Delta bonds continue slide; Winn-Dixie passthroughs trading flat

By Paul Deckelman and Sara Rosenberg

New York, March 11 - Delta Air Lines Inc. bonds were getting shot down for a second consecutive session Friday in the wake of the troubled Atlanta-based airline operator's warning Thursday that it would have trouble meeting its obligations and might even be faced with the possibility of bankruptcy if its ambitious turnaround plans do not work out.

Also on the downside Friday was Winn-Dixie Stores Inc., whose real-estate secured passthrough certificates were seen by several traders as now trading flat, or without their accrued interest.

Delta's benchmark 7.70% notes due 2005 were seen by one trader quoted at 82 bid, 84 offered, down from levels Thursday around 88 bid, 90 offered.

He saw the company's 10% notes due 2008 as having dropped to 48 bid, 50 offered from 52 bid, 54 offered, while its 7.90% notes due 2009 ended at 41 bid, 43 offered, down from 43 bid, 45 offered, and its 8.30% notes due 2029 lost three points to 33 bid, 35 offered.

The 7.70s, he explained, seemed to fall the farthest, because they had the farthest to fall.

However, he noted that "there's still massive shorts in that, so they won't go down [further]. That's a quote. I'm sure that you could sell them at the 84 level, but you couldn't buy them, because there's too many shorts there."

At another desk, a trader saw the Delta bonds even lower, with the 7.70s "just getting clobbered": down to 79.75 bid, 80.75 offered, from 84.25 bid, 85.25 offered on Thursday.

And he saw the 8.30s sink as low as 32.5 bid,33 offered, before going home 33 bid, 34 offered, down from 35 bid, 36 offered on Thursday.

A third trader pegged the 2005s at 80 bid, 82 offered, down from 85 bid, 86 offered, and saw the Delta 2029s fall to 33 bid, 34 offered from 35 bid, 36 offered.

Delta's bonds began sliding Thursday, after the company warned in its 10-K annual filing with the Securities and Exchange Commission that it expects a "substantial" loss in 2005, and faces a severe liquidity crunch that could conceivably drive it into bankruptcy.

Delta has $3.4 billion in obligations in 2005 related to leases, interest on debt, debt maturities and funding of employee pensions, and it said that it doesn't think its cash flows from operations will be sufficient to meet all of its needs and will have to tap its available cash and the final $250 million it borrowed late last year from American Express Co.

Delta also said in its filing that its cash reserves would be much lower at the end of 2005 than last year unless it can sell assets or raise money in other ways. However, Delta's ability to borrow more money is tightly constrained since it has already pledged most of its assets as collateral on previous loans.

Delta further warned in the filing that if it cannot access the capital markets to meet its operational needs or its cash levels fall to an "unacceptably low" level, or if the assumptions in its turnaround plan fail to materialize, it might have to seek Chapter 11 protection.

Short covering in American

Elsewhere in the airline sector, the first trader saw "a little short-covering" in American Airlines parent AMR Corp.'s bonds, with the Fort Worth, Tex.-based airline giant's 9% notes due 2012 at 74 bid, 76 offered and its 9% notes due 2016 at 73 bid, 75 offered.

"If anything, they were a little bit firmer," he said. "They didn't go down [along with Delta], that's the important thing."

He said that there was no change in the bonds of bankrupt United Airlines parent UAL Corp., continuing to languish around 8.25 bid, 8.75 offered.

On Friday, the government's Pension Guarantee Control Board said that it would assume responsibility for the pension payments of 36,000 United ground workers and retirees.

But the PBGC noted that the pension fund for the stricken Elk Grove, Ill.-based airline's baggage handlers, ramp workers, mechanics and other ground-based personnel has just $1.2 billion to cover $4.1 billion in promised payments, leaving a $2.9 billion gap. In filing its motion in U.S. District Court in Chicago on Friday, the agency said it could guarantee $2.1 billion of the shortfall. But that would still result in reductions of anywhere between 20% and 50% in the pensions of retired employees, said the union that represents those workers, the International Association of Machinists, which blames the airline for not trying to preserve the pensions of its members.

The union has vowed to fight in court any effort by UAL to terminate the pensions - something the company says must happen if it is to restructure itself and continue operations. The union threatened that it may strike if the airline fails to reach a deal that preserves the workers' pensions.

"These unions are amazing," the trader groused. "Part of the reason [the airlines] are going out is these contracts are just too high, that and oil prices. They can strike all they want - what's that going to get them? It will lose their jobs. It's just plain stupid."

Another trader likewise saw no activity in UAL bonds.

He did see some action in Northwest Airlines Corp.'s paper, with some investors switching out of the soon-to-be redeemed 7 5/8% 2005 bonds, now at par, and into the Eagan, Minn.-based air carrier's 8 7/8% notes due 2006, "the next nearest unsecured maturity," which are at 89 bid,, 90 offered.

"The par bonds have nowhere more to go," he said in explaining the swap. "You've got to put your money to work somewhere" where it will appreciate.

Winn-Dixie passthroughs flat

Apart from the airlines, traders were seeing Winn-Dixie's two classes of passthrough securities as now trading flat, or without their accrued interest, and quoted those bonds down about a point in nominal terms at 75 bid, 77 offered.

After the Jacksonville, Fla.-based supermarket operator filed for Chapter 11 earlier this year, its unsecured 8 5/8% notes due 2009 immediately went flat, but the passthroughs continued to pay their interest, "but on a monthly basis rather than every six months," a trader said. That lasted for a while, "but then they didn't pay the full interest, and S&P downgraded them."

The ratings agency said Friday that "the certificates are secured by mortgage notes secured by 15 properties that are leased to Winn-Dixie. The lowered ratings follow Winn-Dixie's rejection of two leases. Due to the rejections, the A-1 and A-2 certificates did not receive full and timely interest payments for the March 2005 distribution. Consequently, the ratings on classes A-1 and A-2 are being lowered to D. The A-3 certificates accrete, with the next payment due Sept. 1, 2024. The rating on this certificate is being lowered due to anticipated losses associated with the lease rejections."

Winn-Dixie's 8 5/8s meantime continue to languish around the 58-59 area.

Mirant loans trade

In bank loan dealings, some Mirant Corp. 2003 paper traded on Friday morning in an otherwise quiet session for distressed loans, with the paper quoted around 77 bid, 77.5 offered, according to a trader.

"It's where they've been, "the trader said about the Mirant levels. "There's nothing going on today."

The bankrupt Atlanta-based energy company's 7.90% notes due 2009 were meanwhile seen down a point at 83 bid, while its Mirant Americas Generation Inc. 7.20% notes due 2008 lost half a point to end at 114.25.

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