Calpine bonds better; Ford paper gains on new issue; Delphi higher; Movie Gallery up; Delta firmer

By Ronda Fears

Memphis, Dec. 6 - Bankrupt independent power producer Calpine Corp. was back among the risers Wednesday with the bonds seen higher as it got an extra six months to make its reorganization plan pitch and as it announced another asset sale in a bankruptcy auction that fetched more than expected.

Along those lines, in the bank circles, Teco Panda's bank debt continued to head higher on Wednesday as power project names in general felt stronger, according to a trader. The bank debt closed the day quoted at 148 bid, 149 offered, up about a point on the day, the trader said, remarking that "all power projects were higher on better valuations for the sector."

Back to bankrupt paper, traders said Adelphia Communications Corp. bonds firmed about 2 points. Bondholders of the Greenwood Village, Colo., cable operator have asked the bankruptcy court to postpone its plan confirmation hearing for 30 days to review evidence; a majority of the voting classes approved the plan last week.

Elsewhere, Ford Motor Co. bonds were driven higher by as much as 4 points as the flagging automaker upsized its new convertible bond to $4.5 billion from $3 billion while tightening the price talk and, because of raging demand, closing the books early to set final terms.

Movie Gallery gains 3 points

Movie Gallery Inc.'s bonds reeled in a 3-point gain with the 11% notes due 2012 at 77.5 bid, 79.5 offered, in line with the 16% rise in the stock, buoyed by renewed chatter of a merger deal, or possibly a refinancing move by the Dothan, Ala., movie rental retailer.

"The last time the bonds were at this price, the stock was $6. There was no news on the wires but someone knows something. There was some big buys in the bonds and huge accumulation in the stock today," said a bond trader.

Movie Gallery shares, which trade on the Nasdaq, gained 16% on Wednesday to $4.07.

"There is always merger potential, however, but I think the speculation that there will be an effort to refinance the bonds, or at least the bank debt, makes more sense. If they did second-lien debt replacing first-lien debt, OK, they merely shuffle the paper and have the same total debt, presumably at a higher interest rate due to second-lien status, but this might provide short-term covenant relief.

"If they did a debt for equity swap, which a lot of people think is the most sensible thing to do, the total debt is reduced, not merely reshuffled. This would put a lot of pressure on the stock, but the bondholders would be in control, and if a merger offer came along they could push it through. As for a deal with Blockbuster, I think that's ridiculous. A deal with Netflix is even more nonsense.

"A partnership talk is premature at best, pipedream at worst. But, Movie Galley is testing kiosks regionally and I understand it is working well in Minnesota and other select areas. Low costs and immediate distribution to customers is the way to reduce the operating overhead in high priced bricks-and-mortar stores. They are targeting groceries stores, malls and other high traffic locations."

Calpine asset sale a boon

Calpine bonds were seen better by about 1 to 2 points Wednesday, with a trader pegging the 8½% notes due 2011 quoted at 88.5 bid, 89.5 offered and the 10½% notes due 2006 at 92 bid, 93 offered, on news of an asset auction in the bankruptcy fetching $75 million more than anticipated and an extension to its exclusive period to file a reorganization plan.

Proceeds from the Aries auction would be used to pay down project debt, according to Calpine. The Calpine Generating Co. LLC bonds related to the Aries project in Pleasant Hills, Mo., the trader said, edged up by a quarter-point of so, but most of that paper is trading at a big premium to par.

San Jose, Calif.-based Calpine, an independent power producer, announced Wednesday that the bankruptcy court approved the sale of its 590-megawatt Aries Power Plant to for $233.6 million to Kelson Holdings LLC, which beat Aquila Inc.'s bid of $158.5 million. Also, Calpine got a six-month extension to its exclusivity period to July 2007 from Dec. 31, which had been extended in April.

"Yesterday the Calpine bonds were slower and bond prices were stable to slightly lower, and the bonds were not changed all that much, but volume really picked up," said a distressed bond trader.

"The stock was the big story. It doesn't look like bonds were driving the stock price today. News about Aries auction might have an impact. Calpine was prepared to sell Aries for less, but ended up selling it for $75 million more. That's good news for the bonds, but the arbs were having to cover short positions in the stock, plus we heard there was a big buyer [for the equity]."

Calpine shares, which trade on Pink Sheets, climbed 12% on Wednesday to $1.04. On the equity side, a buyside analyst said there is increasing appeal to the stock as the company pares down debt in the bankruptcy.

Bullish view on the stock

There is considerable participation in the stock by hedge funds with a position in Calpine bonds, but the buyside equity analyst said there is mounting interest in the stock. Calpine securities across the board were boosted last week by speculation that the company might be the target of a private equity buyout, but the buysider agreed with others last week that it was too early in the bankruptcy process for a buyer of the company to step in.

Still, through the debt reduction, the buyside equity analyst estimates that post-bankruptcy shares could be worth as much as $17.50 a share by several calculations.

"After selling off 20% of the [power plant] fleet, debt gets down and approximately $7 billion worth of debt gets converted into shares of new Calpine. I think it's possible that current equity holders get one share of new Calpine stock for every 10 shares of old Calpine stock," the analyst said.

Earlier this year, Calpine launched a program to sell 20 power plants, or about one-fifth of its fleet, in a bid to emerge as a leaner company focused on profitable geothermal and gas-fired generating capacity in core markets like Texas and California.

Calpine has said it is about two-thirds finished with a restructuring plan that will eliminate nearly one-third of its work force and bring about $180 million in annual savings. But the company has pledged to file a new business plan, which will be the cornerstone for the reorganization, before year-end.

Calpine border war rages on

Calpine also asked the bankruptcy judge Wednesday to block its Canadian debtors from rushing collection on $564 million in inter-company claims from its U.S. debtor affiliates. The company wants a ruling that the U.S. and Canadian debtors and the indenture trustees of $564 million in bonds issued by the bankrupt Canadian units should negotiate a cross-border protocol to resolve the issue.

The conflict revolves around $2.74 billion in two series of so-called ULC I and II senior notes that were issued in 2001 by Calpine's wholly owned, non-operating Canadian subsidiaries.

The notes were guaranteed by parent Calpine along with 273 affiliates in what's become one of the most complex filings in recent memory.

Simultaneously with the U.S. filings on Dec. 20, 2005, 12 Canadian units sought bankruptcy protection in Calgary, Alta. The Canadian debtors hold various inter-company unsecured claims against the U.S. debtors that include the $564 million worth of ULC notes still outstanding.

Ford issues rise with new issue

Ford's existing bonds were driven higher by as much as 4 points as the Dearborn, Mich., automaker's new convertible issue, which is distressed CCC+ paper right out of the gate, was bid up 3 to 3.5 points over its par issue price in the gray market and seen 4.5 to 5 points over par shortly after it priced.

"It's not often we are talking about new issues, but then Ford still trades on our investment-grade desk," said a distressed bond trader at a mid-market firm. The same is the case with many shops, he added, "because if you took Ford and GM [peer automaker General Motors Corp.] away from them, that would just about do away with all of their volume."

In addition to tightening the price talk - to a yield of 4.25% to 4.75% with a conversion premium of 23% to 25% from 4.75% to 5.25%, up 23% to 27% - clients were alerted early Wednesday that the books would be closed by noon ET rather than waiting for the market to close, as had been originally planned.

As for the existing bonds, one trader pegged the Ford 7.20% notes due 2007 firmer by 4 points at 100.5 bid, 101.5 offered and the 6 5/8% notes due 2028 better by 2.5 points at 74.5 bid, 75.5 offered. Another trader put the Ford 7 1/8% notes due 2025 higher by 1 point at 76.75 bid, 77.75 offered.

Ford shares, however, were pressured by the new convertible and closed on the New York Stock Exchange lower by more than 4%.

Ford also said Wednesday that it is pledging its investment in Mazda Motor in an effort to increase its revolving credit facility. On Friday, Ford increased its total senior secured credit facility (Ba3/B) size to possibly as much as $18.5 billion from $15 billion through a boost to the revolver tranche. The new revolver size has not yet been pinned down but it is estimated to end up anywhere from $10.5 billion to $11.5 billion, compared to the original $8 billion size.

The new convertible bond and bank facility are part of Ford's latest restructuring, announced last week, which also includes pledging manufacturing plants and its Volvo line as collateral. The automaker, which currently owns 33.4% of Mazda, said that the size of its $7 billion term loan B and $1.5 billion basket for permitted non-loan exposure will stay the same.

Delphi long bonds better

Elsewhere in auto names, parts maker Delphi Corp. said Wednesday that it has booked $3.3 billion of new business for its steering systems division in 2006, a unit earmarked for divestiture in its bankruptcy reorganization, and the news was expected to boost the potential price tag.

The event pushed Delphi's bonds, which have been trading at smart premiums, higher, particularly the long-dated paper. For instance, one trader said 8¼% notes due 2033 traded up nearly 2 points on the session to 99.5 bid, 100.5 offered from 97.25.

Delphi said the new business is with 16 customers that it declined to identify, but said most contracts run for about five years and more awards are expected by year-end. The company said more than 30% of the new business was taken from other companies and the bookings reflect a more than 50% gain over 2005. Delphi did not disclose revenue figures for the unit, however, which could be used to estimate a price in its sale.

The steering systems division was among several businesses Delphi outlined in March as non-core areas it planned to drop. Rothschild Inc. has been retained by Delphi as its primary financial adviser and investment banker for the possible sale of its steering and interiors divisions since April.

Delphi was spun off from General Motors Corp. in 1999. Troy, Mich.-based Delphi filed for bankruptcy in October 2005 under pressure from high wages, production cuts by major customers and other factors - largely a trickle-down effect from the strain GM has encountered.

Delta bonds add 3 points

In another transport name, Delta Air Lines Inc. bonds were quoted higher by about 3 points as US Airways Group, Inc. said Wednesday it is "fully committed" to its proposal to merge with Delta and "confident" that Delta's board and creditors would begin the due diligence process.

Delta's 7.90% notes due 2009 were heavily traded, according to one bond trader, and moved up to 62.5 bid, 63.5 offered from 59.75. He pegged the 8.30% notes due 2029 unchanged, however, at 62.5 bid, 63.5 offered, but noted that issue traded as high as 62 during the day.

"We believe that the next steps, in order for Delta's board of directors and the creditors' committee to satisfy their respective fiduciary obligations to fully and fairly evaluate the potential benefits of our proposal, is to begin the due diligence process," said US Airways chief executive Doug Parker in a statement.

"Only then can they be in a position to truly assess this opportunity. I am confident that they will do so."

Parker added that the airline believes its discussions with Atlanta-based Delta and its creditors have shown that the merger can be achieved.

Tempe, Ariz.-based US Airways, the No. 5 domestic carrier, is offering a package valued at roughly $8.5 billion for bankrupt Delta, the No. 3 domestic carrier.

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