Calpine deal revived, expected Friday; Standard Pacific prices; funds see $308 million inflow

By Paul Deckelman and Paul A. Harris

New York, March 11 - Less than a month after being forced by market conditions to beat an ignominious retreat without pricing a much-ballyhooed financing package, Calpine Corp. announced Thursday that it would take another crack at it, with a $2.4 billion, multi-part financing effort that is expected to price on Friday.

Calpine's news completely overshadowed everything else going on either the primary sphere, where Standard-Pacific Corp. priced a two-part drive-by deal, and in the secondary market, which saw Nortel Networks Corp. notes sliding after the telecommunications equipment maker said it would delay is 10-K filing with the Securities and Exchange Commission, while Collins & Aikman Products Co. bonds firmed as the auto parks maker reported favorable numbers.

Late in the day, market participants familiar with the high-yield mutual fund flow numbers compiled weekly by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday, $307.9 million more came into the junk funds than left them. That continued a trend seen the week before when a net inflow of $134.7 million was recorded, counting only those funds which report on a weekly basis and excluding distributions.

Although the mutual funds make up only part of the total assets in the high yield universe - other money sources include insurance companies, pension funds, endowments and retail investors - their behavior is viewed by many in the market as a reliable indicator of overall liquidity trends in the junk market.

Even though inflows have now been seen in each of the past two weeks for a total of $442.6 million, according to a Prospect News analysis of the weekly figures, and in seven weeks out of the 10 since the start of the year, the cumulative, year-to-date funds flow number remains negative, with $955 million more having left the funds than come into them since the start of the year, although that number narrowed from $1.263 billion the week before.

After having started out the year the way 2003 had ended up - with a series of weekly inflows - the tide turned in early February, when outflows of more than $1 billion were recorded in two consecutive weeks, completely wiping out the cumulative gains for the new year and establishing negative momentum. Since then, the flows have been choppy, with up and down weeks alternating.

"So tight" levels keep issuers coming

"I think this market is doing fine," said a sell-side source, half an hour after news of the inflow circulated.

"There are deals being announced. The primary market is still driving the secondary market.

"Levels go up and they go down. But regardless, levels are still so tight that issuers are going to keep coming to the market."

Calpine returns

After pulling its deal on Feb. 23, Calpine Generating Co., LLC (CalGen) returned to the high yield with an announcement Thursday that it plans to price $2.405 billion in four parts. The tranches are as follows:

- $800 million super secured floating-rate loans or notes due 2009, non-callable for three years, price talk Libor plus 350-375 basis points;

- $855 million senior secured floating-rate loans or notes due 2010, non-callable for four years, price talk 550-575 basis points;

- $550 million secured floating-rate notes due 2011, non-callable for life, price talk Libor plus 875-900 basis points; and

- 200 million secured fixed rate notes due 2011, non-callable for life, price talk 11¼%-11½%.

The company will also obtain a $200 million revolver via Bank of Nova Scotia.

Morgan Stanley is out in front with the new suite of transactions which, like the deal Calpine pulled, has proceeds slated to help refinance $2.5 billion CCFC II credit facility, maturing in November 2004.

Pricing is expected on Friday.

Prior marketing seen aiding Calpine

Even though CalGen pulled a deal just over two weeks ago, one sell-sider told Prospect News on Thursday that the company should derive some benefit from its previous endeavors.

"This is not your standard vanilla 'senior notes' deal," the source commented. "It's a hybrid deal which becomes more complex due to the nature of the company and of the industry. It requires complicated work.

"It might move around again before the final terms hit.

"But people were taking a look at the previous deal. And since that deal came and went people knew the company had to do something. Remember, they were not just in the market with an opportunistic offering. They need money. So everyone thought something was coming back.

"So this deal doesn't start on square one. People on the buy-side and on the sell-side have been taking a look at it. The market has been looking for a solution."

Standard Pacific, Pharma finish deals

Terms emerged Thursday on two deals.

Standard Pacific Corp. sold $300 million of senior notes in two parts (Ba2/BB). The Irvine, Calif. homebuilder sold $150 million of five-year notes at par to yield 5 1/8%. Price talk was for a yield in the 5¼% area. The company also sold $150 million of 10-year notes at par to yield 6¼%. Price talk was for a yield in the 6¼% area.

Credit Suisse First Boston ran the books for the debt refinancing deal.

Also Pharma Services Intermediate Holding Corp. sold $219 million of 10-year senior discount notes (Caa1/B) at 56.943 to yield 11½%, via Citigroup.

The Research Triangle Park, N.C. will use the money to repay debt.

Three new deals heard

Diamond Jo, LLC is expected to begin its roadshow during the week of March 15 for $230 million of eight-year senior secured notes. Jefferies & Co. will run the books for the debt refinancing deal from the gaming company, which was formerly known as Peninsula Gaming Co. and The Old Evangeline Downs. It is headquartered in Dubuque, Iowa.

The roadshow started Thursday for Real Mex Restaurants' $105 million of six-year senior secured notes (B2/B-), with pricing expected to take place on March 24, also via Jefferies & Co.

The southern California restaurant company will use the proceeds to repay debt.

And roadshows start Monday in the U.S. and Europe for MTU Aero Engine Investments' planned €240 million of 10-year senior notes (expected ratings B2/B).

JP Morgan and Credit Suisse First Boston will run the books on the acquisition deal from the Munich, Germany-based aircraft parts company.

Finally, although no timing was heard, market sources told Prospect News that Arteva Specialties and Invista are expected to offer $1.2 billion of eight-year guaranteed senior unsecured notes (B1), via JP Morgan (see related story in this issue).

Secondary watches stocks

Traders said that the new Standard Pacific deal came too late in the session for any kind of aftermarket activity.

Instead, said a trader, attention was pretty much focused on the carnage going on in the stock market, which had a fourth consecutive down day and a second straight session of triple-digit Dow Jones Industrial Average losses and similar percentage losses in the other major indexes.

"It was an ugly day, even uglier than yesterday," he exclaimed. "You could just smell in this market that something was going on. The numbers kept coming in good, everything kept acting like it was supposed to act - and yet the market just kept going down."

The mood of uncertainty was openly deepened by the news coming in from aboard, where Al Qaeda claimed the credit for a devastating string of terrorist bombings in Spain that left around 200 people dead and almost 1,500 injured. Perhaps coincidentally, perhaps not, the blast came exactly two-and-a-half years to the day after the 9/11 attacks by Al Qaeda in the U.S.

"It remains to be seen what's going to happen over the weekend, and people are going to be very nervous [Friday]. They're very nervous [Thursday night]. Not a lot of joy out there," said a trader.

Market sentiment could change, however, with Calpine coming to market with its giant financing plan. If the company manages to carry it through to fruition - something it failed to do the last time around, "it would be great. It looks like they may get this thing done."

Calpine's existing bonds rise

News that Calpine was back in the market and prepared to take another try at the financing deal appeared to push its existing bonds up, some market participants said. "The bonds were a little stronger," a trader said, quoting the San Jose, Calif.-based independent power producer's seven-year bonds a point better at 76.5 bid, 77.5 offered.

Calpine's 8 5/8% notes due 2010 were seen likewise up a point, at 77.5 bid, while a market source at another desk saw the 8¾% notes due 2007 a point better at 81.5 bid, 83.5 offered, while its 8½% notes due 2008 were half a point better at 77.5 bid, 78.5 offered.

Not everybody saw the impending deal pushing the company's bonds higher; a trader said the Calpine notes were "all down two to three points" from where he sat, with the 7 7/8% notes due 2008 dipping to 75 bid, 76 offered, the 8½% notes due 2010 easing to 93 bid, 93.5 offered and the 8¾% notes due 2013 drifting down to 92 bid, 93 offered.

Nortel drops on delay

Elsewhere, news that Nortel Networks will delay filing its annual results with the SEC and may have to restate results for 2003 and possibly prior years pushed the Brampton, Ont.-based telecommunications equipment maker's bonds down.

Nortel's benchmark 6 1/8% notes due 2006 "opened down a couple of points," a trader said, at 100.5 bid,. 101.5 offered, "but then were lifted off those lows" to close at 102 bid, 103 offered - still down more than a point from Wednesday's 103.5 bid, 104 offered finish.

The bonds of Murray Hill, N.J.-based telecom equipment maker Lucent Technologies Inc. - which frequently move up and down in tandem with the bonds of its Canadian rival - "did the same thing," he said. The company's 7¼% notes due 2006 had pushed as high as 104 bid, 105 offered on Wednesday, in response to a Standard & Poor's upgrade in its credit rating, "but they pretty much gave everything back," he said, ending at 103 bid, 104 offered.

While Nortel's bonds retreated on news of the filing delay and possible restatement, a similar piece of news coming from EchoStar caused little market reaction. The Englewood, Colo.-based satellite TV broadcaster sought a 15-day delay in filing its 10-K with the SEC, and said that it may have to restate its 2001 financial reports to reverse $17 million of liability accruals.

But its 6 3/8% notes due 2011 remained anchored to the same 106 bid, 107 offered level it has recently held. Its 10 3/8% notes due 2007 were off a quarter point at 109 bid.

C&A rises on record sales

On the upside, Collins & Aikman bonds firmed after the Troy, Mich.-based auto components maker reported "record" fourth quarter sales, and said that it would not need to restate its previously issued financial statements, following an audit committee review of the company's previous figures and its accounting practices.

That more than outweighed its losses in the fourth quarter, which rose to $9.9 million (12 cents per share), due to restructuring charges and asset write-downs totaling $16.7 million, or 20 cents per share. A year earlier, Collins & Aikman posted a loss of $3.1 million (4 cents per share), after taking restructuring and asset write-downs of $13.0 million (16 cents per share).

Bond investors especially were impressed by the rise in EBDIT, to $90.5 million in the latest quarter, up from $72 million a year ago.

That helped push Collins & Aikman's 10¾% senior notes due 2011 to 102.5 bid from prior levels at 99.375 and its 11½% subordinated notes due 2008 to 98 bid, up from 96.

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