Dynegy jumps on plans to sell gas unit; Borden, James River on the road, CellC deal withdrawn

By Paul Deckelman and Paul A. Harris

New York, May 9 - Dynegy Inc. bonds powered up by as many as six points on the session Monday, depending on the coupon and maturity, after the Houston-based merchant power provider announced plans to "explore strategic alternatives" for - i.e. look to sell - its Midstream natural gas business and use the proceeds to whittle down its $6.4 billion mountain of debt.

From the distressed markets came the news that aaiPharma Inc.'s bonds were gyrating wildly on the news that the Wilmington, N.C. -based drug maker will sell its pharmaceuticals unit and file for Chapter 11 reorganization.

Overall the high-yield market had traded down as much as a quarter of a point on Monday before a late rally in the stock market provided some buoyancy, according to sources.

Hence junk ended the day more or less flat on the session, one source remarked, adding that trading volume seemed to be practically non-existent.

"When the equity markets pick up, high yield does a little better, which was certainly true today," the source commented, adding that a late lift caused the Dow Jones Industrial Average to close almost 39 points higher on the session.

In the primary market no transactions took place, as another sell-sider suggested that the current liquidity picture in high yield is conceivably quite different from that which had prevailed for the 18 months leading up to May 2005.

"From the beginning of 2005 until the end of April the high yield market got off to the worst start it has seen in over a decade," the source added.

Nevertheless issuers and their underwriters must believe that there is some cash to be put to work because news of three deals surfaced during the Monday session - two of which are expected to be completed before Friday's close.

Borden offers $250 million

The roadshow started Monday for Borden U.S. Finance Corp./Borden Nova Scotia (Borden Chemical, Inc.)'s $250 million offering of junk in two tranches (existing ratings B3/B-), with pricing expected on Friday.

Credit Suisse First Boston, JP Morgan and Morgan Stanley are joint bookrunners for the acquisition deal.

Borden Chemical is in the process of being merged with Resolution Performance Products Inc. into Hexion Specialty Chemicals.

In a bond deal that it is bringing in order to fund its acquisition of Bakelite AG, Borden plans to sell fixed-rate and floating-rate notes with terms and indentures that are identical to issues that it priced on Aug. 4, 2004. However upon the completion of the merger the new notes will trade under new Cusip numbers, different from those of the existing issues.

Hence the new deal is not a conventional add-on, one source close to the deal said.

The company is selling second priority senior secured floating-rate notes due July 15, 2010, callable after July 15, 2006 at 102, and second priority senior secured notes due July 15, 2014, callable after July 15, 2009 at 104.5, with an equity clawback until July 15, 2007 for 35% at 109.0.

The company priced $150 million of the floating-rate notes at par, and $325 million of the fixed-rated at par, both in a combined $475 million transaction that took place on Aug. 4, 2004.

James River to hit road

Meanwhile James River Coal Co., of Richmond, Va., will start a roadshow Friday for a $150 million of seven-year senior notes (B3/CCC+).

The Morgan Stanley-led acquisition deal is expected to price during the week of May 23.

In a press release issued in mid-April, the company had announced a registered $135 million offering of 10-year senior notes. However that particular offering was never launched, a source told Prospect News on Monday - hence the seven-non-call-four structure is not new, nor does the $150 million amount represent an upsizing.

CSFB remarketing El Paso notes

Finally, Credit Suisse First Boston is remarketing El Paso Corp.'s 6.14% senior unsecured notes due Aug. 16, 2007 (assumed ratings Caa1/CCC+) on behalf of the bond's holders.

A new coupon will be set as a result of the remarketing.

An investor conference call is set to take place at noon ET on Tuesday, with pricing expected later in the present week.

Proceeds will be used to facilitate issuance of El Paso stock in August 2005 under the terms of the company's 9% mandatory convertible securities issued in June 2002. The equity contract settles on Aug. 16.

CellC backs away

South African wireless operator CellC (Pty) Ltd. withdrew its €625 million two-part bond deal on Monday citing market conditions.

The company, which is based in Benmore, Gauteng, South Africa, had been marketing seven-year first-priority secured notes (B2/BB-) and 10-year senior subordinated notes (Caa1/B-), via Citigroup.

CellC follows in the wake of the postponement, last Friday's news that Kansas City, Mo. hog operation Premium Standard Farms postponed its $125 million offering of 10-year notes.

Dynegy jumps

In the secondary, "Dynegy's bonds were better and their stock was up - the biggest mover in the S&P [500 stock index]," a trader said, pegging the company's 6 7/8% notes due 2011 at 92.25 bid, 93.25 offered, a six point gain on the session, while its secured 10 1/8% notes were up a more sedate two points at 108.875 bid, 109.875 offered.

A trader at another desk estimated that "the secured bonds were up maybe a point or two, and the unsecureds got as good as a four- or five-point gain." He saw the 10 1/8s at a wide 108 bid, 110 offered, up a point, while the company's 7 1/8% notes due 2015 were up about five points to 83.5 bid, 85 offered.

At another desk, a market source saw the 10 1/8s up 1½ points at 109 bid.

Dynegy's New York Stock Exchange-traded shares zoomed 47 cents (12.47%) to close at $4.24, on volume of 14.8 million shares, nearly six times the norm.

Dynegy, which also released first-quarter results showing it swung into the red in the period ended March 31, said that it had engaged Credit Suisse First Boston to "evaluate strategic alternatives" for the natural gas operations, and promised to use the proceeds to get rid of debt.

Company executives said on their conference call that such a sale and a subsequent debt paydown could allow the company to "approach" a 50-50 net debt-to-capital ratio from current levels in the 70s. That in turn, would position the company, either to be a more effective stand-alone player, or to be a potentially attractive strategic partner or otherwise participate in what they called a "consolidation scenario" (see related story elsewhere in this issue).

Moody's Investors Service and Fitch Ratings each said the proposed sale of the Midstream unit would have them examining Dynegy for a possible ratings rise.

Calpine largely ignores downgrade

The utility and power generating sector seemed to be a hive of activity Monday, with not only Dynegy making noise; Standard & Poor's announced a cut in Calpine Corp.'s already low debt ratings deeper into junk, reducing the San Jose, Calif.-based independent power generating company's corporate credit rating to B- from B previously.

The widely expected downgrade did not seem to have much of an impact on the company's bonds, which have recently gyrated wildly on rumors that the company might default on an obligation or even file for Chapter 11, stories which Calpine's management vociferously denied.

On Monday, Calpine "got downgraded - but they hung in there," said a trader who quoted its 8½% notes due 2011 "actually up" by half a point, at 55 bid, 56 offered. "The downgrade didn't do a heck of a lot to the bonds."

He saw Calpine's 9 7/8% secured notes due 2011 "trade off a touch [on the downgrade] - but then end unchanged, at 73 bid, 74 offered.

A trader saw Calpine's secured 9 5/8% notes at 97.5 bid, 98.5 offered, while its 8½% notes due 2008 were "maybe a point better, on those," at 56 bid, 57 offered.

Also in the power patch, investment-grade credit Duke Energy Corp. announced plans to buy smaller operator Cinergy Corp. for $9 billion, allowing Duke to boost its presence in Midwestern markets.

Duke's 5.668 % notes due 2014 were seen having narrowed their spread over comparable Treasures to 108 basis points, a pickup of 11 bps, on apparent debt investor relief at the news that the acquisition will be an all stock deal not requiring the issuance of any new debt.

aaiPharma moving

Elsewhere, aaiPharama's 11% notes due 2010 "went on a ride," a trader said, seeing the bonds start out in the low-to-mid 40s, around 43, then push up to around 50, before going home at 46 bid, 48 offered, following the news that the company has agreed to sell its pharmaceuticals unit for $170 million, contingent on its going into Chapter 11 reorganization.

The prospective buyer was not immediately named, although the company promised in a regulatory filing to provide other information later in the week.

Another trader saw those bonds open around 45 bid, 50 offered, gut up into the mid-50s, and then fall back later in the day at 48 bid, 50 offered.

A high yield sell-side source said aaiPharma was "five to 10 points higher" on news that the company was going to reorganize under court protection, "and they announced that asset sale."

GM higher

General Motors Corp.'s recently junked bonds "seemed up a little," a market source said, estimating its 7 3/8% notes due 2048 up half a point to 64.875, while its widely followed 8 3/8 notes due 2033 were seen having pushed up a little to around the 76 bid level, from prior levels at 74. The source scoffed at some reported quotes that had the 8 3/8s ah high as 78, saying it was "way too high."

He also saw the GM 8½% notes due 2023 up 1½ points, apparently helped by the official news that billionaire investor Kirk Kerkorian's Tracinda Corp. will, in fact, seek to buy nearly 5% Of GM's shares at $31 apiece. Financing arm GMAC's 7¼% notes due 2025 were seen up two points at 70.5.

Even though one trader snorted that "he's buying stock - not bonds -" another market source said that Kerkorian's move represented "a vote of confidence," at a time when the beleaguered auto maker could certainly use one.

GM, another trader said, "saw no big changes."

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