Calpine investors ride roller coaster; new Collins & Aikman paper trades up

By Paul Deckelman and Paul A. Harris

New York, Dec. 12 - Calpine Corp. bonds gyrated wildly Wednesday, plunging early in the session on investor unease with the power-generating company's prospects after an unsatisfying Tuesday conference call. But they bounced off their lows later in the session to finish down only marginally, on news the company had bought back some of its debt and a major rating agency gave it a vote of confidence.

In the primary market, meanwhile as major deal looks increasingly likely from EchoStar Communications Corp. as more details emerged on the possible offering. Three deals priced during the session and another offering joined the calendar.

Syndicate officials say preparations are in hand for a big offering by EchoStar, with $1 billion seen as the most likely size, although estimates range widely either side of that (see story below).

An announcement could happen in the next two days, although sell-side sources say they are waiting for the company to sign off on the deal.

If it happens, bookrunners will be Deutsche Banc Alex. Brown and Credit Suisse First Boston with UBS Warburg and Lehman Brothers as lead managers.

Elsewhere in primary action, Mandalay Resort Group joined the calendar with a drive-by sale of $250 million of senior subordinated notes due 2009. Pricing will be either Thursday or Friday via joint bookrunners Banc of America Securities, Deutsche Banc Alex. Brown and Salomon Smith Barney, according to a source.

Pricing during the session were deals from MeriStar Hospitality Partnership LP, Wheeling Island Gaming, Inc. and Rent-A-Center Inc.

MeriStar upsized its offering to $250 million of 7.5-year notes from a planned $200 million and priced it at 10 5/8%, in the middle of talk of 10½% to 10¾%.

Wheeling Island sold $125 million of eight-year notes at 10 1/8%, again in the middle of talk, in an offering that "was hugely oversubscribed," a syndicate source told Prospect News. It was not increased in size because the company does not need the money.

Rent-A-Center's offering again came in the middle of talk. It was a $100 million add-on to its 11% senior subordinated notes due Aug. 15, 2008.

In the secondary Calpine "was clearly the bond de jour," a trader remarked, noting the whipsaw activity in issues such as its 8½% notes due 2011, which dominated an otherwise mostly quiet secondary landscape.

The 8½% bonds, for instance, went home Tuesday quoted around 81 bid, a trader said, opened Wednesday's dealings at 78 bid, "and then got hammered," trading down to bid levels around 70-22, and were even heard quoted as low as 68 bid, although he said that he didn't know that there had been any actual trading at that level.

"If your company's name gets mentioned in the same sentence as Enron Corp.," he observed "KA-BLAM!"

The San Jose, Calif.-based power plant operator and energy trader's name has lately been linked with Enron's, especially after a lengthy weekend New York Times piece drew certain parallels between Calpine and the troubled Houston-based energy trader and pipeline operator, which recently sought protection from its junk bond holders and other creditors via a Chapter 11 filing.

But then, he said, Calpine's bonds "moved up a whole lot by the end of the day," given a double-dose of adrenaline by the company's announcement that it had bought back $122 million of its convertibles and the news that S&P, in a conference call with investors, had affirmed its ratings at current levels (BB+) and, more importantly, had sought to downplay any analogies between Calpine and Enron.

That calmed jittery investors on both the stock and bond side, who had suffered through a Monday conference call with company executives without being able to question them, and then had spent three hours Tuesday firing questions at them, but reportedly getting some less-than-reassuring answers on matters such as liquidity, earnings projections and the value of the company's assets.

Also reassuring was the bond buyback, which involved $122 million principal amount of Calpine's zero-coupon discount notes due 2021. Some $878 million remains outstanding. Those bonds are putable back to the company at the option of the holders beginning next April, which had raised the specter that Calpine might have to come up with $1 billion or issue new stock for that amount. While Calpine and some analysts do not see a problem raising the money, some market participants are concerned that raising that amount of money would no easy task for a company in a sector which, according to some observers, may have suddenly become radioactive, as far as lenders are concerned, following the Enron fiasco.

"That's why they bounced," the trader said. "They're trying (to get that debt time-bomb down). Hopefully, they've got the cash and they're trying to take advantage of the market spitting up."

After news of the buyback and the effective endorsement by S&P, he said, "they started getting stronger. I saw them at 76-78, and I may have even seen an odd-lot bid at 80 by the end of the day."

Another trader agreed, noting that Calpine was "certainly the big mover," showing "great volatility, whipping back and forth." He quoted the company's 11% notes due 2008 as having "opened today down 15 points from recent levels and got as low as 66-70." Then, he said, they rebounded during the afternoon to 81 bid before easing slightly to that peak to "settle in around 77-79."

Over the past few sessions, he said, Calpine "has been trading like Enron was, before Enron went completely to ****." Calpine shares, meanwhile, tracked the path of the bonds Wednesday, falling as low as $10 before rebounding to end at $15.91, up 41 cents on the day, or 2.65%, in New York Stock Exchange trading. Like the company's bonds, the company's shares have slid badly in response to speculation that Calpine might go the way of Enron.

Enron itself, meanwhile was essentially unchanged Wednesday, its bonds continuing to hang in around the 22 bid level.

Enron took some lumps - though in absentia - as a Congressional committee began holding hearings on the company's spectacular collapse, sharply criticizing management for allegedly enriching itself through insider trading while the company was sliding toward bankruptcy. No Enron officials attended the hearing of the House Financial Services subcommittees on capital markets and oversight. Chairman and chief executive officer Kenneth Lay said he had to be at an Enron bankruptcy proceeding Wednesday. The chief executive of Enron's former auditing company, Arthur Andersen, told the hearing that the company had concealed crucial data from it, prompting Andersen to warn Enron of possible illegalities. Enron later said in a statement that it had always been above-board about everything with Andersen.

Meantime, the Securities and Exchange Commission filed an action in federal court Wednesday seeking to compel the company's former chief financial officer, Andrew Fastow, to comply with a subpoena the SEC issued to him on Oct. 31.

The SEC is looking into the role partnerships, such as one which Fastow headed, may have played in letting the company keep the true amount of its leverage off the books, and what part this may have played in Enron's demise.

Enron executives met with a creditor committee in New York, and tried to drum up support for its restructuring plan, which includes the sale of non-core assets such as its Azurix water-supply unit, and the sale of a controlling interest in the company's crown jewel, its energy trading unit.

Also in the energy generating/trading area, AES Corp., in the same basic business as Calpine and affected by some of the same market dynamics, including Enron-fallout, fell again Wednesday, its 9½% notes due 2009 dipping to 86.5 bid and its 8¾% notes due 2007 quoted at 78.5 bid, both down thee points on the day. The Arlington, Va.-based power plant operator's 8 3/8% notes due 2007, which had closed at 81.5 bid Tuesday, retreated to 76. But its AES Drax Holding/Energy senior bonds, which last week had plummeted into the mid 40s from prior levels in the 90s as the major ratings agencies warned of financial problems at the U.K-based power generating subsidiary, had pushed up to around 65 bid, up five points on the session. The company is 100% owned by parent AES.

In the new-deal sector, Collins & Aikman Products Co.'s new 10¾% senior notes due 2011, which priced at par Tuesday after the issue was sharply upsized to $500 million, were quoted as high as 101.5 bid during the session, before closing around 100.75 bid/101.25 offered.

"They had a one-and-a-half-point run before settling down," a trader said. "There was definitely some demand," as evidenced by the upsizing. Noting the brisk activity in the bonds by investors who bought them and then sold out as soon as the new paper had risen a point or so, he added, "then the flippers all came in."

Apart from the issue-specific action in the Calpine-AES-Enron energy sphere and the well-received new Collins & Aikman deal, though, another trader said, "It was slow. While the last couple of weeks have been pretty busy, today we just seemed to hit the wall."

End

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.