Calpine craze draws skeptics; Remy ride a hitchhike; Winn-Dixie rebounds

By Ronda Fears

Memphis, Dec. 1 - Calpine Corp. bonds extended the week's climb Friday, adding another couple points or so, as rumors of an imminent buyout of the bankrupt San Jose, Calif., power producer circulated. But skeptics were on the rise, as well, saying it could very well be a situation in which some of the big banks just want to clear their books of the distressed paper before year-end.

Meanwhile, headed back northward after a temporary slide on profit taking was Winn-Dixie Stores Inc. with the bonds rising to 90/91 on Friday after dropping to 88/89 the day before on expected profit taking as a result of a strong surge this week in the paper. The Jacksonville, Fla., grocer is coming out of bankruptcy, and the when-issued stock bounced along with the bonds, adding nearly 4% on the day.

On bank loan desks, traders again noted that Teco Panda's bank debt was better on Friday, this time moving up by about a half a point to a point. The power project financing bank debt closed the day quoted at 147 bid, 148 offered, up from Thursday's levels of 146 bid, 147.5 offered, the trader said. On Wednesday, the debt had been quoted at 141.5 bid, 142.5 offered.

The improvement in Teco Panda levels continues to revolve around investors believing that the company's Arkansas plant could be an acquisition target, a trader said.

Calpine chopping not done

Calpine paper also was rumored to be moving on speculation that the bankrupt independent power generator could be the target of a private equity buyout. But onlookers at some big buyside firms say it doesn't make sense that a buyer would step up before the weeding-out process of bankruptcy is completed.

As a measure of the gains in the paper recently, the 8½% notes due 2011 traded up to 83.5 at one point Friday before easing back to close at 76/77, off a point from Thursday. But the 10½% notes due 2006 continue to gain, going out for the weekend at 94/95 with a gain of 1.5 points from 92.5/93.5.

"Calpine paper was trading in the 50s just a month ago," said a distressed bond trader at one of the bulge bracket firms.

"Any time something moves this much in this short of a time there is going to be a lot of talk, but there is nothing solid."

A skeptical buysider said he doesn't believe there is really a buyer for Calpine right now. He thinks it's "just the big shops wanting to clear their books of this paper before year-end, which is certainly not beyond the capability of those guys."

"Calpine has a lot of work to do," he said.

"There is so much wood still left to chop at Calpine, I really can't imaging someone stepping in, not right now anyway."

In addition, another buysider on the West Coast, who has sold out his position in Calpine, said he thinks the paper has been over-valued past 80.

"Some people now feel they have good insight into what the eventual recovery will be on the unsecured debt, and it must look a lot better than the level the bonds were trading at," he said. "Personally, I cannot foresee a scenario where these unsecureds surpass 80 cents on the dollar."

Calpine is attempting to claw out from under a mountain of debt via Chapter 11 and has been steadily selling assets, many of which are deemed to be unproductive. That could lure a buyout at some point, another buysider said, and certainly natural gas assets are more valuable today than times past.

And, traders on the equity side of the equation said that electric giant Pacific Gas & Electric Co.'s recent acquisition of Atlanta-based independent power producer Mirant Corp. was fuel for the chatter.

"I just think it is a confluence of events leading up to the deadline for submitting the re-organization plan. PG&E being the latest catalyst," said one equity trader. "If the common shares get a seat at the table in the reorganization somehow, it could amount to a couple billion in market cap (10-20%) of the new Calpine. That could translate to maybe $3 to $5 a share, I don't know. But that could be behind the speculative buying [in the stock]."

Calpine business plan a factor

Some light might be shed on the matter by Calpine's business plan, which is set to be presented in bankruptcy court sometime later this month.

A reorganization plan from the company was due by year-end, but last week Calpine requested a second extension to its exclusive periods to file a plan of reorganization to June 20, 2007 from Dec. 31. That in turn would push back the vote on the plan by six months or more.

"A couple of weeks ago, Calpine began disseminating information about its business plan to the major stakeholders," said the buysider in California.

"I was guessing that the reason for the recent surge was because that information indicated that Calpine was in pretty good shape financially and that this confidential news was starting to leak out to the public."

Meanwhile, Calpine is preparing to create a business plan that will be the defining element of its restructuring and provide the platform for the reorganization plan, and has committed to completing that sometime in December.

A hearing has been scheduled for Dec. 6. Calpine filed for bankruptcy on Dec. 20, 2005.

Remy players hitch a ride

Remy International Inc.'s bonds continued to ride northbound Friday, adding another 2 to 3 points, which one onlooker attributed to buyers tagging along after the big hedge fund Tennenbaum Capital Partners, LLC was seen buying the paper in recent sessions.

"Tennenbaum buying a position in Remy is old news," said a buyside source. But their purchase "may have sparked others to want to get involved and that could still be driving the bonds up."

Remy's 11% notes due 2009s gained 3 points on the session to 40/41 from 37 on Thursday, and the 9 3/5% notes due 2012 added about 2 points to 35.5/36.5 from 34.

The bonds made a big move Thursday, but the buysider said Tennenbaum's purchases in the Anderson, Ind.-based manufacturer of automotive electrical systems took place "quite a while back."

Remy bonds have been routed recently by grumblings that it is on the verge of bankruptcy, which escalated on Nov. 10 when it hired Rothschild to lead a refinancing effort.

Solo Cup up ahead of call

Solo Cup Co.'s paper was better by 2 points, and although there was no news on the tape Friday, one trader noted that the company has slated a conference call to discuss its state of affairs with investors. Earlier this month, the Highland Park, Ill.-based maker of disposable cups and plates said that following disappointing third-quarter results it would be looking at alternatives to improve its performance.

The Solo 8½% notes due 2014 gained 2 points to 86.5/87.5.

Robert Korzenski, chief executive of Solo, said after the company reported quarterly results earlier this month that the performance, while improved, was hurt by a challenging industry environment, increased raw material costs and isolated inventory management issues. Thus, he vowed the company would look for ways to further improve, which comes after a string of initiatives that included big layoffs in April and bringing Korzenski on board as the new CEO in August.

Onlookers have been somewhat leery, however, that Solo could find a buyer of certain assets, or even the entire company, because the strained industry fundamentals have also hurt the likely buyers.

In addition, Solo is in negotiations, which must be completed by Jan. 2, to close on new amendments to its existing loan facilities or to replace its first- or second-lien facility with new borrowings. Chief financial officer Eric Simonsen said during the third-quarter call that he is confident of meeting the Jan. 2 deadline.

Doral players watch dividends

Doral Financial Corp. players are eagerly watching and waiting for crucial dividend payment dates coming up later the month, with mixed expectations. It was learned last week that the company is in talks with holders of its $625 million of floaters due next year about a refinancing deal expected to net a big equity swap along with some cash from the sale of assets.

On Dec. 15, the 4¾% cumulative convertible preferred is due a dividend payment, and one player said he expects that to be paid.

However, he is not expecting the company to make payments when due Dec. 29 on 7%, 7¼% or 8.35% debt issues. "The company will save $15.28 million," he said. "I am expecting these not to be paid. Every little bit helps I guess."

The Puerto Rico-based bank hired Bear, Stearns and JPMorgan earlier in November to help evaluate alternatives for refinancing the $625 million floating-rate senior notes due July 2007 and restructuring its balance sheet to reduce interest rate risk exposure and improve its future earnings profile.

Market buzz puts Doral offering a big portion of equity and proceeds from the sale of a portfolio of loans to write-off the $625 million debt.

But the big holders of the floaters - a huge hedge fund in New York and international brokerage firm - are "playing hardball," as the other player put it. He said the chatter now is that those big holders are looking for at least a half cash payoff with the equity distribution based on a price for the stock of under $1 per share.

Doral shares Friday slipped by a penny to close at $4.04.

Doral first acknowledged in October that it would require outside financing or other sources of capital to repay the $625 million floating-rate senior notes when they mature on July 20, 2007, saying it might issue high-yield bonds, equity or sell assets to fund the refinancing or restructuring.

Given the refinancing negotiations and recent figures from Doral, another market source said Doral may not have as far to go as had been feared. But, she said the stock level is overvalued with little upside room.

"There are some new figures out on Doral at the FFIEC [Federal Financial Institutions Examination Council] that show year-to-date earnings remain weak, but are better than the loss in 2005 and even lower earnings in 2004," she said.

"It looks like that, with FDIC approval, Doral's banks could upstream $264 million and remain well capitalized. That along with current liquidity at the parent company may be enough to pay off $625 million floating-rate notes in July. Though, it is hard to say for sure how much of the liquid assets have been pledged. Available funds are close to the amount needed and thus new financing requirement may be more modest, which means it could be cheaper and easier to execute.

"Just having the ability to pay the debt, even if it would rather refinance, puts it in a stronger position to price any new debt."

Sara Rosenberg contributed to this article.

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