Delta bonds continue upward flight; asbestos names keep gaining

By Paul Deckelman

New York, Nov. 5 - Delta Air Lines Inc. bonds were up solidly on Friday, capping another week - the second straight - that saw the troubled Atlanta-based airline operator's debt catching a bid, as it seems to be getting its act together in terms of financing and cost-cutting efforts.

Elsewhere, asbestos names continued to gain for a fourth straight session, still riding the crest of investor bullishness about the likelihood of a Congressional deal on a claims payment mechanism, now that the Republicans have solidified their hold on Capitol Hill.

A trader saw Delta's 7.70% notes due 2005 having gained altitude to 81 bid from 76 bid, 78 offered previously, while its 7.90% notes due 2009 advanced to 49 bid, 51 offered, and its 8.30% notes due 2029 were also two points better at 38 bid, 40 offered.

At another desk, the 7.70s were seen up two points to 81.5, while the 7.90s were three better at 50, and the 8.30s were two up, at 38.5.

Late in the session, details began to circulate about Delta's previously announced plans to cut its workforce in order to try to bring its cost structure more into line with those of its rivals.

Delta will eliminate up to 2,000 aircraft maintenance jobs and up to 3,100 customer service jobs over the next few months. The company informed its workforce on Thursday and Friday about the details of the cuts. Delta officials held conference calls Friday to explain the latest moves.

Those job cuts are among the roughly 7,000 that Delta announced in September, when it unveiled its comprehensive turnaround plan. Eliminating those jobs could save Delta up to $350 million, part of the company's plan to cut overall expenses by about $2 billion a year.

A key component of that $2 billion is the $1 billion of wage cuts agreed to by the union that represents Delta's more than 7,000 pilots, who are considered the highest paid captains in the airline industry. Those pilots began voting this past week on a proposed new five-year contract what would cut their wages by 32.5% a year starting on Dec. 1, and keep that wage level, without any raises, for the next five years. It would also include certain work-rule changes aimed at increasing pilot productivity. In return for the concessions, the pilots would be granted options to buy Delta stock at favorable prices. The ratification vote will continue through Nov. 11. Before the agreement was announced, Delta was seen teetering on the brink of bankruptcy, threatening to join rivals United Airlines, US Airways and ATA Airlines in Chapter 11.

News of the pilot wage cut agreement, as well as good news on both the financing and the debt-reduction fronts, has given Delta's once-sagging bonds a nice firm glow. The 8.30s, for instance, have nearly doubled to the upper 30s, from recent lows in the lower 20s, while the 7.70s, now hovering above 80, moved up to that level from recent lows in the mid-40s. Delta's New York Stock Exchange-traded shares have meanwhile firmed to beyond $6 from recent levels around $3.

In the most recent week, Delta announced that GE Commercial Finance had agreed to provide $500 million of new funding - a welcome development for the cash-strapped airline, which has been burning through its money reserves at an alarming rate since the start of the year.

The GE unit will provide $300 million in a senior secured revolving credit facility and another $200 million in a senior secured term loan. Both portions are subject to significant conditions, including the consummation of a $600 million financing deal with American Express that Delta announced in late September, as well as the completion of a part of Delta's current debt exchange.

Delta had good news in that area as well, announcing around mid-week that it had met the minimum tender condition for the portion of its debt-swap deal that concerns short-term debt. Delta has offered to issue up to $680 million of new debt, in exchange for up to $1.56 billion face amount of existing senior unsecured bonds and secured pass-through certificates held by qualified institutional holders. It said that some $252 million of short-term debt had been tendered by its holders by an early tender deadline, allowing the debt exchange offer to continue. Completion of the exchange offer is considered a step in Delta's efforts to trim its more than $20 billion debt load as part of its turnaround plan.

Delta also has benefited from the recent fall in oil prices, which tumbled to below $50 a barrel this week, from prior levels above $55.

Asbestos names rise further

On the asbestos front, a trader in distressed bonds saw Armstrong World Industries bonds, such as its 6.35% notes that were to have matured in 2003, jumping to 73 bid, 74 offered, from previous levels around 68 bid, 70 offered. He saw Owens Corning bonds, including the bankrupt Toledo, Ohio-based insulation maker's 7% notes due 2009 and 9 3/8% notes as having zoomed to 65 bid, 67 offered from 56 bid, 58 offered at the close Thursday.

And he said that Federal-Mogul Corp.'s 7½% notes due 2009 and 8¼% notes due 2005 "moved up" to a 30 bid, 32 offered context.

USG Corp.'s 8½% notes due 2005 and 9¼% notes that were to have come due in 2001 continued to meantime hover around 125 bid, he said.

Another market source saw the Armstrong bonds around 70, the Owens Corning at 65, "all up 10 points" from recent lows, and the Federal-Moguls at 30. The USGs were seen at 122.

The asbestos-challenged names- all bankrupted by a deluge of asbestos-claim lawsuits - were seen benefiting this past week from the perception among investors that the legislative logjam surrounding efforts to craft an asbestos-claims payment mechanism may finally be broken, with the electoral defeat of senate minority leader Tom Daschle (D-S.D.), the Democrats' point man in negotiations over what form such a mechanism would take, and the greater Republican control of both houses of Congress, not to mention the White House for four more years. Efforts to come up with a mechanism this year fell short; although Daschle and his GOP opposite number, senator Bill Frist (R-Tenn.) ultimately agreed on a $140 billion claims fund, they remained far apart on other details, including whether future lawsuits might be barred from the courts and handled solely through the claims mechanism.

Foamex bonds rise

Foamex International Inc.'s bonds and shares were up, even as the Linwood, Pa.-based maker of foam rubber for industrial applications reported a third-quarter loss of $114.5 million ($4.68 per diluted share), sharply wider than the year-earlier net loss of $11 million (45 cents per diluted share). However, it should be noted that almost all of the loss was attributable to a $112 million charge resulting from Foamex's decision to establish a valuation allowance against its deferred tax assets. Foamex has determined that this one-time non-cash charge is appropriate given the impact that higher chemical costs will have on its near-term operating results and the general uncertainty in oil and gas markets that affects the price of raw materials.

More importantly, from a debtholder perspective, Foamex announced that its Foamex LP subsidiary entered into financing arrangements with its existing lenders under its senior secured credit facilities to provide financing for the repayment of Foamex L.P.'s 13½% senior subordinated notes due 2005. Under the terms of the new agreements, the lenders will provide up to $54 million of new financing, including up to $15 million as a new term loan under its $240 million senior secured credit facility due April 30, 2007 and up to $39 million of additional loans under its secured term loan facility due April 1, 2009.

Foamex LP plans to use all or a portion of the financing available under the new agreements, along with other sources of cash, to repay the $51.6 million currently outstanding on the 13½% notes.

Those notes were seen having pushed up to 102 bid, 104 offered from prior levels at 91 bid 93 offered, while Foamex's 10¾% notes due 2009 were up a more restrained two points to 94 bid, 96 offered.

Foamex's NYSE -traded shares jumped 47 cents (12.95%) to $4.10. Volume of 392,000 was more than four times the usual turnover.

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