Calpine bonds firm on news of upsized convertible deal; await Echostar pricing

By Paul Deckelman and Paul A. Harris

New York, Dec. 19 - Calpine Corp. bonds continued to firm on Wednesday, given a boost by the news the power-generating company had sold $1 billion of new convertible notes. In the primary market, players continued to look forward to Echostar DBS Corp.'s $700 million bond issue, expected to be the last major new deal of the year - and maybe 2001's last new deal, period. Meanwhile the 2002 new issuance calendar began to take shape.

Calpine, a San Jose, Calif.-based power-plant operator and energy trader, announced that it would sell $400 million of the convertible notes but saw strong demand and greatly upsized the issue to $1 billion when it priced after the market close.

The company's action was seen as providing reassurance to a market made jittery at the prospect that it might be unable to access funding for its power plants by the recent collapse of another energy trader, Enron Corp. This was especially so once demand for the notes pushed Calpine to sharply upsize the offer.

A trader saw the company's 8½% notes due 2008 and 2011, which had moved up to the lower 80s on Tuesday from Monday's closing levels in the mid-70s, open around 82 bid/84 offered and rise to 86 bid by the end of the session, up four points, even though "the sellers came out" after the initial rise.

On the equity side, Calpine was one of the most actively traded issues on the New York Stock Exchange, where it rose 69 cents (4.93%) to $14.69. Volume of 44.9 million shares was about five times the usual turnover.

Elsewhere in the energy generation and trading sphere, Enron's own bonds were heard "sticking around" the same 18-20 or 19-21 bid levels they've recently occupied.

Among investment-grade companies whose debt has been pushed down to nearly-junk levels, Dynegy Inc. - Enron's former would-be suitor and current legal adversary - got some good news when a federal judge granted the power trader's request to have its lawsuit over who owns Enron's Northern Natural Gas pipeline heard in a state court.

Enron claims the pipeline - one of the few really valuable assets its has - is protected under the bankruptcy code, following its Dec. 2 Chapter 11 filing; Dynegy bought $1.5 billion of Northern Natural Gas preferred stock and claims to have the rights to complete a buyout of the company, no matter what Enron does.

Dynegy's still precariously investment-grade rated bonds - taken down to within a notch of junk status by Moody's Investors Service on Friday - were heard to have firmed about five points in Wednesday's activity. Also up a similar amount were the bonds of Mirant Corp. and Williams Companies.

"These had all gone down over the past few sessions due to Enron fallout," a market-watcher said, "and then they bounced back up." He saw the bonds of another name from that group, NRG Energy Inc., up a point-and-a-half to two points from recent levels.

Williams, the Tulsa, Okla.-based gas pipeline operator (and former parent company of Williams Communications Group Inc.), met with analysts in New York on Wednesday to outline its plans for improving the company's finances.

Williams' move to publicly outline its plans was seen in some quarters as a response to the fate which befell Enron, currently under government scrutiny due to allegations of secretive and possibly improper bookkeeping.

Williams said it will cut capital spending in 2002 by 25% to $3 billion; at the same time, it will raise $1 billion by selling mandatory convertible preferred securities and selling off between $250 million and $750 million in non-core assets.

A trader meanwhile saw "some activity" in Williams Communications Group amid an otherwise "very quiet market" featuring "very few people getting things done." Williams Communications' 10 7/8% notes due 2009 lost a point to 42 bid.

He also saw Magnum Hunter's bonds firm to the high 90s from the mid-90s, after the energy concern was put on CreditWatch with positive implications by Standard & Poor's in response to the company's merger with Prize Energy Corp. announced earlier this week.

The Wall Street Journal reported Wednesday that world steelmakers had agreed to cut capacity by as much as 97.5 million tons by 2010, less than half of what the U.S. had hoped for, but still considered a significant step in addressing a global steel glut. The European Union, though, said its offer to reduce capacity by 13 million tons would be honored only if the U.S. scuttles a separate plan for tariffs on imported steel."

The high yield bonds of several steelmakers - notably Bethlehem Steel, currently in Chapter 11 - had firmed in late November and earlier this month on news that Bethlehem was in consolidation talks with U.S. Steel, which is also looking to united with another bankrupt steeler, Wheeling-Pittsburgh Steel Corp., and National Steel to create a supercompany better able to compete with lower-cost foreign producers. But those ambitious plans are seen imperiled by such factors as a glut of global steel capacity, the strong U.S. dollar, and high U.S. labor costs. Success of the plan hinges on getting Washington to pick up the companies' "legacy costs" for pensions and benefits for their veritable army of retired employees.

A trader said Wednesday that news that any world accord to limit steel production might be undermined by conditions produced not much movement among the junk steelers, with Bethlehem's 10 3/8% notes unchanged in the 10-12 bid area. He also saw metals producer Kaiser Aluminum & Chemical's bonds "not changing much" on the developments in the steel industry and the release of bearish fourth-quarter guidance by aluminum industry leader Alcoa. Kaiser's 9 7/8% notes were quoted at 99.25 bid/100.25 offered.

There was also little movement seen in the bonds of homebuilders, despite positive earnings guidance released Tuesday by Lennar Corp and bullish data from Washington, as the Commerce Department reported that new construction of housing units rose some 8.2% in November to a seasonally adjusted annual pace of 1.65 million units from October's revised pace of 1.52 million units. Analysts had projected that were expecting about 1.55 million starts in November. While building activity usually slows as winter nears, this year, November saw near-record warmth and below-average precipitation in many parts of the country, while mortgage rates were close to record lows.

The government data was the second major piece of good news this week for the homebuilding industry; on Monday, the National Association of Home Builders said its monthly index rose to 57 in November from 49 in October.

A trader said Lennar's bonds "are already pretty tight, and the 9.95% notes have been trading at a huge premium," quoting them at 109.5 bid/110.5 offered, although little movement was seen.

"Once a bond gets to that kind of premium, it starts to back off, even with the kind of news they had, and with the housing starts figures that came out (Tuesday) morning as well. That's a very big number, much bigger than we expected."

Lennar's 7 3/8% notes were meanwhile heard quoted at 102 bid; Toll Corp.'s 8¾% notes were at 101 and its 8 1/8% notes at 981/2, while D.R. Horton's 10½% notes were at 108 bid and its 10% notes were at 104, all unchanged.

The bonds of the homebuilders "are hanging in there and not trading much," the trader said. "You don't see any of them in the mid-90s. I'd say everything is either near par or trading at a premium and looks tight on an absolute yield basis. On a spread basis, depending on what part of the curve you're talking about, can look a little tight, but some of those bonds in the shorter part - the '04, '05, '06 part of the curve - look pretty good on a spread basis."

He said the continued strength of the homebuilding sector "continues to amaze me. It's quite an anomaly in this economy, sort of carrying the whole economy on its back. It's interesting to see it roll on. We haven't really seen any single month that looked bleak the entire year.

"It continues to be counter-intuitive - to me at least - that it exhibits such strength in the face of all of these layoffs and firings and consumer sentiment not being that great. Yes, interest rates are low - but low interest rates alone can't make you buy a house. You'd be more inclined to buy a car, since a house is a much greater investment than an automobile. So it continues to amaze everybody."

With Echostar Corp. heard about to sell its $700 million issue of seven-year senior notes via a syndicate led by joint bookrunners Deutsche Banc Alex.Brown and Credit Suisse First Boston, there were scattered early reports that the existing notes were trading "strongly." But traders said later in the day that they had not seen the Littleton, Colo.-based satellite broadcaster's credits moving around.

One market source said he had seen "no movement" in the existing Echostars, while a trader added that "typically, right before a new issue, underwriters get active in the existing bonds of the issuing company, arranging swaps with the new debt. But I haven't seen any yet."

With timing initially given as either Wednesday or Thursday this week, Echostar's deal is now expected Thursday.

While the $700 million offering - which could be upsized - will most likely be the last major offering of the year and probably the last new deal altogether, calendar building is already under way for 2002.

During the session, four deals either saw more details emerge or joined the calendar for the first time, all of them scheduled for pricing during January.

Biggest so far is Solectron Corp. which is selling $500 million next month. The Milpitas, Calif. company announced the offering Tuesday, the same day it was downgraded to junk by the rating agencies. Wednesday a few more details emerged, with the timing being narrowed to January from the early 2002 announced by the company and the bookrunner identified as Goldman Sachs & Co.

Details also emerged on a previously announced $175 million offering for Coventry Health Care. The roadshow for the 10-year senior notes will begin Jan. 7 with pricing on Jan. 24.

In addition, two new offerings appeared, $150 million of 10-year notes from AMC Entertainment, Inc. to price via bookrunner Salomon Smith Barney soon after the roadshow finishes on Jan. 17, and $185 million from Longview Fibre Co., to price the week of Jan. 14 via bookrunner Banc of America Securities.

End

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