Airlines firmer as carriers hike prices; Qwest said to buy back debt

By Paul Deckelman and Sara Rosenberg

New York, May 12 - Airline industry bonds were seen gaining a bit of altitude on Monday; perhaps coincidentally and perhaps not, the firming trend in their debt, as well as their shares, follows an apparently successful industrywide move to raise ticket prices $5 per trip on non-sale domestic flights - the first successful move by the cash-hungry carriers to raise fares this year, other than a fuel surcharge imposed earlier in the year. Several other fare hike attempts had quickly plummeted to earth, withdrawn amid fears by the nervous carriers that the price increases might further stifle demand, which was already on the decline.

Whether it was the prospect of a putting little extra green in the till, or just a continuation of the upward trend airline securities have been following - with a few zigs and zags here and there - ever since Merrill Lynch & Co. analysts upgraded the shares of several major carriers and suggested that the worst may be behind the battered industry, the bonds continued to firm Monday. American Airlines parent AMR Corp.'s 9% notes due 2012 were quoted as having risen to 57 bid/59 offered from prior levels at 55 bid/57 offered and Delta Airlines' 7.70% notes due 2009 likewise two points better at 76 bid/77 offered.

"Airlines were up two points, across the board," said a trader, although he said there was "no news and no real reason for it."

A distressed-debt trader affirmed that AMR's bonds, after a short retrenchment, had "firmed back up into the mid-to-high 50s," while Northwest Airlines' bonds had also "gotten firmer." He even saw the notes of the bankrupt UAL Corp., - United Airlines' parent - as now trading around nine cents on the dollar, about triple the level they had held a few weeks ago.

At another desk, Northwest's 7 7/8% notes due 2008 were quoted slightly firmer around the 73 mark, while Continental Airlines' 8% notes due 2005 were a point better, at 77.5 bid.

On the equity side of the ledger, the shares of the major carriers - which, except for UAL, had risen on Friday - continued to head skyward on Monday, with AMR leading the way, up 39 cents (5.91%) at $6.99; Continental was up 33 cents (2.92%) to $11.62, and Delta up 37 cents (2.64%) to $14.37, all on the New York Stock Exchange, while Northwest gained 37.9 cents (3.83%) to $10.269 on the Nasdaq. The sole loser was, again, UAL, off nine cents (6.91%) in over-the-counter dealings to $1.28.

AMR opened what could be though of as a fare war in reverse on Friday, by announcing the $5 per ticket ($10 for round trip) increase in all non-sale domestic fares, starting June 1. One-by-one the other major carriers all followed suit, concluding Monday with Northwest.

Analysts studying the move saw it as an expression of confidence by the major carriers that passenger traffic would likely be turning up as summer approaches, with the war essentially over.

It remains to be seen whether the big carriers have gauged public sentiment correctly - particularly since the budget-priced regional carriers which have already captured a sizable portion of the majors' market, such as Southwest Airlines, Jet Blue, AirTran and Alaska Airlines, have so far not gone along and raised their fares.

And the fare hike takes place even in the face of the new negative that has popped up on the horizon in recent weeks seems to have pushed terrorism fears off to the side - the impact of SARS is likely to cut demand for flights to and from the disease's apparent origination point in the Far East. Northwest could suffer more than the other carriers, since Asian traffic makes up a big part of the Minneapolis-based carrier's service base.

However, analysts noted that the impact of the carriers' fare hike is likely to be blunted somewhat as the government temporarily suspends the $2.50 per takeoff or landing segment security fee imposed by Washington in the wake of 9/11. The security fee works out to $5 per trip or $10 per round trip - same as the airline price hike - so until the fee is reinstated in the fall, the net effect on what customers of the major airlines are paying will be zero.

Elsewhere, traders said dealings in distressed issues was quiet, mirroring an overall quietude in the high yield bond market.

"It was a typical Monday," the distressed-debt trader said. "Qwest [Communications International Inc.] traded around, still pretty much at the same levels they've been at. Other than that, it was really slow."

The Denver-based telecommunications company's debt was "all over the place, but mostly easier," a market source said, quoting its 6 3/8% holding company notes due 2008 a point down, at 82 bid.

But late in the session, another trader pegged Qwest's debt about a point higher, with its holding company 7% notes due 2009 at 82.5 bid/83.5 offered; he cited as a possible factor a Bloomberg News story that Qwest had bought back as much as $200 million of its bonds, "helping to spur a surge in the price of the debt." The Bloomberg story attributed its information to unidentified "people familiar with the matter."

Also in the communications area, WorldCom Inc.'s bonds were seen marginally firmer, at 28.125 bid, while long-distance unit MCI's debt were about half a point higher, at 75 bid.

Metromedia Fiber Network Inc. - like WorldCom a telecommunications name currently reorganizing under Chapter 11 - said Monday that it had filed its disclosure statement with the U.S. Bankruptcy Court for the Southern District of New York in Manhattan - moving it one step closer to possible emergence from bankruptcy. The filing of the Disclosure Statement follows its March 14 submission of a plan of reorganization to the court.

News of the disclosure statement filing did not much impress distressed investors, who continued to trade the company's bonds a fraction above four cents on the dollar.

Charter Communications Holdings LLC's bonds were "basically unchanged," a source said, its 8 5/8% notes due 2009 steady at 67 bid, while its 9.92% notes were about half a point down, at 58.

Bank-debt traders said that Western Wireless Corp.'s bank debt was quoted as trading at 90½ by one trader, in what was otherwise a very quiet market. "It's sideways. Maybe it has a little bit of strength," the trader added.

"The whole sector has performed well. All the rural cellular names have done really well the past couple of weeks," a second trader said, explaining that many market participants are beginning to feel like these companies may have access to the capital markets again, since overall company performance has improved.

Some of the biggest movers in the distressed bank loan market on Monday included Galey & Lord and Venture Holdings, according to data from LoanX.

Galey & Lord's term loan C was better bid at 65, up from 61 and the term loan B was quoted at 61.5 bid, up from 60, according to LoanX.

Venture Holdings' term loan C was quoted at 78 bid, up from 75 and the term loan B was quoted at 82 bid, up from 79.5, according to LoanX.

Back on the bond side, Hayes Lemmerz International Inc. filed notice Monday with the Securities and Exchange Commission that it will begin making presentations to prospective lenders in connection with the syndication of a proposed senior secured credit facility of up to $575 million, in connection with its proposed Chapter 11 emergence, and it was heard by high yield syndicate sources to be hitting the road Tuesday with a $225 million bond deal.

The automotive parts maker's existing senior bonds were meantime heard quoted in the low 50s, while its subordinated notes are "essentially worthless," a market source said, at less than one cent on the dollar.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.