Calpine continues retreat for second session; Collins & Aikman prices upsized new deal

By Paul Deckelman and Paul A. Harris

New York, Dec. 11 - Calpine Corp. bonds continued to erode Tuesday, apparently hurt for a second consecutive session by market fears that a repeat of the Enron debacle might be shaping up. Secondary activity otherwise was generally quiet, stilled by the prospect (realized during the session) of more Federal Reserve activity on interest rates, as well as a focus by many players on an active primary market.

In the primary, Collins & Aikman Products Co. the automotive trim company, put a high-gloss finish on the new 10-year seniors it priced Tuesday; the deal was upsized to $500 million from $325 million and priced to yield 10¾%, at the tight end of talk.

"You've got to look at the hardware that they threw out there on the cover of that book," one sell-side source stated. "Quad-books: J.P. Morgan, First Boston, Deutsche, and Merrill. In terms of account coverage - Man! And for that credit getting done at a 10¾%-handle, at par. I think that's a great trade.

"And I think that bond will trade up."

From the buyside, Buffalo High Yield Fund manager Dave Eshnaur told Prospect News he was taking a close look at Collins & Aikman.

"The one that was interesting to us was Ingles Markets last week," Eshnaur said. "But that turned into a food fight, and we didn't get any.

"We're currently looking at Collins & Aikman," Eshnaur added. "We're very cautious, though. There have been a few of the auto suppliers that have struggled this year, so we're doing a lot of work. And we haven't made a decision yet."

Late Tuesday terms emerged on the Appleton Papers offering of $250 million seven-year notes, which had been expected to price by the end of Monday's session. the Wisconsin specialty paper-maker's notes priced at par, yielding 12½%.

One syndicate source, noting that talk on the deal had been 10 7/8% %-11 1/8%, commented that Appleton's new paper came in "well wide of talk."

A drive-by offering from Gray Communications for $180 million of ten-year notes was announced on Tuesday. The deal, via joint bookrunners Wachovia Securities and Banc of America Securities, is expected to price Thursday or Friday, according to a syndicate source.

The possibility of EchoStar bringing $1 billion to the high yield primary in the near future continued to generate discussion Tuesday.

One trader, asked about the possible emergence of EchoStar, told Prospect News that behind the scenes investment bankers seem to be toiling on it.

"I know one firm has been working on it quite extensively over the last month, and maybe even a littler more," the trader said. "There are no rumblings out there in the market that they're actually going to bring it, although I know for a fact that the bankers have been doing the work. But there are really no feelers out there. Customers have not told us much, if anything. And that bank has not announced anything yet.

"Maybe they'll wait until next week; maybe they'll wait till the first of the year," the trader continued. "But while the market will try to get as many deals done as they possibly can this month. And I'm also hearing that January is ramping up pretty substantially.

"So I've heard nothing real on DISH, but it wouldn't surprise me if they just came by and did it, since they'll ultimately need the money."

When the subject of EchoStar came up Monday, one sell-sider said: "Stand by, I think it's coming this year."

Another sell-sider observed that Pegasus Satellite Communications, Inc. was about to price $250 million eight-year seniors. Price talk of 11¼% area came out on Pegasus, Tuesday.

"It wouldn't be bad for EchoStar to come on the heels of that. If you can sell that deal you should be able to sell this one."

However no confirmation could be obtained as to whether the rumored deal will actually materialize or the identity of the banks working on the supposed offering. The company did not respond to a call.

Secondary traders said the day's session was mostly new-issue driven.

"It's calendar week," he observed, noting that most buysiders were concentrating on the forward calendar, which continues to line up new deals and spit them out at a rapid clip - almost as though the banks and borrowers who were scared away from the market for so many critical weeks in September and much of October were feverishly racing to make up for lost time before the approaching holiday season brings activity for the year to a close.

"Away from the new deals, the market's been pretty quiet, and very issue-specific, just like it's been for the past few weeks, the trader said. "Most portfolio managers and buyside guys are largely concentrating on the calendar and what's coming down the pike."

The lassitude even extends to recently priced new issues which have since moved over into secondary dealings. He noted that Host Marriott Corp.'s new issue of 9½% senior notes due 2006 "is not trading that well, and the new Lyondells (9½% senior secured notes due 2011) aren't really trading that well - "they're all trading around their issue price," which for both bonds was par.

He also saw OM Group Inc.'s new 9¼% senior subordinated notes due 2011 at about 101 bid/101.5 offered, which he said "is not trading that well, although it is trading north of the (par) issue price." Terex Corp.'s new 9¼% senior subordinated notes due 2011 were quoted around 100.125 bid/100.5 offered, up a bit from Monday's par issue price.

Among already established bonds, Pegasus Media & Communications Inc.'s 12½% senior subordinated notes due 2005 were nowhere to be seen, the trader said, in the wake of the Bala Cynwyd, Pa.-based television station operator and satellite broadcaster's announcement that it planned to price $250 million of new senior notes and use a portion of the proceeds to redeem the $85 million of existing bonds, among other purposes.

Pegasus is "one of those bonds that once they announced it, they kind of fell off the face of the earth," he said. "I'm sure they're bid right around their call price, but I haven't heard much of Pegasus for a long time."

Apart from new-deal-driven market activity, Calpine Corp. continued to struggle, even after the San Jose, Calif.-based power generating company held a late-afternoon conference call Monday at which it took pains to try to separate itself in the public's eye from the failed Enron. But the failure to take questions during Monday's investor tele-briefing (which was primarily designed to rebut assertions contained in a weekend New York Times article likening the two companies) forced Calpine to go back and hold another such conference call Tuesday, at which its executives were peppered with questions by nervous investors.

They apparently did not much like what they heard; Calpine shares finished the day down $2.29, or 12.87%, at $15.50, a new 52-week low. On the debt side, Calpine's 8½% notes due 2011, which on Monday had swooned to around the 81 mark from prior levels in the low-to-mid-90s, bounced around at levels as high as 88.75 but also as low as 76 bid, with the Nasdaq FIPS high yield market tracking system reporting volume in the issue at a very brisk $166.885 million. Its 8¾% notes and 7 7/8% paper were quoted down about three points each on the session, quoted closing bid at 89.875 and 84.625, respectively.

Among the topics touched upon in the second conference call was the company's liquidity, with Calpine assuring those on the call that it would be able to increase the size of a corporate revolving loan to $1.5 billion from the previously-arranged-for $400 million, probably early next month. But TheStreet.com noted in a commentary on the call that "banks that have gotten burned by lending to Enron may now be scaling back their energy exposure." It also suggested the loan was needed for the company's trading operations rather than construction. And the influential financial market website also noted that Calpine's second conference call may have spooked investors by raising fears about possible dilution of its shares, and that the answers it gave on such topics as likely revisions to prior earnings estimates, a possible need to write down the value of its natural gas assets and questions about its accounting methods, particularly those which it uses to calculate leverage levels, were not reassuring.

A bond trader took a dissenting view of the sudden rush to judgment on Calpine, noting that the analyst who watches the company for his firm "doesn't see much merit in the bonds trading down so much. I guess he figures that basically it's the herd mentality of the market. The research he's been putting out today indicates that if you're a Calpine investor, there's really nothing to worry to worry about."

The trader continued that Calpine's enterprise value, "even using very conservative valuations, is greater than the market value of the stock. They have plenty of liquidity, and if they had to sell assets, in the very, very unlikely worst-case scenario that the company would go out of business tomorrow, they would have no problem paying back everybody, including the most junior bondholders."

This analyst, the trader opined, believes that Calpine debt has taken the hit it has this week because of market angst over the independent power producer segment generally, "and that's just bad news piled upon bad news, just like Enron, which gets worse by the day. It looks like Calpine finally caught up."

The other major name among the power producers getting knocked around is AES Corp., which he said "keeps getting just completely demolished, all day long. The 9 3/8%, 8 7/8% and 9½% have all traded down anywhere from 10 to 15 points from where they had been prior to this whole Enron debacle. They continue to tick down daily, one, two three points."

But in Tuesday's dealings, the Arlington Va.-based company's debt - which had dropped at least five to six points on Monday on the troubles of its U.K.-based AES Drax subsidiary - seemed to rebound a bit. The 9 3/8% notes due 2010 pushed up to around 90.5 bid from Monday's finish at 87 bid; meanwhile, its 8 3/8% notes due 2007 rose to 81.5 bid from 79, and its 10 1/8% notes were up five points at 91. Even the AES Drax 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 and the company's over-reliance on its contract with Texas Utilities, were quoted as high as nearly 60 bid in Tuesday's activity.

The once-high-flying Enron, meanwhile - whose troubles have dragged down the debt of other energy-trading or power producing companies - was called pretty much unchanged on the session Tuesday, its senior bonds quoted in the low-to-mid 20s.

But that could soon change, and probably not for the better, as the market deals with the news that J.P. Morgan Chase & Co. one of Enron's biggest creditors - and up till now, one of its strongest allies - on Tuesday filed a $2.1 billion lawsuit against the troubled energy trader, in a move to protect some of the money it loaned the crippled Houston-based energy trading giant.

J.P. Morgan, in a suit filed with the U.S. Bankruptcy Court in New York which is overseeing Enron's reorganization, claimed rights to Enron assets such as cash, commercial paper, accounts receivables and other property. The company - already under fire in the investment community for allegedly questionable accounting practices and for business strategies which pushed it into bankruptcy - is expected to catch even more flak Wednesday, when a committee of its largest unsecured creditors is scheduled to hold its first formal meeting, in New York.

Elsewhere, Halliburton Co.'s widely traded 6% notes due 2006 - an investment-grade issues which on Friday had fallen to spread-versus-Treasury levels equivalent to a dollar price in the mid-80s from around par - were on the upside for a second consecutive session "bouncing back up around 50 basis points or so" a market-watcher said. He quoted the bonds as having pushed up to 90.875 bid from Tuesday's close around 89.

Not withstanding the fact that the Dallas-based oilfield service company's debt still trades on a spread basis off high-grade desks, junk players said they would continue to keep an eye on it, in light of the company's legal defeat last week in an asbestos liability case brought against its Dresser Industries unit in a Maryland court. Asbestos-liability problems have already landed a number of high-yield issuing companies or their subsidiaries in bankruptcy court, including building materials makers Owens-Corning, USG Corp. and Armstrong World Industries, chemical company W.R. Grace, auto-parts producer Federal-Mogul Corp. and the Babcock & Wilcox construction unit of another oil service concern, McDermott International Inc.

Chapter 11 was seen by those companies as the only possible way to head off an anticipated flood of claims totaling in the billions - so "anything having something to do with asbestos has gotten the market scared," a trader said. "This latest verdict, for $30 million, coming on top of about $120 million of other verdicts (Dresser) has recently had, may open the doors for more cases. The lawsuits will come out of the woodwork."

National Steel Corp.'s 9 7/8% notes due 2009 continued to hold steady at their recent 30 bid level, despite the news that the Indiana-based steel producer, a unit of Japan's NKK, is officially in talks to be acquired by U.S. Steel, as part of the latter's effort to consolidate the fractured American steel industry under its own banner. But National's 8 3/8% notes firmed to 35 bid from prior levels around 33.

End

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