Delta bonds rebound despite oil rise; Adelphia, Owens Corning bank debt active

By Paul Deckelman and Sara Rosenberg

New York, Dec. 8 - Delta Air Lines Inc. bonds, which had taken a step backward Tuesday in response to a prominent analyst's concern about the state of the airline industry, were once again winging their way higher Wednesday, even though oil prices were also seen heading north.

In bank loan dealings, activity was noted in both Adelphia Communications Corp. and Owens Corning although levels in both companies' debt were unchanged and traders were seeing no specific news that might have sparked the flurry of activity

Delta's benchmark 7.70% notes due 2005 were seen by one trader in distressed bonds to have risen as high as 92 bid, 93 offered from Tuesday's close in the 88 bid, 89 offered range. He also saw Delta's 7.90% notes due 2009 move two points to 60 bid, 62 offered from 58 bid, 60 offered, while its 8.30% notes due 2029 were unchanged at 44 bid, 46 offered.

Among the Atlanta-based air carrier less widely traded issues, Delta's 10% notes due 2008 had advanced to 71 bid, 73 offered from 68 bid, 70 offered, while its 9¾% notes due 2021 were steady at 46 bid, 48 offered.

At another desk, a market observer pegged the Delta 7.70s up 1¾ points to 91.75, while the 7.90s were up 1¼ points at 60.25 and the 8.30s were up 1½ points at 46 bid.

The Delta rise came even as world crude oil prices rose Wednesday amid concerns about tight heating-oil supplies and fears that the Organization of Petroleum Exporting Countries might curb output when the 13 member energy cartel meets later in the week. Light sweet crude for January delivery was up 48 cents to $41.94 per barrel on the New York Mercantile Exchange.

The recent fall in oil prices from their mid-October peak at $55.17 a barrel has been credited with having given the bonds and shares of air carriers such as Delta and competitors like Continental Airlines, Northwest Airlines Corp., and American Airlines parent AMR Corp. a solid boost.

But despite the oil gain, the Deltas were moving upward, perhaps encouraged by the news that Delta intends to seek more debt-for-equity exchanges and a further deferral of its pension obligations as part of its efforts to avert bankruptcy.

The Financial Times reported Wednesday that chief financial officer Michael Palumbo had responded to critics who saw Delta's restructuring efforts as a case of too little, too late, telling them that "the decision to seek an out-of-court restructuring involved less trauma for employees and business relationships, and we are not losing two years [to a bankruptcy]. We have built a plan around viability and we are executing that plan. We have no intention of failing."

The paper said that even though Delta's recent efforts to exchange $680 million of new debt for up to $2.6 billion of existing senior unsecured notes and secured equipment pass-through certificates was less than totally successful - Delta was able to take out about $250 million face value of near-term debt at a discount but could not get the requisite noteholder participation levels among holders of its intermediate and long-term securities - the CFO declared that "we are committed to more debt-for-equity exchanges. We anticipate . . . taking out debt and working on the fleet."

The FT said that while Delta could have eliminated about $4 billion of debt through a Chapter 11 filing, Palumbo noted that "there is still $20 billion [that would still remain to be dealt with]. "It isn't the number that kills you but the cashflow implications of it. It does bring with it $800 million of interest expenses annually. That will continue to be addressed, and we have modeled that cost into our viability plan."

The paper also touted the Delta CFO as saying that "the company has never been bigger than $15 billion in terms of costs. We are taking a third out of that, proportionately. No other airline has done this."

Adelphia loans trade

Elsewhere, Adelphia Communications and Owens Corning bank debt was moving around despite a lack of news.

Adelphia's Old Century was quoted at 99.375 bid, 99.625 offered and the New Century was quoted at 99.5 bid, 99.625 offered, a trader said.

The Greenwood Village, Colo.-based cable company's 9 7/8% notes due 2007 were meantime down half a point, at 88.5 bid.

Owens Corning bank debt was quoted at 89.5 bid, 90.5 offered, the bank loan trader added.

Bond traders meantime said that the bonds of the Toledo, Ohio-based insulation company - driven bankrupt by a deluge of asbestos-related lawsuits - remained essentially where they had been on Tuesday, at 79 bid, 80 offered.

The same held true for other bankrupt asbestos related issues, such as Armstrong World Industries, at 69 bid, Federal-Mogul Corp., at 32.5 bid, and USG Corp., hovering around 130 market.

MCI higher on S&P rating

The bonds of one-time bankrupt MCI Inc. were seen higher, after Standard & Poor's assigned a B+ rating to the Ashburn, Va.-based telecommunications company - the latest step in MCI's comeback from the depths of insolvency .

MCI's 5.908% senior notes due 2007, and its 6.688% senior notes due 2009, which had both recently been seen around 101.625 bid, 101.875 offered, were being quoted Wednesday morning post-news at 102 bid, 102.5 offered, and 103 bid, 104 offered, respectively. Its 7.735% senior notes due 2014, which had risen to around the 104-104.25 area, were seen after the ratings news at 106 bid, 107 offered. The bonds held those gains through the afternoon.

The gains were spurred by investor expectations that the coupons on the three issues would step up by 100 basis points once Moody's Investors Service joins S&P and assigns a rating.

MCI had crashed and burned in its former incarnation as WorldCom Inc. earlier in the decade, amid lurid accusations of corporate mismanagement that led to criminal indictments.

However, the Number-Two U.S. long-distance company emerged from Chapter 11 at the end of April with the issuance of its $5.7 billion of new bonds.

Bally Total Fitness gains

Elsewhere, Bally Total Fitness Corp.'s bonds were higher after the Chicago-based fitness club operator announced that it had received and accepted consents from the holders of a majority of its 10½% senior notes due 2011 and 9 7/8% senior subordinated notes due 2007 to a limited waiver that keeps the company from being declared in default for not filing financial results with the Securities and Exchange Commission and not furnishing such information to the noteholders and the notes' trustee.

A market source saw the company's 9 7/8% notes due 2007 jump to 83 bid, a gain of 2½ points, while its 10½% notes due 2011 were up a more restrained quarter-point at 96.5.

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