8 bondholders 'open-minded'

0 Comments | Deseret News (Salt Lake City), Dec 2, 2006 | by Jeff St.Onge

Eight of Delta Air Lines Inc.'s largest bondholders are keeping an "open mind" about the carrier's plan to exit bankruptcy without a merger partner, the group's attorney said.

The bondholders, who own an unspecified amount of Delta debt, are forming an independent panel to evaluate Delta's strategy and an $8.4 billion hostile takeover bid by US Airways Group Inc., attorney Alan Kornberg said in an interview Friday.

"Any transaction has to be evaluated against a stand-alone plan," said Kornberg, a partner with Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York. The US Airways offer should be "taken seriously, understood and fully vetted."

The bondholders organized because Delta's unsecured creditors committee didn't adequately represent them, Kornberg said.

The official creditor panel met for a second day with Delta and US Airways executives, who are courting the committee because it will help set terms for Delta to leave Chapter 11.

Lehman Brothers Holdings Inc. and Deutsche Bank Securities Inc. are among the bondholders in the informal group, which includes members holding "hundreds of millions of dollars in bonds," Kornberg said.

The group expects to arrange meetings with Delta and US Airways similar to those held with the creditors committee Thursday and Friday in New York, Kornberg said.

He said the bondholders will file a notice next week with the U.S. bankruptcy court overseeing Delta's case that they had organized and hired a lawyer.

Delta, which operates a hub at Salt Lake City International Airport, and US Airways, the seventh-biggest, both declined to comment.

US Airways went public on Nov. 15 with its offer of $4 billion in cash and 78.5 million US Airways shares in hopes of winning creditor support after Delta Chief Executive Officer Gerald Grinstein initially rejected the bid.

Delta creditors would get a 45 percent stake in the merged company, which would surpass AMR Corp.'s American Airlines as the world's biggest carrier, based on miles flown by paying passengers.

Based on trading in Delta's debt, "Delta's own organizational plan is a complete nonstarter," said Gary Hindes, a portfolio manager for New York-based Deltec Asset Management Corp., which specializes in distressed companies.

"The market is trading as if this deal with US Airways -- or some other deal -- is going to happen," said Hindes, whose holdings include Delta bonds. "A year from now, Delta is not going to be surviving on its own."

Delta's 7.9 percent notes maturing in 2009 were unchanged Friday at 60 cents on the dollar. They've gained 48 percent since US Airways made its bid public. The yield was 28 percent, according to Trace, the bond price reporting system of the NASD.

Delta, based in Atlanta, on Thursday said it would continue working on its plan to exit bankruptcy as an independent airline, producing greater value for its creditors.

Since filing for Chapter 11 in September 2005, Delta has been working to lower costs by $1.9 billion a year.

Contributing: Eric Torbenson