Calpine continues to languish even as unit's deal prices; Amerco seen lower

By Paul Deckelman and Sara Rosenberg

New York, Aug. 7 - Calpine Corp.'s existing junk bonds continued to struggle on Thursday, even as a subsidiary of the California geothermal power plant operator was successfully bringing its new $750 million of bank debt and secured bonds to market, although the percentages of bond debt versus term loan debt were altered from the ratios initially talked around the market.

Outside of Calpine, traders saw activity in some of the other energy names. And the bonds of bankrupt U-Haul parent Amerco were quoted considerably lower.

And the stage was meantime set for any number of high yield issues to tumble into distressed-debt territory, with the release of a potentially psychologically devastating junk bond mutual fund flow number for the latest week.

The ebb and flow of money into and out of the high yield funds is watched by many market participants as a key barometer of overall junk market liquidity trends - and in the latest week, the trend was clearly negative, as market participants familiar with the weekly numbers compiled by AMG Data Services told Prospect News that $2.56 billion more left the funds in the week ended Wednesday than came into them - the largest such outflow in recent memory.

The giant outflow follows the previous week's $1.06 billion outflow - the first time in recent memory that back-to-back negative flows of over $1 billion have been seen in consecutive weeks.

Market participants have linked the very strong fund flow numbers which had been seen for most of the year up to this point with renewed market confidence and the resulting surge of new-deal activity since the beginning of the year, including Calpine's recent sale of $2.55 billion of new bonds in three tranches, although that debt has steadily slid in secondary ever since pricing at par on July 10.

In Thursday's action, a distressed-debt trader said, the Calpine 8½% notes due 2010 and 8¾% notes due 2013 - which had finished Wednesday at 87 bid - came under pressure on Thursday, falling to 85 bid in morning dealings, although he saw them returning to an 87ish context by the end of the session.

While the existing Calpine debt was bouncing around in the same mid-80s range to which it had recently fallen, the San Jose, Calif. -based power generator's second-lien bank debt moved slightly higher, as people expected the pricing to take place on the company's proposed debt offering and investors gained more confidence in the deal's ability to get done based on the more attractive terms talked in the market, according to traders.

The paper was quoted at 90 bid, 91 offered, up from Wednesday's level of 89½ bid, 90½ offered, according to a trader.

When Calpine finally brought the combination of new bank and bond debt to market via its Calpine Construction Finance Co. LP unit, the six-year first priority secured term loan had been upsized to $385 million, from the originally expected $300 million. The loan carries an interest rate of Libor plus 600 basis points.

The bond portion of the offering consisted of $365 million of eight-year second priority Rule 144A secured floating rate notes - down from the $450 million everyone had been expecting The notes carry an interest rate of Libor plus 850 basis points, according to a syndicate source.

Calpine's recent struggles - even as the new bank/bond debt deal was coming to market - constituted "a debacle" that had weighed on some of the other power-sector names like AES Corp., El Paso Corp. and Allegheny Energy Inc., the distressed-debt trader said.

"There was a lot of stuff going on - a lot of El Paso trading, and AES trading and Calpine trading - a lot of buying and selling," he said.

Volume more than anything else was the standout feature of the market, "a good deal of volume in a lot of the energy names, good two-way flow, buyers and sellers. There's still some hangover left over from the Calpine debacle. But that seems to be getting cleaned up finally, in the mid 80s, sort of bounced back later in the day."

He also saw AES "under a little pressure," down a point to a point and a half in some spots during the day, but ultimately bouncing back to end little changed, more or less in tandem with the Calpines.

In El Paso, he said, there was "decent size, selling and buying." He pegged the Texas utility and pipeline operator's bonds up half a point to a point in the course of the day, with "a lot of give and take" between buyers and sellers, "all over the [capital] structure - short, intermediate and long."

As to Allegheny, the trader said the Hagerstown, Md.-based utility was "a name that's been talked about - but I didn't see much trading in it today. Certainly it's a name people are focused on as well."

Apart from the power generators, a notable mover was U-Haul parent Amerco. A trader saw the company's bonds having Fallen to 78 bid, 83 offered, from prior levels around 83 bid, 85 offered.

Other distressed names remained largely rangebound, traders said with WorldCom Inc.'s bonds still in the 26-27 range and its MCI long distance unit's bonds at 73 bid, 74 offered, HealthSouth was "same as yesterday," a trader said, its 2012 notes at 81.5 bid, 83 offered.

Another one of the usual suspects, Conseco Inc., also held at recent levels, its exchanged bonds at 63 bid, 66 offered, and its unexchanged bonds at 35 bid, 38 offered.

Charter Communications Inc.'s bank debt moved down again Thursday, although this time dipping only by about a quarter of a point, versus Wednesday's one-point drop. The term loan B tranche was quoted at 92.5 bid, 91.5 offered, compared to Wednesday's level of 92.75 bid, 93.75 offered, according to a trader.

Market sources attribute the decline to the company's $1.7 billion offering of senior notes, which is currently on the road, saying that the deal might not be going smoothly. One professional added that following a particular call this week investors, were unconvinced as to why Charter has chosen to structure its bond offering in this particular fashion.

But a bond trader offered a dissenting view, pegging the St. Louis-based cable operator's bonds "a couple of points better from their morning levels, as people start to realize that there will be a deal and it will be completed."

Elsewhere, Loral Space & Communications' 10% Orion notes due 2006 were quoted at 56 bid, up a point. Revlon Consumer Products Corp.'s 8 5/8% notes due 2008 were heard to have gained more than a point, to 47.5 bid.

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