Conseco bounces around as chief explains CFO ouster; Calpine gains

By Paul Deckelman and Paul A. Harris

New York, March 7 - Conseco Inc. bonds held the center stage for a second consecutive session, as the embattled insurer elaborated on the circumstances of Wednesday's surprising announcement that chief financial officer Chuck Chokel was leaving - and, as it turns out, he didn't resign, but was fired. The debt, down early on, came back to end on a higher note. Also on the upside was recently beleaguered power producer Calpine Corp., spurred on by investor optimism about the economy and, perhaps, by a tantalizing buyout rumor.

In the primary market the only deal to plop down on the seat cushions Thursday came from Linwood, Pa.-based Foamex.

Foamex LP/Foamex Capital Corp. will bring $200 million of seven-year senior secured notes (B3/B) via Credit Suisse First Boston, according to syndicate sources, one of whom told Prospect News that the deal figures to price late in the week of March 11.

Also Thursday, a representative of the recently reticent sell-side stepped forward and stated that, in this official's perception, the high yield market is hot - something note all his counterparts have been willing to do.

Pointing to Sinclair Broadcast Group's offering Wednesday of $300 million 10-year senior subordinated notes (B2/B), which priced to yield 8%, the official said, simply: "The market's as hot as it's ever been.

"Sinclair, a B2/B credit, yielded 8%. That's one of the lowest coupons for a B2/B in the history of the high yield market," the sell-sider said.

Back in the secondary, Conseco - whose bonds had slid anywhere from three to five points in Wednesday's session after Moody's Investors Service expressed new worries about the company and threatened a debt-rating downgrade, and the company announced the out-of-left-field departure of Chokel - "again was obviously the name of the day" Thursday, a trader said.

He quoted the Carmel, Ind.-based insurer's 6.4% senior notes due 2003 - which had been trading "in the mid-to-high 80s" before Wednesday's double-dose of bad news - as having opened Thursday around 80 bid/83 offered, and then having fallen to offered levels around 79.5, with no bids seen.

But then Conseco Chief Executive Officer Gary Wendt issued the latest in a series of "Turnaround Memos" explaining the circumstances of Chokel's exit.

"Whenever the market does something Wendt doesn't like, he puts out a memo," the trader said. But apparently it's a winning formula; after that, the bonds recovered from their lows and the 6.4s climbed back up to bid levels around 81.5.

Another trader noted how Conseco's 8¾% notes due 2004, which had pushed to levels as low as 57 bid on Wednesday, at first remained on the slide, falling to 53.5 bid/55.5 offered, before Wendt's memo.

"After the news came out, the bonds came back and ended at 61-63," up from Wednesday's closing levels, though still below the levels Conseco held before Moody's expressed alarm about the company's situation Wednesday morning and threatened a multiple-notch downgrade, followed by the sudden announcement that Chuck Chokel had left the building.

In his memo Thursday, Wendt - hired away from General Electric's GE Capital unit to rescue the then faltering Conseco - bluntly stated: "Chuck did not resign. His employment was terminated. I let him go because I did not believe that he was up to the job."

Wendt said that the original company announcement did not elaborate on the reasons for Chokel's departure because he believed that "the meaning would be clear." Conseco was then forced to reverse course and give the details of Chokel's ouster because, Wendt said, "irrational, and even nutty" stories were filling the information vacuum in the current highly charged atmosphere - presumably, rumors to the effect that Chokel may have lost confidence in the company and chose to get out while the getting was good.

"When we hired Chuck, we believed that the skills that had served him so well in his career in the P&C insurance industry would benefit us. Regrettably, that skill set was not well suited to our situation. Rather than muddle along, especially at a time when this role is so critical to our success, I decided to take action," the Conseco boss declared. He also announced that William Shea, Conseco's president and chief operating officer, would replace Chokel as CFO.

The first trader, while acknowledging the comeback which the bonds made on Thursday after Wendt released his screed, noted that investors might still be wary about the company, "with all of the accounting issues making people in the markets nervous these days (Conseco critics have suggested a murkiness about the way the company discloses its information) and the fact that Conseco has lost a few key employees in the last 12 months."

A market source saw most Conseco issues "getting hit early in the morning but coming back to end about unchanged," although he did see some upside in the 8¾% notes, to 60. The 9% notes due 2006 gyrated around before closing up four points on the session, at 56 bid.

On the equity side, Conseco shares fell to as low as $2.50 on the session before recovering somewhat after Wendt's memo provided some insight into the company's thinking; the shares still ended down 16 cents (4.27%) in New York Stock Exchange trading, to close at $3.59; volume of 26.8 million shares was nearly nine times the usual turnover.

On the upside, Calpine bonds "were moving up," a trader said, quoting its 8\½% notes due 2011 firming to 79.5 bid/80.5 offered at one point in the session, up three points on the day; later, he noted, the bonds came down from that peak but still closed up two points at 78.5 bid/79.5 offered.

At another desk, Calpine's 8 5/8% notes due 2010 were observed having jumped nearly five points on the day to about the 79 level.

Another trader said he personally hadn't seen the Calpine bonds, but allowed that the San Jose, Calif.-based independent power producer's stock "has been on a tear lately," quite a change from the situation several weeks ago, when the stock and the bonds were steadily cascading downward on a combination of factors that included Enron-itis (Calpine operates in the same power generating/energy trading industry as the failed Houston firm, now in Chapter 11), liquidity concerns, a Securities and Exchange Commission probe of whether Calpine had improperly disclosed information to analysts (Calpine denied any wrongdoing) and a general feeling that the slowing economy would produce less demand for electricity.

In Thursday's NYSE action, Calpine shares jumped $1.20 (11.04%) to $12.07, on volume of 32 million shares, double the usual. The gains came even though equity analysts at UBS Warburg downgraded the company to a "hold" to a "buy".

Also up were the bonds of rival independent power operator AES, with its 8 3/8% notes due 2007 up six points to 58 bid, while its 9½% paper was up a more modest two points to 76. AES shares scored an even greater percentage gain on the NYSE than Calpine did, up 84 cents (13.13%) to $7.24. Volume of 12 million shares was more than double the usual turnover. Shares of such other power operators as Williams Companies and Mirant Corp. were also higher on the session, with analysts opining that evidence of a growing economic turnaround was fueling the upside movement. Williams also benefited from the announcement of a $275 million convertible preferred investment by Berkshire Hathaway's MidAmerican Energy Holdings Co.

Late in the session, a rumor - strictly unconfirmed - that another producer, Duke Energy, might make a bid for Calpine, generated some excitement on investment-oriented Internet bulletin boards, although neither company had said anything that would indicate such a scenario might be in the works.

Outside of the power generators, telecommunications issues were also stronger, as tower operators such as Crown Castle International and SBA Communications continued a firming trend seen Wednesday; Crown Castle's 10¾% notes were up about three points to 91 bid, while SBA's 10¼% notes gained a point to close at 65. Equity analysts at Deutsche Banc Alex.Brown put out a bullish assessment of the tower companies in general and SBA and Crown Castle in particular.

Other telecom gainers included Allegience Telecom, whose 12 7/8% notes were being quoted at 42 bid and whose zero-coupon bonds were at 32 bid, both up nearly 10 points from the credit's recent trading levels. Leap Wireless 14.5% notes are now seen in the 30 area, up from around 24 previously. Among more commonly quoted names, Nextel Communications Inc.'s benchmark 9 3/8% notes due 2009 were seen as high as 69 bid before coming off that peak to end around 68, still a point or so higher on the day; a trader said that the Reston, Va.-based wireless operator got a boost from larger Sprint's prediction Wednesday that it would add more subscribers in the first quarter (700-750 thousand) than analysts were expecting (550-700 thousand).

"Nextel finished off its highs," he said, "but they definitely had a nice run today."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.