Airline bonds, loans off on London blasts; Collins & Aikman eases after Wednesday gains

By Paul Deckelman and Sara Rosenberg

New York, July 7 - Bonds and bank debt of airline companies were seen lower Thursday, pushed down by investor angst over the latest resurgence of terrorism with the London bombing spree, and possible bad effects it might have on the already shaky air industry.

Elsewhere, bonds and bank debt of Collins & Aikman Corp. were quoted lower, coming off the gains noted Wednesday, when the bankrupt Troy, Mich.-based automotive components supplier unveiled a new $165 million short-term financing plan aimed at supplying its cash needs while it restructures under Chapter 11.

In the bank debt market, Northwest Airlines Corp.'s paper slid lower as news of the four London bombings rocked the world's financial markets, bringing with it some nervousness over the near-term fate of trans-Atlantic airline travel, market sources said.

According to a fund manager, Northwest's bank debt was only down about half a point with the term loan A quoted at 93½ bid, 94½ offered for $2 million, the term loan B quoted at 96½ bid, 97½ offered for $2 million and the term loan C quoted at 94½ bid, 95½ offered for $2 million.

A trader, however, placed the paper even lower than that, saying that levels fell a full point to 96 bid, 97 offered on the term loan B and 93 bid, 95 offered on the term loan A.

On the bond side of the ledger, a market source quoted the Eagan, Minn.-based Number-Four U.S. -based carrier's 8 7/8% notes due 2006 at 57.5 bid, down from 59.5 on Wednesday; its 8.70% notes due 2007 at 47 bid, off from 49 previously; and its 7 7.8% notes due 2008 at 40 bid, down from 42 previously.

Another trader quoted the 8 7/8s at 57 bid, 59 offered, down from 58.5 bid, 60.5 offered on Wednesday, while a third saw those bonds down a point at 58 bid, 59 offered.

Among other airlines, a trader pegged Delta Air Lines Inc.'s 7.70% notes due 2005 having dipped to 84 bid, 86 offered from prior levels at 88 bid, 89 offered, while the Atlanta-based Number-Three U.S.-based air carrier's 10% notes due 2008 lost three points to end at 35 bid, 37 offered, and its 7.90% notes due 2009 and 8.30% notes due 2029 were each two points lower at 33 bid, 35 offered and 24 bid, 26 offered, respectively.

Another trader saw the 7.70s three points lower at 85 bid, 87 offered, while a third saw the 8.30s a point off at 24.5 bid, 25.5 offered.

The bonds of AMR Corp., the parent company of industry leader American Airlines, were seen unchanged to slightly lower, with the Fort Worth, Tex.-based top carrier's 9% notes due 2016 half a point lower at 77.5 bid, and its 9% notes due 2012 at 78.5 bid, unchanged.

A market source saw Houston-based Number-Five carrier Continental Airlines Corp.'s 8% notes coming due later this year unchanged at 99.5.

A trader said that while he had seen Delta's bonds sliding, he had seen no activity in Northwest, or in the bonds of the bankrupt Number-Two carrier, United Airlines parent UAL Corp., or those of the bankrupt Indianapolis-based low-cost carrier ATA Airlines.

In the wake of the London news, Standard and Poor's said that the terrorist attacks will likely hurt the transatlantic business of some airlines, but, barring further incidents, is not expected to affect ratings or outlooks of those companies.

As it turns out, the attacks come at a time when the airlines - already reeling from high fuel prices and their own inability to raise fares to offset some of their increased fuel costs - have been depending more and more on their international business in general, and transatlantic traffic in particular, to keep themselves flying.

According to data compiled by the main airline industry group, the Air Transport Association, international traffic accounted for $32 billion in revenue last year, or one quarter of the U.S. industry's total. While U.S.-based airlines collectively lost $9.5 billion on their domestic operations last year, the association said they actually made money - $386 million - from their international operations.

Collins & Aikman edges down

Also among distressed issues, Collin & Aikman Corp.'s bonds slipped about half a point to a point to bid levels in a 27ish context, and its bank debt headed back to the 81.5 bid, 82.5 offered range on Thursday after a really late day drop Wednesday to the 78.5 bid, 79.5 offered context, according to a trader.

Wednesday had been an extremely volatile day for the bank debt as the paper rallied by late afternoon to 82.5 bid, 84.5 offered from around 74 and then proceeded to give up about four points from its gains after the conclusion of a late-day private call with lenders, the trader said.

"Now it's just settling back into its highs," the trader explained regarding Thursday's performance.

The bonds on Wednesday had exhibited a similar pattern of movement, with Collins & Aikman's 10¾% notes due 2011 having jumped to levels as high as the 33-34 bid area from prior levels in the mid 20s on financing news - only to give most of those gains back late in the day, ending around 28 bid, 29 offered.

Thursday's modest easing was on considerably less activity.

The bonds and bank paper had been initially driven up Wednesday on news that the company reached agreement with its biggest customers on $82.5 million of additional financing, $82.5 million in price increases and various other benefits.

Under the proposed agreement, Collins & Aikman will benefit from $82.5 million in immediate price increases, equivalent to $330 million on an annualized basis; relief from capital expenditures, and new product launches and tooling totaling $140 million in the next 90 days.

The agreement also calls for a framework for price negotiations, plus the ability to reject contracts on Oct. 1 if the negotiations fail; a framework to develop a business plan in the next 60 days; a commitment that customers will not take their business elsewhere during the interim period; adequate liquidity through Sept. 30; customers will pay within five days, without discounts; and, continuing relationships with its customers.

The customers include DaimlerChrysler AG, Ford Motor Co., General Motors Corp., Honda Motor Co., Inc., Nissan Motor Co., Ltd. and Toyota SA, which collectively account for 85% of the company's revenues.

Collins & Aikman was seeking bankruptcy court approval Thursday for the plan, but there was no word from the court as of the time it was scheduled to close as to whether judge Steven W. Rhodes had formally approved the plan, which was being contested by some of the company's unsecured creditors - though not by its bank lending syndicate. Collins & Aikman and its lawyers did not return several phone calls made to the company seeking an update on the financing plan's status.

Collins & Aikman's new management

Collins & Aikman also announced some changes in the executive suite Thursday, replacing its interim chairman and interim chief executive officer with proven turnaround veterans as it continues its restructuring.

It appointed veteran turnaround specialist Stephen F. Cooper as chairman of its board of directors, replacing interim chairman Marshall A. Cohen, who stepped into that position on a temporary basis following the resignation under pressure in mid-May of then-chairman/CEO David A. Stockman. Cohen will stay on as a director and serve as lead director. Collins & Aikman is the latest troubled company that Cooper, the chairman of restructuring firm Kroll Zolfo Cooper, will attempt to turn around; he also currently acts as interim CEO of Krispy Kreme Doughnuts Inc. and of Enron Corp.

Along with Cooper, Collins & Aikman appointed Frank Macher as president and CEO, replacing Charles E. Becker, who had assumed the CEO post on an interim basis after Stockman's ouster. Macher had most recently been the chairman and CEO of Southfield, Mich.-based auto parts supplier Federal-Mogul Corp., which is also in the midst of a Chapter 11 reorganization.

The company further announced that Leonard LoBiondo, currently senior managing director and co-chief operating officer of Kroll Zolfo Cooper, will formally join Collins & Aikman as a director - he and Cooper have been advising the company up till now solely in their capacities as principals of Kroll Zolfo, which is Collins' turnaround -management advisor. LoBiondo, Cooper and Macher will join current chief restructuring officer John R. Boken, who continues with the company, in a newly formed Office of the Chairman.

Cooper and LoBiondo will also become a part of a newly established board of directors restructuring committee, along with current directors Anthony Hardwick, Timothy D. Leuliette, and Daniel P. Tredwell. The new committee will be responsible for overseeing the development of the business plan, the valuation of the business and, ultimately, the negotiation of a plan of reorganization.

Mirant loans up again

Mirant Corp.'s bank debt keeps piling on the gains as the paper headed to 81.5 bid, 82.5 offered - about a point higher - by day's end, again on no particular news, according to a trader.

"People just like it," the trader added.

By comparison, about two days ago, the Atlanta-based energy company's paper was quoted around the 79 level and about a week ago the paper was quoted at 77 bid, 78 offered.

Mirant's 7.90% notes due 2009 were meantime unchanged at 90 bid, while its defaulted 7.4% notes that were to have come due last year were likewise steady, at 89.5 bid.

The bank debt and bonds had strengthened in last Friday's abbreviated session and earlier this week, on last week's announcement that Mirant will have to change its method of estimating its enterprise value.

Equity holders had complained that the previous methods severely underestimate the enterprise value of Mirant, maybe by as much as $1.74 billion, essentially preventing them from getting any kind of a recovery.

The judge said that rather than merely relying on projected results, Mirant should use a number of different standards in calculating a range of values, including the use of recent financial data.

He further stated that should the top end of the range of valuations be above $10.7 billion, he would consider the shareholders to be entitled at least to some recovery.

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