ATA bonds tumble after bankruptcy filing, Delta slightly higher; USG bank debt keeps rising

By Paul Deckelman and Sara Rosenberg

New York, Oct. 27 - ATA Airlines Inc. bonds were descending sharply in Wednesday's dealings after the Indianapolis-based low-fare air operator's Chapter 11 filing, while troubled mainstream carrier Delta Air Lines Inc.'s bonds firmed a bit but mostly appear to have stabilized after three straight sessions winging their way strongly to the upside.

In bank debt dealings, USG Corp. continued to trade higher during Wednesday's market hours, this time stepping up another three quarters of a point on top of the gain of some 1½ points already witnessed in the previous session, which had been sparked by the release of good third-quarter numbers.

ATA's bonds "definitely" were tumbling, a trader in distressed debt said, quoting its 12 1/8% notes due 2013 and 13% notes due 2014 as having dropped to 17 bid, 20 offered, from prior, pre-filing levels at 21 bid, 23 offered. He also saw the company's 7.64% passthrough certificates due 2010 at 25 bid, 29 offered, well down from previous levels in the lower 30s.

All of the bonds, he added were now trading flat, or without the accrued interest, as typically happens after a bankruptcy filing.

But he said that with the airline's parent, ATA Holding Corp., having warned weeks ago that it was in a precarious financial state and could run out of cash by early next year, "it came as no surprise that they filed."

After the bankruptcy filing, Standard & Poor's lowered its ratings on ATA Airlines and Holdings Corp. debt, including cutting the corporate credit ratings on both entities to D from the previous CCC- rating, although it did affirm the rating on a bond-insured, AAA rated enhanced equipment trust certificate is affirmed.

ATA is just the latest victim of an airline industry downturn that has sent United Airlines and, more recently, US Airways, into Chapter 11, and the airlines stagger under burdensome debt loads, high fuel prices and increasingly cut-throat competition that keeps them from raising ticket prices to cope with their increased expenses.

Delta firm at higher levels

Another airline teetering on the edge of bankruptcy is Delta Air Lines, with some observers speculating that the Atlanta-based carrier might also seek court protection from its bondholders and other creditors, perhaps as early as Wednesday. However, there was no news of a filing during Wednesday's trading and others in the market discounted the bankruptcy talk, noting that Delta appeared to be nearing a deal with its 7,500 unionized pilots that would give the cash-strapped airline the $1 billion in permanent pay-cut concessions that it was seeking from its captains, who are considered to be the highest paid pilots in the industry.

Delta has said that the pay-cut concessions are absolutely essential if it is to avoid bankruptcy, but it has also acknowledged that the pay cuts alone will not be enough to keep it out. Delta is also hoping to chop down some of its burdensome $20 billion debt load.

The possibility of a deal with the pilots after months of stalemate - along with the news earlier in the week that holders of Delta's 7.70% notes due 2005 had agreed to swap that paper for new 8% notes maturing in 2007, plus stock - and the news that Delta had lined up $600 million of financing from a unit of American Express Corp., conditioned on inking a deal with the pilots - all helped to boost Delta's bonds on Friday, Monday and, especially, Tuesday. The 7.70s, which had previously been in the mid-40s, jumped all the way to the mid-60s over that three day stretch and the company's other, longer-dated issues were likewise solidly higher.

On Wednesday, the bonds were seen to have pretty much plateaued.

"Delta's big move was yesterday," a trader said, quoting the 7.70s pretty perhaps a bit better at 64 bid and the 7.90% notes due 2009 at 44 bid, 45 offered.

Another trader quoted Delta's 8.30% notes due 2029 at 33.5 bid, 35.5 offered, "so they were up a bit [Wednesday] from 31 bid, 33 offered on Tuesday. He saw the 7.70s unchanged at 63 bid, 65 offered, but said the 7.90s rose to 42.5 bid, 44.5 offered from 40.5 on Tuesday.

Yet another trader saw the 7.90s up almost three points at 43.375 bid, although he saw Delta's 10% notes due 2008 retreating two points to 42 bid and saw the 8.30s dip to 31 bid from 32.25.

Delta's convertible notes also continued to rise with the company's junk bonds, with the 8% converts up 2¼ points to 44.25 and its 2 7/8% notes up 1¼ points to 45.5. However, at least one observer warned that it might be a "fantasy flight."

Also up were its shares, which gained 6.7%, or 31 cents, to $4.94 on the NYSE, amid a general rise in airline equities following ATA's bankruptcy filing and the news that rival low-cost carrier America West Airlines said it is considering making a bid to acquire ATA. Such a deal, should it occur, would trump a deal announced Tuesday under which AirTran Airways agreed to buy up ATA's leases to 14 gates at Chicago's Midway International Airport, as well as some slots at New York's LaGuardia Airport and Ronald Reagan Washington National Airport for about $87.6 million.

USG loans strong

In bank debt trading, USG's paper settled at 104.5 bid, 105.5 offered by late afternoon, but, a "block" did trade "on top of 105" at one point during the day, according to a trader. On Tuesday, the paper had been quoted at 103.75 bid, 105 offered.

The pop really began once the Chicago-based building products company announced results for the third quarter that included record net sales of $1.2 billion, up by $212 million from last year, net earnings of $90 million, up by $51 million from last year, and diluted earnings per share of $2.10, compared with 89 cents a year ago.

For the first nine months of 2004, net sales were $3.3 billion, up from $2.7 billion last year, net earnings were $227 million compared with $76 million for that period last year, and diluted earnings per share were $5.28, compared with $1.75 last year.

Despite the strong numbers, the company remains in Chapter 11, which it entered on June 25, 2001 in response to numerous asbestos-claim related lawsuits.

Mirant loans higher

Atlanta-based power generator Mirant Corp.'s '03 bank paper also continued its upward momentum as the paper traded as high as 63 before settling at 62.5 bid, 63 offered, according to a trader, who placed the debt stronger by three quarters of a point.

On Tuesday, a different trader quoted Mirant's paper at 61.5 bid, 62.5 offered following an approximately half a point gain.

The strengthening appears to have been instigated by the "fairly positive" monthly operating report that came out Tuesday, according to the trader, that included earnings of $17.79 million in August on sales of $349.99 million, compared to earnings of $98.09 million on revenue of $437.38 million in July, operating income of $88.85 million in August compared with $116.06 million in July, and cash and cash equivalents of $1.48 billion in August compared with $1.397 billion for July.

Also on Tuesday, Mirant's official committee of unsecured creditors announced that they postponed the information meeting originally scheduled for Nov. 1 to a later date to be determined after the debtors file their proposed disclosure statement with the bankruptcy court.

This information meeting, at which issues relating to Mirant's reorganization will be discussed, is expected to occur within the next 60 days.

A bond trader meantime saw Mirant's bonds "moving up one to two points," with its busted 2½% converts at 65, its Mirant Americas Generating 9 1/8% bonds due 2031 at 93 bid and the MAGI 7 5/8% notes due 2006 at 95, and the Mirant Corp. bonds at levels about 10 points behind the MAGIs.

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