Delta better on fare raise news; Intermet up; Mirant bank debt up as CEO out

By Paul Deckelman and Sara Rosenberg

New York, Jan. 3 - Delta Air Lines Inc. bonds were heard trading firmer on the first business day of 2005, helped by news reports that the Atlanta-based carrier plans to cut fares to increase passenger traffic, following the example of the upstart discount carriers - and daring its rival legacy carriers to follow suit, if they choose. Bankrupt auto components maker Intermet Corp. bonds were seen up several points, apparently reacting to company announcements made the last week of the year, when nobody much was around to do anything.

In bank debt trading, Mirant Corp.'s loans were quoted up in apparent response to last Thursday's news - again, little responded to at the time - that chief executive officer Marce Fuller had agreed to step down.

A trader saw Delta's shorter-dated bonds, like the 7.70% notes due 2005, up about a 1½ points on the session, finishing the day at 92.5 bid, 93 offered, while its longer-dated paper, like the 8.30% notes due 2029, were up about ¾ of a point at 49.5 bid, 50.5.

Another trader pegged the 7.70s at 92 bid, 93 offered, the company's 7.90% notes due 2009 at 63.25 bid, 64.25 offered, and the 8.30s at 49.5 bid, 50.5 bid.

A third trader saw those 8.30s and the 9¾% notes due 2021 as having moved up to 49 bid, 51 offered, up a point on the day, while he saw the shorter paper "about the same," with the 7.70s at about 93 bid, "trading in the middle" of a 92-94 range, while the 7.90s were 63 bid, 65 offered and Delta's 10% notes due 2008 were at 74 bid, 76 offered.

News reports - as yet unconfirmed by Delta, which said it does not comment on fare changes until they have officially been put in place - said that the Number-Three U.S. carrier plans to radically simplify its fare structure, including, in many cases, lowering fares. Time magazine's website reported Sunday that Delta plans to roll out nationally the same kinds of simplified, mostly lower, fares that it has been experimenting with since August on flights originating at its hub in Cincinnati.

Dubbed "SimpliFares," the program reduced the number of fares per flight to two in first class and six in economy - there previously were as many as 40 different fares available on some flights - and cut the highest fares by as much as 60%. The walk-up fare out of Cincinnati to Los Angeles, instance, was lowered to $499 from $1,202.

As part of the simplification plan, Delta also eliminated the Saturday night-stay requirement - long a complaint of weekend travelers - on flights out of the Ohio hub city. The airline also plans to halve ticket-change fees to $50 from $100, according to Time.

The changes are seen as an effort by Delta to emulate the kind of fare structure that is commonplace at such lower-cost carriers as discount segment leader Southwest Airlines and JetBlue. They could also put pressure on Delta's rivals among the old-line "legacy carriers," such as AMR Corp. flagship American Airlines, Northwest Airlines Corp., Continental Airlines Corp. and the bankrupt United Air Lines and US Airways Group.

Airlines generally better

Other airlines also had a better tone, a trader said, apparently buoyed by the Delta gains and oil prices, which he said "kept creeping lower." He specifically saw United Airlines parent UAL Corp.'s paper "coming out strong, with a bunch of buyers out there, looking for paper as the company tries to dissolve its pension plans," finishing up half a point or so in the 9-10 region.

He also saw "a positive tone across the board" among airline investors, which helped Northwest Airlines Corp.'s bonds, although he saw no firm movement in them. At another desk, the Northwest 7 7/8% notes due 2008, which had been seen hovering as high as 84 bid earlier in the session, ended at a more modest 82, up about ¾ point.

A trader saw little change in AMR's 9% notes due 2012, which he saw at 82 bid, 83 offered, but said the bankrupt ATA Holdings 13% notes due 2009 and 12 1/8% notes due 2010 had firmed to 60 bid, 62 offered from recent levels around 57 bid, 59 offered.

Intermet higher

Back on solid ground, a trader saw Intermet's 9¾% notes due 2009 having risen as high as 52.75 bid, 53.75 offered, up from 48 bid, 50 offered on Friday, and well up from levels around 40 a week ago. He said the bonds of the Troy, Mich.-based auto components maker - which sought Chapter 11 protection from bondholders and other creditors in a Sept. 30 filing - "made that one big move" last week "when they got that contract. That's been the big mover that I can see."

This was an apparent reference to the company's announcement last week - to scant notice in a nearly deserted year-end market - that it had reached agreements with its largest customers, accounting for 80% of its sales, to amend certain purchase orders and contracts on "mutually satisfactory terms," primarily related to the recovery of scrap-steel and other raw-material costs. Back on Nov. 17, Intermet had filed for the authority to reject certain of its contracts, claiming they did not give it enough leeway to recover its scrap-steel costs and other rising expenses. The sharp rise in scrap steel prices was one factor Intermet cited in its bankruptcy filing.

Intermet said that with its new agreements in hand it would ask the U.S. Bankruptcy Court for the Eastern District of Michigan for the authority to assume these agreements and then withdraw the Nov. 17 motion.

Intermet also announced that it had reached agreement with its debtor-in-possession lenders on a third amendment to its DIP facility that extends its ability to continue borrowing a $60 million portion of its DIP facility through Jan. 14, subject to a budget and other restrictions. The company said its continued access to this portion of the facility will provide it with sufficient working capital to continue operations through Jan. 14.

Intermet's over-the-counter-traded shares meantime jumped 14½ cents (44.62%) to 47 cents on volume of nearly 1.6 million shares, more than double the usual turnover.

Mirant loans rise

In bank debt dealings, Mirant Corp. was a big focus as the company's ' 03 paper rallied to 72 bid, 73 offered from levels at the close of the year of 70 bid, 71½ offered, according to a trader.

"The CEO left the company last week and the market viewed that as a positive," the trader said. "It had traded up to the 70 level prior to that news and continued to rally today."

On Dec. 30, the Atlanta-based energy company entered into a separation agreement and release of certain claims with S. Marce Fuller, its CEO, according to an 8-K filed with the Securities and Exchange Commission.

Under the agreement, Fuller will step down on a mutually agreed upon date and will receive a lump sum separation payment of $3.4 million. Furthermore, Fuller will be paid her 2004 short-term incentive at her target amount of $850,000.

In return, Fuller has agreed to release all rights and claims under any change-in-control agreement or plan with Mirant.

The terms of the agreement have been approved by the U.S. Bankruptcy Court for the Northern District of Texas and were agreed to by all of Mirant's bankruptcy committees.

A bond trader saw Mirant's 7.40% and 7.90% junk bonds advance to 75 bid, 77 offered from 72 bid, 74 offered last week, while its busted 2½% convertible notes moved up to 74 bid, 75 offered from 71 bid, 73 offered.

Back among the bonds, the trader saw RCN Corp.'s bonds now trading at 70 bid, 72 offered, versus the levels around 60 bid, 62 offered where they were trading in late December, when the Princeton, N.J.-based telecommunications company emerged from Chapter 11.

The noteholders "are getting equity," he said, "that's the whole story."

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