NewPage prices restructured $775 million deal; Calpine lower despite denying rumors; Caraustar down

By Paul A. Harris

St. Louis, April 22 - The extensively rejiggered NewPage Corp. deal, finishing at a size of $775 million, priced during an extremely quiet session in the primary market.

Meanwhile in light trading in the secondary, the bonds of San Jose, Calif., power producer Calpine Corp. continued to be pushed around, ending slightly off despite the company's insistence in a press release that its finances are in order.

The bonds of packaging firm Caraustar Industries fell after the company warned on its first quarter earnings.

And the bonds of Rochester, N.Y.-based Eastman Kodak Co. fell on news of a ratings downgrade.

A nervous Friday

One market source, remarking that reports that North Korea may be headed toward a nuclear weapons test in the near future caused equity prices to tumble, said that Friday was an unlucky day at the end of a mostly unlucky week. And don't ask about the month.

"It was just a nervous Friday, with not a lot of people around."

"It seems like hand grenades keep dropping," source added, making note of a 10th consecutive weekly outflow from the high-yield mutual funds - negative $680 million for the week to April 20, as reported by AMG Data Services - leaving the flow of funds north of negative $6 billion thus far into 2005.

"Money is leaving the asset class and you have bad news reinforcing the exodus," the market source commented.

NewPage gets it done

Because of its size the NewPage Corp. deal had commanded quite a lot of attention in junkland.

The acquisition deal, via Goldman Sachs, began at $900 million and was subsequently trimmed to $775 million for the part aimed at retail buyers.

Amid revised and widening price talk, some sources argued in conversations with Prospect News that big liquid issues will command attention even in a market as choppy as high yield is at present. Meanwhile others contended that in a new issue market with most of the deals getting delayed, while others are being withdrawn altogether, filling an order book for a big deal is no mean feat.

In any case, terms emerged Friday on a downsized, restructured $775 million issue of high-yield notes in three tranches.

The Dayton, Ohio, producer of coated and carbonless papers sold $225 million of seven-year non-call-four senior secured second-lien floating-rate notes (B3/CCC+) at par to yield three-month Libor plus 625 basis points. Price talk was three-month Libor plus 600 to 625 basis points, having been revised from 550 basis points.

In addition, the company sold $350 million of 10% seven-year non-call-four senior secured second-lien fixed-rate notes (B3/CCC+) at 98.773 to yield 10¼%. Price talk was for a yield in the 10% area, having been revised from 9 3/8%-9 5/8%.

The combined total of the second-lien tranches was upsized by $25 million to $575 million from $550 million.

NewPage also priced a downsized $200 million tranche of 12% eight-year non-call-four senior subordinated notes (Caa2/CCC+) at 98.749 to yield 12¼%. Price talk was 12%, having been revised up from 11 3/8%-11 5/8%. The subordinated tranche was downsized by $25 million from $225 million.

In a private transaction the company sold $125 million of 8.5-year PIK for life notes issued at the holding company level to equity sponsor Cerberus Capital.

Asked about the disposition of the new NewPage notes when they were released into the secondary market, one trader said: "I only saw sellers on the break, but that doesn't really mean anything because it's Friday afternoon.

"But it took a long time to structure that deal."

Further and further behind

With the conclusion of NewPage, the week of April 18 came to a close having seen $1.445 billion price in seven dollar-denominated high-yield tranches, a decrease from the previous week's $2.2 billion of bonds sold in 10 tranches.

Thus far into 2005, junk has seen slightly over $36 billion of issuance in 141 dollar-denominated tranches, as the primary market continues to fall further and further behind 2004 on a year-over-year basis; at this point last year the market had seen just under $54 billion price in 218 dollar-denominated tranches.

Calpine comes forward

Amid news that its securities had been taking a beating throughout the week, Calpine responded in a Friday press release to what it called "false market rumors" that have been creating trading pressure on the company's stocks and bonds

"While it is not Calpine's policy to respond to market rumors, we feel compelled to comment today to assure the marketplace that these rumors are false," the company stated in the Friday release. "Calpine remains in compliance with its corporate and project indentures. Further, the company assures the market that it has no plans to file for bankruptcy."

As Calpine's indignation dissipated into the high-yield bond universe, however, traders and other sources told Prospect News that the power producer seemed to have done itself little apparent good.

"The low tick on the 8½% notes of 2008 was 53 today," claimed one trader, speaking in the wake of the press release.

"They're closing 57 bid, 58 offered. They went up to 60 after they said they wouldn't file Chapter 11.

"It has been a wild ride, but we've had these wild rides before.

The trader, meanwhile, spotted the Calpine 8½% bonds due 2011 closing at 56 bid, 57 offered.

"There are little trades down," the trader commented. "Guys seem to be saying 'Where there is smoke there's fire.'"

However, this source surveyed a week rife with Calpine rumor - rumors of bankruptcy and missed coupons - and said that it would be difficult to rule out the hands of the hedge funds in such a situation.

"Those guys will say whatever they want to push them around," the trader commented.

Another source, also speaking in the wake of the press release, spotted the Calpine 8½% notes due 2008 at 57.50 bid, 59 offered.

"Shorts have been ganging up on the company," said the source.

"Last week there were rumors that they missed a coupon payment on a convertible. That turned out not to be the case. Today there was supposedly a rumor of a big account that was checking with its lawyers to see what retaliation they could have against a bankruptcy filing. And the stock got hit pretty hard. Calpine has had pressure on it all week. And today the bonds got whacked pretty hard."

Finally another source in an investment bank, speaking earlier in the afternoon before the press release had circulated, reported seeing Calpine's 8½% due 2008 at 57.50 bid, down three points since this morning

"You would think that people might start finding value here sometime soon," the source said.

"At these levels there are probably a lot of technicals pushing these things around."

Kodak lower on cut to junk

Meanwhile another trader also characterized that Friday session as a quiet, underpopulated affair.

"Europe started out strong Friday morning," said the trader. "But the U.S. definitely feels heavier.

"We have seen really light volume today. It feels like a lot of people just weren't around today, for some reason."

This source saw the bonds of Eastman Kodak ease after Standard & Poor's lowered Kodak's ratings to a speculative BB+ from BBB- after the company recorded a loss of $142 million, or $0.50 a share, in the first quarter of 2005.

The trader said that Kodak's 7¼% notes due 2013 had widened out 10 basis points on news of the downgrade to trade at 237 basis points over Treasuries.

Carauster paper off on missed earnings

Elsewhere traders saw the bonds of Caraustar Industries tumble on news that it had missed its first-quarter earnings.

"We actually traded a lot of them," said one trader who added that the benchmark 9 7/8% note due 2011, closed at 103.50 on the earnings news, after having been as strong as 105 beforehand.

Some firmness among recent issues

Among bonds recently priced, two issues appear to be going from health to health, one trader said Friday.

Compagnie Generale de Geophysique's new 7½% notes due 2015 (Ba3/BB-), which priced at par in a slightly upsized $165 million transaction on Thursday, had firmed to 100.50 bid 101.50 offered on Friday.

Also trading up Friday, the source said, were the new Brown Shoe Co., Inc. 8 ¾% notes due 2012 (B1/BB-), of which $150 million priced on Tuesday, April 19.

The trader saw that paper at 101.25 bid, 102 offered, on Friday.

"I think the accounts have money," the source commented. "I think they are being very selective. They're seeing outflows but I think they are still sitting on quite a bit of cash.

"The downdrafts are creating opportunities for them to buy names that they couldn't buy in a regular market."

Two for the pipeline

Elsewhere Friday two names came into the high-yield pipeline.

Premium Standard Farms will begin a roadshow Tuesday for its $125 million offering of 10-year non-call-five senior unsecured notes (existing ratings B1/BB), via Morgan Stanley.

The Kansas City, Mo., hog producer's debt refinancing deal is expected to price mid-week during the May 2 week.

And PetroQuest Energy, Inc., of Lafayette, La., plans to sell $150 million of eight-year senior notes via bookrunner Credit Suisse First Boston, although no timing was heard on the deal.

Proceeds will be used to repay bank debt, to fund acquisitions and for general corporate purposes.

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