Calpine, steel lower; El Paso slips on reserve restatement; CNH joins calendar

By Paul A. Harris

St. Louis, May 3 - The high-yield market dropped half a point or more during the opening session of May 2004, sources estimated - although they differed somewhat as to the precise size of the decline.

El Paso Corp.'s paper slipped on news that it overstated reserves. Calpine Corp.'s bonds discharged a couple of points ahead of Thursday's earnings report. And the existing paper of steel and airline companies traded off on headline news.

Meanwhile in the primary market only one deal priced-a $20 million drive-by add-on from Dollar Financial Group, Inc.

However Case New Holland Inc. is expected to plow into the junk market on Tuesday with a quick-to-market $600 million.

"I saw weakness across the board," said one trader who took a minute to speak with Prospect News late in the session.

"I'm thinking that the high yield market is down half a point across the board; a point to two-points on some issues."

As with all of the secondary sources during the session, this trader saw weakness in steel names.

The retreat, sources agreed, was sparked by Chinese Premier Wen Jiabao who has threatened to take "forceful measures" to rein in China's headlong economic expansion. Demand from China has strained the world's steel supply, giving U.S. steel firms their first taste of pricing power in years.

AK Steel Corp.'s 7¾% notes due 2012 were down sharply on the session at 86.5 bid, 88.5 offered late Monday, down from 90.5 bid, 91.5 at Friday's close, according to a trader. Its 7 7/8% notes due 2009, meanwhile, were at 89 bid, 90 offered, down from 93 bid, 94 offered on Friday.

Another source had AK Steel's 7 7/8% notes closing out Monday at 88.5 bid, 89.5 offered, while the 73/4s were at 87 bid, 88 offered.

Also down, according to a trader, was Oregon Steel, with its bonds at 102.5 bid, 103 offered Monday afternoon.

"There are so many people who like the numbers that I think this was just a new variable that got thrown into the mix," a trader commented.

"The story changes a little if China is really going to slow down. I think that's what's going on here."

Softer also were recently issued notes from American steel producers. California Steel's new 6 1/8% notes, which priced at par on March 9, were seen a little after mid-session at 95 bid, 96 offered, down 1.5 points.

Meanwhile International Steel's new 6½% notes, which priced at 99.096 on April 8, were down half a point at 95 bid, 96 offered.

El Paso restates reserves downward, bonds slip

Also off in Monday trading was the existing paper of El Paso Corp.

The company announced in a Monday press release that its proved oil and natural gas reserves were being revised lower by approximately 1.8 trillion cubic feet of natural gas equivalent.

A review by Haynes and Boone has found that during the period from the beginning of 1999 through the end of 2003, certain employees used "aggressive and, at times, unsupportable methods to book proved reserves," the Houston natural gas company said. In addition, certain employees provided proved reserve estimates that they knew or should have known were incorrect at the time they were reported.

One trader, had El Paso's 7¾% notes at 77 bid, 79 offered late Monday, down from 79 bid, 81 offered "a couple of days ago."

Another trader, commenting that El Paso's restatement is "the same old story," had its notes down two or three points.

The shorter paper - the 6¾% notes due 2009 - was down about a point to 86.5 bid, 87.5 offered. The 7% notes due 2018 were seen at 73 bid, 74 offered, off a couple of points over the course of about a week. And the 73/4s due 2032 "are straddling 78," the trader added.

Still another source had the El Paso notes due 2032 at 77 bid, 78 offered, off about a point.

Calpine takes jolt ahead of earnings

The existing paper of San Jose, Calif. power generator Calpine Corp. also discharged some of its value during Monday's session.

"I'm hearing two things on Calpine," said a trader. "One is that there was an asset sale by Duke Energy that may have gotten a multiple that caught some people by surprise. So some of that paper weakened up.

"And Calpine does its [first quarter] numbers early on Thursday. And there are concerns as to whether or not they're hedged against spark spreads, like some of their competitors are."

Hence, said the trader, "Calpine got rocked."

The source saw Calpine's 8½% notes due 2008 at 68 bid, 68.75 offered, off 2 to 2½ points. "A few days ago they were 70.5 bid, 72.5 offered," the trader commented.

"All the Calpine paper, even the short stuff, was a little weaker," the source added.

Another trader said Calpine's notes "got beaten down a little," and said that the 8½% notes due 2008 are in the high-60s now. He quoted them down at least two points at 67 bid, 68 offered.

The 8½% notes due 2011, which trade behind the 2008 paper, according to the trader, closed Monday at 65 bid, 67 offered. "Last week they were all low to mid 70s. So in a week they're down five to six points.

"The short paper, which you never could find - the 8¼% due 2005 - had been 94 bid, 96 offered. They're going out today at 93, without a bid."

Calpine's most recent issues, its first-, second- and third-lien floating-rate notes were reported softer by 1.5 points, 0.75 points and 2 points, respectively. Also off two points were Calpine's recently issued 11½% notes. The par-pricing bonds were spotted Monday at 85 bid, 87 offered.

Nor was Calpine the only power company to see its paper retreat Monday.

Midwest Generation, LLC's new putable 8¾% notes, which came to market at par on April 15, were down a point Monday to 99 bid, par offered.

And Sierra Pacific Power Co. new 8 5/8% general and refunding mortgage notes due 2012, which priced at par just a few days earlier, were going home Monday at 101 bid, 102 offered, down 0.75.

Airlines lose as oil soars

News that crude oil futures in reached a 13-year high after five foreign workers were killed in Saudi Arabia, an event which may portend that global terrorists are training their sights on petroleum producing infrastructure, was one of the factors that sent the existing paper of Delta Airlines into a Monday tailspin.

"Airline paper is getting waxed," commented one trader, who added that "record high crude oil prices don't help the airlines of course."

The source had the Delta 8.30% notes due 2029 at 46 bid, 49 offered on Monday, versus their 47.5 bid, 49.5 offered Friday close - "off a point."

"All the Delta Airline paper seems to be going down every day," lamented another trader "Oil represents about 25% of their fixed costs. So obviously if crude oil prices keep going up they're going to suffer."

This source had Delta's 2008 paper at 58 bid, 59, offered, while the 8.30% notes due 2029 were at 47.5 bid, 48.5 offered, "both down about a point.

"The paper is just drifting in. There is not a lot of volume."

Still another trader had the 2029 notes at 47 bid, 49 offered. "That's off a couple," commented the trader, adding that "a month a go they were 62 bid, 64 offered."

This trader also had Delta's shorter paper, its 7.70% notes due 2005 at 75 bid, 77 offered, "a little weaker."

Positive chip news lifts Amkor

The session's only good news, with regard to secondary issues, was sparked by a World Semiconductor Trade Statistics report that had worldwide semi-conductor sales rising 32% in March, with a $16.3 billion year over year increase in business during that period.

As a result, the existing bonds of Amkor Technologies got a lift.

One trader had the Chandler, Ariz. semiconductor assembly and test company's 7 1/8% notes due 2011 just over a point higher at 97.25 bid near the close on Monday, up from Friday's 96 bid, 97 offered.

Amkor's 10½% notes due 2009, meanwhile, were 0.375 better, at 105.375 bid, up from Friday's 105 bid, 105.5 offered.

"There was not a lot of volume. So it was tough to tell whether there was a lot of selling going on in the market, as a whole. But there were definitely pockets of weakness."

Primary turns out 1 small deal

Dollar Financial Group, Inc. priced Monday's only transaction in the new issue market, a $20 million add-on to its 9¾% senior notes due Nov. 15, 2011 (B3/B). The deal came at 106, resulting in an 8.37% yield to worst.

Credit Suisse First Boston ran the books on the debt refinancing deal from the Berwyn, Pa. franchisor of check cashing stores.

The original $220 million issue priced at par on Nov. 7, 2003, so the company realized substantial interest savings with Monday's deal.

Meanwhile, price talk is for a yield in the 6¼% area on a quick-to-market offering from Case New Holland, Inc. of $600 million five-year senior notes (Ba3/BB-). The deal is expected to price on Tuesday via Deutsche Bank Securities.

The Lake Forest, Ill.-based tractor and combine manufacturer will use the proceeds to repay debt.

Samsonite Corp. will run a roadshow May 4-7 in Europe for a $325 million offering of high-yield notes in dollar and euro tranches.

A U.S. roadshow will follow May 10-14, with pricing expected to take place on May 14.

The Denver-based luggage firm plans to sell a dollar-denominated tranche of eight-year non-call-four senior subordinated notes (B3/B-). Merrill Lynch & Co. and Deutsche Bank Securities will run the books.

The company also plans to sell a tranche of euro-denominated seven-year non-call-two floating-rate notes (B1/B+). Deutsche Bank Securities and Merrill Lynch & Co. will run the books on the floaters.

And the roadshow starts Wednesday for Da-Lite Screen Co.'s $160 million of seven-year senior notes (B2) via Morgan Stanley.

The Warsaw, Ind.-based manufacturer and marketer of projection screens and presentation products will use the proceeds to fund a dividend to shareholders and repay debt.

Talk on Itron, LaBranche

Price talk emerged Monday on the LaBranche & Co. Inc.'s upcoming $460 million two-tranche deal, which is expected to price Tuesday, via Credit Suisse First Boston.

Talk is for a yield in the 9¼% area on the five-year non-call-three notes.

Meanwhile, price talk is for a yield in the 10¾% area on the eight-year non-call-four notes.

Finally, price talk is 7¾%-8% on Itron Inc.'s $125 million of eight-year senior subordinated notes (B2/B), expected to price on Tuesday.

Bear Stearns & Co. is the bookrunner.

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