Delta, other airlines down on fare news; Mirant bank debt retreats

By Paul Deckelman and Sara Rosenberg

New York, Jan. 5 - Delta Air Lines Inc. bonds and those of other major airline carriers were quoted lower Wednesday - some by as much as three or four points - after the troubled Atlanta-based air carrier announced plans to cut fares on some of its routes by as much as 50% and to simplify its fare structure in an effort to play catch-up against the discount airline carriers that have bitten off a large share of the market traditionally held by the old-line "legacy" carriers like Delta.

Also in the bond trading pits, Adelphia Communications Corp. bonds were seen down several points although no one had a clear explanation why that might be.

In bank debt trading, Mirant Corp.'s 2003 paper slipped back down on Wednesday - ending a two day rally - while there seemed to be some movement in the loans of such asbestos-challenged companies as USG Corp. and Owens Corning.

Delta's 7.70% notes due 2005 were quoted down a point at 91 bid, 93 offered, while its 7.90% notes due 2009 were at 63 bid, 65 offered, and its 8.30% notes due 2029 were at 47 bid, 49 offered, both down two points on the day, a trader said, following the fare-news announcement.

That paper had been pushed solidly higher over the previous two sessions by rumors in the high yield market - buzz eventually borne out by the company announcement - that it would cut fares sharply and try to simplify its fare structure, which on some flights had several dozen different fares possible. The 8.30s, for instance, had gotten as good as 52.25 on Tuesday, said one trader who saw them tumble to 48 bid, 49 offered.

A trader in distressed bonds saw those 8.30s down two points on the day at 48 bid, 50 offered, saw the 7.90s at 62 bid, 64 offered, and the 7.70s at 92 bid, 94 offered, also down a deuce.

He saw the less widely traded 9¾% notes due 2021 also at 48 bid, 50 offered and the 10% notes due 2008 at 74 bid, 76 offered, both also two points lower, as traders considered the revenue implications of Delta's move. Some industry observers have raised the possibility that Delta's bold gamble could goad such rivals as American Airlines, Northwest Airlines, Continental Airlines and the already bankrupt United Air Lines and US Airways group into a destructive fare war.

The trader saw AMR's 9% notes due 2012 and 2016 fall to 78 bid, 80 offered from 81 bid, 83 offered.

At another desk, Northwest's 7 7/8% notes due 2008 were seen having lost altitude down to 77 bid, 79 offered from 82 bid, 83 offered on Tuesday, while its 8.70% notes due 2007 were four points down, at 85 bid, 87 offered. "This may start a far war," he opined.

However, airline industry analyst Ray Neidl of Calyon Securtities - who called the Delta move "long-term probably a necessary move" - didn't see the rival carriers all jumping on the bandwagon to immediately follow Delta's lead. They will, he said, be "looking very closely at this pricing module to see how it fits in with their systems." AMR, for instance, "is experimenting [along the same lines] in Miami, so they're looking at the situation, yes."

Neidl said that for Delta to make such a move, after having had cash and liquidity problems as it tries to turn itself around, "shows that they are confident that the can get their cost structure down because the reduced simple pricing doesn't work if they can't" bring their costs down. He said the similar "SimpliFares" program that Delta had been testing on service out of its Cincinnati hub since August "seems to have worked there and now they're trying to apply it across the system - and it's going to put a lot of pressure on every other legacy carrier out there to maybe take a look at their [own] model and see what they're going to do."

However, even with the new lower fares and simplified pricing structure, Neidl said, that still leaves Delta with "a much more complex system," compared with the fare structures at Southwest Airlines and the other upstart discount fare carriers.

"They [Delta] operate hubs, they operate internationally, they have a broad domestic system - but they're trying to morph more into a low-cost carrier, by simplifying the model, simplifying the service and simplifying the fare structure - and most importantly, getting their cost structure down."

Adelphia bonds down

Elsewhere, Adelphia Communications bonds were lower, even though there was no real news out on the bankrupt Greenwood Village, Colo.-based cable operator.

A trader suggested that "everyone was turning into a Nervous Nelly and selling before the auction" - referring to the final bids in Adelphia's asset auction, which are expected around mid-month.

The company's package of seven geographically clustered groups of cable systems is expected to fetch bids of between $17 billion and $20 billion. Adelphia expects to make a decision during the current quarter as to whether the bids it receives for its assets are adequate and whether it wishes to accept them, or, alternatively, whether it wishes to reject them and continue to restructure in expectation of emerging from Chapter 11 later in the year as an independent company.

The trader saw Adelphia's 10¼% notes due 2006 having fallen to 94 bid, 96 offered from 99 bid, 101 offered previously, while its 10¼% notes due 2011 dropped to 99 bid, 101 offered from 103 bid, 105 offered. He saw Adelphia's busted convertibles fall to 19 bid, 21 offered from 22 bid, 24 offered.

Adelphia's bank debt meantime traded around Wednesday at unchanged levels with the Old Century paper quoted at 99.25 bid, par offered and the New Century paper quoted at 99.375 bid, 99.875 offered, a trader said.

Mirant loans lower

Elsewhere on the bank loan front, Mirant's '03 paper slipped back down on Wednesday - ending a two day rally - with the paper quoted at 72.5 bid, 74 offered.

Previous closing levels on Mirant were 74 bid, 75 offered and Tuesday afternoon quotes were 73 bid, 74 offered, according to a trader.

At the close of 2004 the paper was quoted at 70 bid, 71.5 offered, but with the start of the new year, the bank debt emerged with 72.5 bid, 73 offered levels that were sparked by the departure of the company's chief executive officer, S. Marce Fuller.

And, Tuesday's uptick was also attributed to follow-through positive investor sentiment on the Atlanta-based energy company's CEO news.

However, there was nothing new out on the name that would have instigated Wednesday's fall, the trader explained, chalking it up to possibly market technicals.

Asbestos names better

Meanwhile, the bankrupt asbestos names started moving around again, with both USG and Owens Corning up about half a point on the day for no specific reason, a trader said.

Other market sources, however, suggested that Washington progress on crafting a claims payment mechanism that would stem the flood of asbestos lawsuits might be a factor, with Senate Judiciary Committee chairman Arlen Specter (R.-Pa.) planning on holding a hearing on a draft proposal next week, and aiming to wrap up action by the end of the month.

USG's bank debt was quoted at 116.75 bid, 117.75 offered and Owens Corning was quoted at 90.5 bid, 92 offered, the trader said.

Chicago-based buildings materials company USG's bonds were "up a little," a market source said, pegging its defaulted 9¼% notes due 2001 up as much as four points to 130 and its 8 % notes due 2005 two points better at 128.

He saw Toledo, Ohio-based insulation maker Owens Corning's bonds, which had firmed two points Tuesday, unchanged Wednesday at 85, while Lancaster Pa.-based floorcovering maker Armstrong World Industries was "up a bit," at 75.25 from 73 previously, and Southfield, Mich.-based auto parts maker Federal-Mogul Corp.'s bonds were half a point better at 32.5.

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