Energy names roil bank debt market; Pegasus Satellite continues retreat

By Paul Deckelman and Sara Rosenberg

New York, May 6 - Once again the energy sector was a primary focus in the bank loan world Thursday, as many of the names felt "wobbly" or weaker on the day in reaction to Calpine Corp.'s less than stellar earnings numbers. Those results, in turn, dredged up recent concerns over Duke Energy's asset sale for a lower than expected multiple, traders said - a potentially ominous development in a still-restructuring energy industry where companies are trying to shed unproductive assets but are not getting as much for them as they would like.

Calpine's bonds moved lower in tandem with its bank debt on the weak numbers; also among the bond traders, Pegasus Satellite's notes continue to weaken.

Calpine Generating Co. LLC's second-lien and first-lien term loans bounced around a lot on parent company Calpine's first quarter earnings results, with both tranches quoted lower by the end of the day.

The second lien paper was quoted at 91 bid, 93 offered, down about two points from previous levels, while the first lien paper was quoted at 99 bid, par offered, down only about a half a point, according to various traders.

For the quarter, Calpine reported a per-share loss of 17 cents, or $71.2 million, versus a 14-cent loss, or $52 million, in the same period last year. Gross profit decreased by $44.6 million, or 27%, to $120.5 million, compared to the first quarter last year, as a result of lower spark spreads realized during the quarter and additional costs associated with new power plants coming on line, the company said in a news release.

Earlier this week, CalGen -a wholly owned subsidiary of Calpine, a San Jose, Calif.-based power generating company - was said to be somewhat volatile on the Duke Energy asset sale news, which disappointed some, as they were expecting the company to get a higher multiple. Duke Energy entered into an agreement to sell its merchant generation assets in the southeast U.S. for $475 million to KGen Partners LLC. Total proceeds from the transaction, including the sales proceeds and approximately $500 million in tax benefits, will be approximately $1 billion.

Mirant down

Also in the energy sphere, bankrupt Atlanta-based Mirant Corp.'s 2003 bank debt was quoted at 53.5 bid, 54.5 offered compared to Wednesday's levels of 54.75 bid, 55.5 offered, according to a trader.

On the bond side of the ledger, Mirant Americas Generating's 8.30% notes due 2011 were seen by a trader as having fallen to 69.75 bid, down a point, while parent Mirant Corp.'s 7.90% notes due 2009 ended at 58.25 bid, down from 59 previously.

Reliant steady

Reliant Energy Inc., however, managed to stay unscathed by market concerns, with its term loan quoted unchanged 98 bid, 98.5 offered and the revolver quoted basically unchanged at 94.5 bid, 95.5 offered, according to a trader.

On Tuesday, Houston-based energy provider Reliant's term loan had reached the 98 bid level, jumping up from a previous level of 97.75, as bank loan participants were relatively satisfied with the company's earnings numbers.

For the quarter, Reliant reported a loss from continuing operations of $46 million, or 15 cents per share, compared with a loss from continuing operations of $52 million, or 18 cents per share, for the same period of 2003. Retail gross margin was $162 million, compared with $185 million in the first quarter of 2003. Wholesale gross margin was $325 million, versus $281 million in the first quarter of 2003. Operation and maintenance expense was $250 million, up from $225 million in the same period last year.

Other general and administrative expenses were $54 million, compared to $58 million for the first quarter of 2003. And net interest expense for the quarter was $105 million, compared to $83 million for the same period last year.

Pegasus drops again

Outside of the energy sphere, Pegasus Satellite's 12 3/8% notes due 2006, which had fallen two points on Wednesday, were down another three points Thursday, to 65 bid.

A trader quoted the Bala Cynwyd, Pa.-based TV program distributor's 13½% notes due 2007 as having fallen to 55 bid, 56 offered, down from 57 bid, 58 offered previously.

He said there was no news out on the company, whose bonds have been limping along for months and then were sent reeling after a recent court decision in favor of Pegasus's legal adversary, DirecTV, in which Pegasus was ordered to pay the satellite giant $52 million.

A trader in distressed bonds who had been out of the office Wednesday said that from where he sat so little was going on in the market Thursday - with many players spooked by interest-rate fears and falling stocks - that "I might as well have taken [Thursday] off too."

He did see a little activity in UAL Corp. bonds, but said that the bankrupt Elk Grove Village, Ill.-based air carrier's paper, at 11 bid, 11.5 offered, was "well within its recent 11-13 context."

He saw Adelphia Communications Corp. convertible notes at 48 bid, 50 offered, down four points from the levels they occupied at the beginning of the week, and estimated that the Greenwood Village, Colo.-based cable operator's senior junk bonds, all now trading above par in anticipation the company may soon emerge from bankruptcy, were likewise a little lower on suggestions that one of the major cable operators mentioned as possible buyers for some or all of the company's assets might not be so enthusiastic about such a course. "Someone said they weren't interested," he said.

Elsewhere, the trader saw Finova Group's notes at 59.5 bid, 60 offered, "down a bit," while Mississippi Chemical's notes were offered at 50, but with little real trading having gone on.

Telewest plc, whose 9 5/8% notes due 2006 had fallen some two to three points on Wednesday, were half a point better Thursday at 58.75.

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