Tenaska, Rafaella price deals; Calpine continues climb; Northwest Airlines hits downdraft

By Paul A. Harris

St. Louis, June 13 - The high-yield market ended flat on Monday as two issues priced in the primary market.

Tenaska Alabama Partners LP brought its $361 million issue of 16-year notes at the tight end of price talk while apparel maker Rafaella Apparel Group Inc. priced its $172 of six-year notes at a significant discount, well wide of the talk.

In the secondary market it was good news for Calpine Corp., which pulled a tender offer after the notes for which it had been tendering rose above the offer price, but bad news for Northwest Airlines, as sources said that a story in the Wall Street Journal may be persuading investors that the airline may be approaching turbulence of the most extreme form.

Taking a breather

One trader told Prospect News on Monday that at present the market "looks expensive," and added that things had been extremely quiet in the secondary market.

A high-yield syndicate official suggested that the market had taken a little bit of a breather on Monday, moving sideways and ending flat.

A pair of off-the-run names priced junk bond deals during the session.

Tenaska Alabama Partners priced a $361 million issue of senior secured notes due 2021 (B1/B+) at par on Monday to yield 7%, tight to the 7% to 7¼% talk.

Credit Suisse First Boston and Lehman Brothers ran the books for the debt refinancing issue from the Omaha-based owner and manager of power generation facilities. Some proceeds were also used to fund a debt service reserve.

Rafaella Apparel sold $172 million of 11¼% six-year senior secured notes (B2/CCC) at 95.00 on Monday to yield 12.459%, well wide of the 12% area price talk.

The issue generated $163.4 million of proceeds.

Jefferies & Co. ran the books for the LBO deal from the New York-based women's apparel maker.

And finally in secondary activity Medical Services Co. issued price talk on its $150 million of six-year second priority senior secured floating-rate notes (B3/B-) at three-month Libor plus 675 to 700 basis points.

Books close Wednesday morning with pricing expected after that.

Banc of America Securities has the books for the deal, proceeds from which will be used to take out debt incurred in the Jacksonville, Fla. health care products provider's recent LBO.

Calpine catches a lift

Calpine, which announced late Friday that it would not go ahead with its tender offer for three issues of notes because of "market conditions," saw its existing paper notably improve on Monday.

"They have definitely been better today," said one trader who saw the 8½% notes due 2008 close at 65.75 bid, 67 offered, up from 62 bid, 63 offered at the beginning of the session.

Another source spotted the Calpine 8½% notes due 2008 at 66 bid, up from 64.50 bid, and its 8½% notes due 2011 at 64 bid, up from 63 bid. Meanwhile Calpine's 8¾% notes due 2013 ended the session at 72.50 bid, up from 71.75 bid, the source added.

"In general the high yield tone is a lot better," a buy-side source remarked Monday, speaking to Prospect News on background.

"For example," the buy-sider continued, "Calpine had a tender out there for some bonds that they were tendering in the low-50s when the bonds were in the mid-to-high 40s. They canceled the offer over the weekend because the bond is now in the 60s.

"That's a bond that bounces around a lot. But in general, if Calpine is a high beta indicator of market sentiment everybody is a lot happier than they were a little while ago.

"And the derivatives indices on high yield, which consistently trade at a discount but can trade at a premium when there is lot of demand, did trade at a premium for a while. However now we're back to a discount although it's a very mild discount.

"So we've had a big rally in both the high yield and bank loan markets, the source added, "but now we have flattened out."

Northwest - fingers on the rip cord?

Meanwhile Monday, as Northwest Airlines common shares fell by more than 10% on Monday on news that its chairman had sold 60% of his stake in the company and a Wall Street Journal report raised fears about a possible Chapter 11 filing, the altimeter ran the wrong way for the company's junk bonds.

"There was news in the Wall Street Journal, and the bonds were off," a trader remarked, spotting the company's 10% bonds due 2009 ending 51.50 bid, 53.50 offered, down from 54 bid, 55 offered on Friday, "and definitely weaker."

Meanwhile the trader had Northwest's 8 7/8% bonds due 2006 ending at 74.50 bid, 76.50 offered, down from 77.75 bid, 78.75 offered on Friday

"The Northwest news isn't really news," the trader remarked. "Everybody knows that they have been threatening bankruptcy. And people have been expecting them to play the newspaper headline game this summer.

"The question for the union members is whether or not they are so ticked off that they basically don't care if the company crashes.

"I don't think that is the case. But they are definitely playing chicken right now."

Another source spotted Northwest's 8 7/8% bonds due 2006 at 75.50 bid down from 77.25 bid at the open, and its 10% notes due 2009 at 53.50 bid, down from the 54.50 bid opening.

Elsewhere in the airlines sector the trader saw the Continental Airlines 8% notes due 2005 at 99.50 bid, 100 offered, "up maybe a quarter."

And Delta Airlines which, the trader said, remains in "a universe of pain," saw its 8.30% bonds due 2029 end at 26.50 bid, 28 offered, "maybe half a point weaker," while the Delta 7.70% bonds due 2005 were 84.50 bid, 86 offered, down from 85.50 bid, 86.50 offered on Friday, half a point weaker.

Elan suffers on news of new disease case

Also taking a tumble in Monday's secondary market action was the existing paper of Elan Corp. plc, trailing press reports that its top drug in development, Tysabri, was being linked to a possible fifth case of a rare brain disease.

Tysabri, which Elan is developing in conjunction with Biogen Idec Inc., was being used by sufferers of multiple sclerosis. It was withdrawn from the U.S. market in February after being linked to cases of the brain disease.

A trader said that Elan bonds fell approximately 1.5 points across the board. Its 7¼% notes due 2011 fell a point and a half, while its 7¾% notes due 2008 closed 92.50 bid, 93.50 offered, compared to 94 bid, 95 offered on Friday.

Another source had Elan's 7¾% notes due 2011 spotted at 85.50 bid, down from 87.75 bid at the open.

That source also noted movement during the session of Amkor Technology's 7¾% bonds due 2013 which ended at 86.50 bid, up from 84.75 bid.

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