Calpine jumps for 2nd post-Chapter 11 day; National Coal downsizes deal; funds see $161 million outflow

By Paul Deckelman and Paul A. Harris

New York, Dec. 22 - Calpine Corp. bonds were up solidly Thursday for a second straight session after the San Jose, Calif.-based power generating company's Chapter 11 filing. Traders attributed the gains to short covering.

Elsewhere, Albertson's Inc. bonds were seen having firmed on reports that the Boise, Idaho-based supermarket and drugstore operator had broken off talks with an investor group seeking to acquire it via what was expected to be a leveraged buyout transaction - a decision confirmed in a late-day announcement by the company.

Sell-side sources marked the broad market unchanged to slightly higher on ultra-thin volume, Thursday, on the back of higher stock prices.

Meanwhile as the last full session in the run-up to the holiday hiatus unfolded the ranks of the junk market continued to thin, with some players out to shop and others preparing to blow town.

In the primary arena, things were fairly quiet, although National Coal Corp. was heard to have priced a small, downsized note offering.

And as trading wound down for the session, market participants familiar with the weekly fund-flow statistics compiled by AMG Data Services of Arcata, Calif., told Prospect News that $160.7 million more left the finds than came into them in the week ended Wednesday. It was the second consecutive outflow, following the $318.8 million that left the funds in the previous week, ended Dec. 14. Over the past two weeks, outflows have now totaled $479.5 million - largely offsetting the $586 million of net inflows seen in the previous two weeks, according to a Prospect News analysis of the AMG figures.

Outflows have now been seen in 14 weeks out of the last 17 and in 20 weeks out of the past 24. During that latter timeframe, net outflows have totaled about $4.298 billion, according to the analysis.

For the year so far, outflows have now been seen in 40 weeks of the 51 since the start of the year, against only 11 weekly inflows. Cumulative net outflows for the year total $11.112 billion, according to the analysis, down from $10.951 billion last week.

The latest week's outflow reinforces the conviction that the junk funds have recently reverted to the trend seen earlier in the year, when outflows totaling $6.776 billion were seen in 15 straight weeks from mid-February through late May, according to the analysis. After that, there was a short period in which no clear trend could be seen, with about a month of inflows and outflows showing up on alternating weeks - but since July, money has been almost consistently flowing away from the funds.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants as a gauge of market liquidity trends, and because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

National Coal downsizes

The only issue to price Thursday was the Jefferies & Co.-led National Coal Corp. notes and warrants deal.

The Knoxville, Tenn.-based company priced a downsized $55 million issue. The five-year senior secured notes (Caa2/CCC) at par to yield 10½%, on top of price talk. They were reduced from $80 million.

Proceeds will be used to repay existing debt and for general corporate purposes.

That pricing left one deal on the calendar as unfinished 2005 business.

Art Five BV, Inc., a special purpose vehicle for Italy's Wind Telecommunications, is in the market with a €250 million equivalent offering of nine-year blended-rate senior secured notes (implied ratings B1/B+), via ABN Amro and Deutsche Bank Securities.

The blended rate is anticipated to be three-month Euribor plus 300 basis points until 2013 and three-month Euribor plus 325 basis points until 2014.

Proceeds will be used to support the acquisition of Wind by Weather Investment.

In November Rome-based Wind Acquisition Finance SA priced €1.25 billion of 10-year senior notes (B3/B-) in two tranches. It included an €825 million issue at par to yield 9¾% and $500 million at par to yield 10¾%.

Proceeds from that transaction were also used to support the acquisition.

Shortly before the close in London, a source there, who has been tracking the deal, said that no terms had become available, but added that pricing was thought to be imminent.

Calpine climbs

In the secondary market, Calpine was once again the biggest mover on what was otherwise a fairly quiet session on the last full trading day of the week, ahead of Friday's abbreviated pre-holiday session and Monday's full market close.

A trader saw the company's 7¾% notes due 2009 having firmed smartly to 39 bid, 41 offered from their previous level at 34 bid, 36 offered, while its 8½% notes due 2008 had advanced to 33 bid, 35 offered from 30 bid, 32 offered previously.

The latest advance followed a gain of several points in Calpine paper seen on Wednesday, the first trading session after the company filed for Chapter 11 protection. Calpine's bonds began trading flat, or without their accrued interest, on Wednesday, as is usually the case after a bankruptcy filing or other event of default, and traders had linked those Wednesday gains with the loss of the interest. By contrast, on Thursday the trader attributed the follow-up gains strictly to "short covering."

Another trader agreed that "it looks like short covering, as guys clean up their books ahead of the end of the year. Calpine "seemed to have a bid at the end of the day."

He also saw the 81/2s going home at 33 bid, though he had seen no offers at that level. That was up from levels around 31.5 bid, 33 early in the session and up further from 29.5 at the end of Wednesday's dealings, he said.

Calpine's 8½% 2011 notes were meantime at 27 bid, 29 offered, a trader said, up 1½ points on the day, "on top of yesterday's [Wednesday's] rise."

Calpine's secured bonds were up as well as the unsecureds, with its 9 7/8% notes due 2011 up 1¼ points to 79.5 bid, 80.5 offered.

Calpine announced late Tuesday that it had sought protection from its bondholders and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York. It simultaneously sought protection for its Canadian subsidiaries under the Companies' Creditors Arrangement Act, the Canadian equivalent of the U.S. Bankruptcy Code.

The bankruptcy filing followed Calpine's unsuccessful effort last week to appeal a Delaware Court of Chancery ruling ordering the company to repay $312 million of improperly spent asset-sale proceeds by no later than Jan. 22. Calpine - which had spent the money to buy natural gas with which to fuel its approximately 90 power plants, raising the ire of secured bondholders who contended that this violated their bonds' indentures - appealed the lower court ruling to the state Supreme Court, but the judges there declined to overturn the Chancery Court ruling.

"Other than that [Calpine], it was very situational," a trader said. "We traded some odd lots, and saw a lot of bid-wanted inquiries. The market felt a little soft."

Hertz weak

One of the issues he did see was Hertz Corp.'s recently priced bonds, with its 8 7/8% senior notes due 2014 at 101.25 bid, 101.75 offered and its 10 ½% senior subordinated notes due 2016 at 102.5 bid, 102.75 offered, after Standard & Poor's lowered the Park Ridge, N.J.-based vehicle rental giant's corporate credit rating to BB- and cut its senior unsecured debt rating to B, both from BBB- previously. "Going out last week they had been higher, so they have kind of been drifting lower" anyway, he said.

"The ratings on Hertz reflect a weakened financial profile after the successful completion of its $14 billion acquisition, reduced financial flexibility, and the price competitive nature of on-airport car rentals and equipment rentals," S&P credit analyst Betsy Snyder wrote in her downgrade message. However, she added that the ratings "also incorporate Hertz's position as the largest global car rental company and the strong cash flow its businesses generate."

Hertz was acquired from Ford Motor Co. by Clayton, Dubilier & Rice Inc., The Carlyle Group, and Merrill Lynch Global Private Equity. The acquisition, which added $2 billion of debt to Hertz's balance sheet, will result in an increase in its borrowing costs, Snyder said. Pro forma for the acquisition, credit ratios "will weaken from their previous relatively healthy levels. In addition, the company's historically strong financial flexibility will decline somewhat, with over two-thirds of its tangible assets (compared to around 10% previously) secured."

Georgia-Pacific, Dana also down on ratings cuts

Also getting lowered were Georgia-Pacific Corp. and Dana Corp., another trader said. He saw Dana's 5.85% notes due 2015 down nearly a full point at 69.5 bid, 70.5 offered, after the downgrade.

As for Georgia Pacific, he said, the downgrade "was not a big thing" for the market. "They barely traded. There were no quotes after the downgrade."

Prior to S&P's downgrade of the Atlanta-based paper products company's bonds to BB- from BB+, he saw its 8% notes due 2011 at 100 bid, 101 offered, and its 8% notes due 2024 at 95 bid, 97 offered. Its 8 7/8% notes due 2031 were at 99.25 bid, 100.25 offered.

The downgrade "reflects a significant increase in debt associated with GP's purchase by unrated Koch Industries Inc.," S&P said. "GP's total debt at closing will be about $17 billion. Although [GP affiliate] Koch Cellulose LLC will remain a separate subsidiary, GP and Koch Cellulose will guarantee each other's debt. The ratings on Koch Cellulose will be withdrawn when transaction is completed."

Albertson's gains

Elsewhere, Albertson's bonds were seen up around three to four points on the session, after The New York Times reported that talks between the supermarket company and a would-be buyout group had broken off. The debt markets had previously expressed nervousness at the prospect that the group, led by Cerberus Capital and Kimco Realty, would finance the estimated $16 billion deal, including current debt assumption, with even more debt, further complicating the company's financial situation and likely causing its Baa3/BBB- debt ratings to fall into junk territory.

A trader saw Albertson's 7.45% notes due 2029 go from Wednesday's close at 84 to early Thursday levels as high as 92, before falling back to end at 88.25 bid, still up more than four points.

Its 8% notes due 2031, which had finished Wednesday at 87, were seen mostly moving in a 93-95 bid context Thursday, although several sizable trades in the 96-97 area were seen late in the session.

Late in the day, Albertson's said it had broken off all talks to sell the whole company.

But it said it was still negotiating sales of underperforming assets.

GM weak

Meanwhile a trader saw General Motors Corp. and General Motors Acceptance Corp. debt off a bit "as people shut down positions" ahead of the coming end of the year.

He quoted the giant carmaker's flagship 8 3/8% notes due 2033 at 67.5 bid, 68.5 offered, down ¾ point, while financing arm GMAC's benchmark 8% notes due 2031 were half a point lower at 97.5 bid, 98.5 offered.

Another trader saw those two bonds around the same levels, characterizing them each down 5/8 point. He also saw rival Ford Motor Co.'s 7.45% notes due 2031 at 69 bid, 70 offered, and Ford Motor Credit's 7% notes due 2013 at 86 bid, 87 offered, each down ¼ point.

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