UAL drops on report of liquidation warning, Microcell firmer

By Carlise Newman

Chicago, March 18 - Anticipation of an impending war with Iraq, a credit watch notice from Standard & Poor's, and reports that UAL may liquidate left distressed airlines in the gutter Tuesday.

UAL Corp., parent of bankrupt United Airlines, forecast a first-quarter operating loss of $877 million and said for the first time publicly that going out of business altogether is a "distinct possibility" as war looms, according to a report by Reuters.

A distressed debt trader quoted United Airlines' 9¾% notes due 2021 as hovering around 7 bid/9 offered compared to levels of 10 bid/12 offered Monday.

"There is no remedy at this point for UAL. It's just doomed," said a distressed debt trader. "The word "liquidation" is obviously a death sentence."

Other airlines were mixed to firmer on conflicting forces.

Airlines that have stayed outside Chapter 11 so far were generally stronger on the session, in part on thoughts that if Delta liquidates it will remove a competitor (see the High Yield Review elsewhere in this issue) and also on hopes of another government bailout.

But Standard & Poor's Tuesday placed 11 airlines on CreditWatch with negative implications, due to the risks from the imminent attack by the U.S. and its allies against Iraq.

Nine U.S. airlines, including three of the five largest, as well as European carriers British Airways plc and Deutsche Lufthansa AG are covered by the review. S&P also said it may cut British Airways to junk status.

S&P said that even in the most favorable scenario - a rapid victory by the U.S. and its allies, with no significant terrorist attacks - already weak airlines will incur further substantial losses and cash outflow. As after the Sept. 11, 2001, attacks, some airlines are likely to fare better than others, with regional airlines and low-cost, domestic airlines such as Southwest Airlines Co. likely to be less affected by loss of traffic, S&P said.

Quotes on American Airlines, one of the most beaten down of the bunch, were varied.

One trader saw negative sentiment on the name and observed that the 9% notes due 2012 of American's parent AMR Corp. were hovering in the mid-teens at 15 bid/17 offered, about the same levels as Monday.

"The only hope airlines have is government help when the war starts," said the trader.

But another trader saw American a couple of points higher, rising in the wake of Delta Air Lines - which trades at much healthier levels in the 70s and saw its bonds add two to three points on the session.

The U.S. government acknowledged on Tuesday that a war with Iraq could hurt the nation's airlines and said it was ready to move quickly with assistance measures if necessary.

"We will be ready to move very quickly if the need arises," Transportation Secretary Norman Mineta told the Federal Aviation Administration's annual forecast conference.

Looming over the markets Tuesday was President Bush's speech Monday evening. Bush demanded Saddam Hussein go into exile or face a U.S.-led war, sending a final warning after the U.S. ended diplomatic efforts to win UN approval for the Iraqi invasion. Bush set a 48-hour deadline for Saddam and his sons to leave Iraq as 250,000 U.S. and British troops stood massed in the region waiting to strike.

On Tuesday Iraq's leadership rejected the ultimatum and the United Nations pulled its weapons inspection staff out of the country. As a result of the heightened conflicts, the Bush administration raised the terror level from yellow to orange.

Market participants had been saying in recent days that trading was freezing up a bit amid the war talk.

"I thought it had been quiet the past week or so - but today was like the day before Christmas," said one distressed debt trader.

Still, there was movement in a few areas. Microcell Telecommunications Inc.'s bank debt was quoted a bit firmer after the company's reorganization plan was approved by the court. Microcell was seen at 70 bid/72 offered compared to Friday's closing price of 68.5 bid/70.5 offered, according to a trader.

Microcell's plan was approved by the Superior Court of the Province of Quebec on Tuesday, and the company said it expects the plan will be implemented by the end of April 2003.

Microcell is a telecommunications company based in Canada.

Adelphia was also seen a trifle firmer on Tuesday, with the old Century term loan debt seen in the "mid to upper seventies" compared to Monday's closing quote of 74 bid/76 offered on Friday. A trader said that the news that the company was given an extension to file its reorganization plan was still giving it a slight bid, in addition to the interest in Adelphia in recent weeks.

Adelphia, a communications company based in Coudersport, Pa., was given until June 20 to submit its reorganization plan and until Aug. 21 to solicit votes from creditors. Both deadlines could be pushed back again if the company needs more time to reach a consensus with creditors.

Elsewhere, Calpine Corp. continued to fare well Tuesday, sources told Prospect News, noting that its 81/2s of 2011 were quoted at 50 bid, 51 offered.

"Calpine has been a little bit better," commented another trader. "[Monday] the 81/2s of 2011 were 483/4-493/4, [Tuesday] 491/2-501/2. There have been some rumors circulating that the may be getting close to doing something with their banks. But so far I've just heard talk."

In addition, the paper of WorldCom was seen "doing better across the board," on Tuesday, with its paper trading at 24.5 bid, 25 offered, up a half a point from Monday.

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