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Delta Paper Trends Lower As Focus Shifts To Recovery Prospects

Delta Air Lines paper has been sliding downward as it appears probable the company--which recently announced it will no longer provide pillows to passengers in an effort to cut costs--will eventually file for Chapter 11 bankruptcy protection, according to researchers.

Delta Air Lines paper has been sliding downward as it appears probable the company--which recently announced it will no longer provide pillows to passengers in an effort to cut costs--will eventually file for Chapter 11 bankruptcy protection, according to researchers. They said the focus is now turning to recovery prospects for bondholders.

Roger King, analyst at CreditSights, expects Delta's unsecured bonds to be rendered worthless on the premise its secured bondholders and enhanced equipment trust certificate holders will take the bulk of assets. Mid-week, Delta's unsecured 7.7%s of '05 were bid around 80 and its 8.3%s of '29 were trading around 33-34, down from the mid-40s the previous month. "The '05s trading at 80 means enough people think they won't recover at par-- but enough people do that they're not trading at 25," commented a distressed analyst. Delta's 7.9%s of '09 were trading around 40 bid, which suggests the market expects Delta to file for bankruptcy in the near term but not necessarily before December, he added. He anticipates its unsecured paper will recover around 30 cents on the dollar.

Of course, although it is likely Delta will go under, it's not a foregone conclusion. Lower fuel prices and a U.S. Airways liquidation, which would help Delta add new customers, could stall a Delta bankruptcy, according to researchers.

Michael Palumbo, executive v.p. and cfo of Delta, did not return a call by press time.

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