 offered from 41 bid, 42 offered on Monday. He also saw Delta's 10% notes due 2008 rise to 35 bid, 37 offered from 31 bid, 33 offered, while its 8.30% bonds due 2029 were unchanged at 27 bid, 29 offered.

Another trader saw the 8.30s "maybe up a point," at 28 bid, 29 offered, and saw the 7.70s 45 bid, 46 offered.

Delta's bonds bounced around last week, first moving higher on indications that the union representing Delta's 7,500 pilots would come back to the bargaining table and might be persuaded to go along with the Atlanta-based air carrier's request for a 35%cut, which would produce $1 billion in annual savings for Delta, which has probably the most expensive labor cost structure in the airline business. Delta was also presenting a turnaround business plan to the company's board of directors.

But that initial euphoria gave way to renewed downside movement, after Standard & Poor's downgraded Delta's bonds, feeling its proposal to the company' secured bondholders for indenture changes might be laying the groundwork for a "coercive" note exchange on unfavorable terms for the noteholders.

While all of this was going on, oil prices continued to ratchet up last week, busting through the $48 a barrel mark - seen as a signal to the airline industry that already burdensome fuel costs would likely get even worse before they got better.

Over the past three sessions, however, oil has backed off last week's highs, with Tuesday the third straight day of lower prices. Crude actually dipped below $45 a barrel for a while before ending at $45.21 on the Nymex, still down 84 cents on the day.

The moderation in oil prices is seen as a good sign for the airlines, who consume untold thousands of gallons of increasingly expensive jet fuel every day. Continental Airlines Inc.'s 8% notes due 2005 moved up a point on the news to 90, while Northwest Airlines Corp.'s 7 7/8% notes due 2008 failed to reflect that - they were down about half a point at 68.5 bid.

Although fuel prices seem to be looking a little better for Delta and the other carriers, assuming the fragile downward trend holds up, Delta still has plenty to worry about.

On Tuesday, a committee representing holders of about $1.3 billion of the $1.7 billion of secured bonds for which Delta is seeking noteholder approval of indenture changes said it needed more time to study the company's just unveiled business turnaround plan, its finances and its restructuring plans

Delta had been seeking that noteholder approval by Aug. 31 of indenture changes allowing it to buy or hold the secured bonds, but the bondholders said they would not give their consent and demanded more information before signing on.

Delta seeks changes in the indentures of the secured notes, which are backed by liens against the carrier's aircraft. Analysts believe that once it gets the desired changes, it will mount an exchange offer for those notes.

Air Canada unchanged

Among other airline names, a distressed-bond trader saw little or no change in Air Canada's bonds, even as the Canadian national carrier won approval of the courts there for its bankruptcy plan.

Air Canada said it plans to emerge from under the protection of the Companies' Creditors Arrangement Act on Sept. 30.

He quoted Air Canada's 9% notes at 18 bid, 20 offered, and its other paper , including its dollar-denominated 10 ¼% notes due 2011 at 21 bid, 23 offered.

At another desk, the 10¼% notes were quoted at 23 bid, unchanged.

United Airlines parent UAL Corp.'s bonds were quoted off a point from recent levels, a trader said, pegging them at between four and six cents on the dollar.

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