Distressed debt seen mostly treading water; New Calpines attract attention

By Paul Deckelman and Sara Rosenberg

New York, Aug. 8 - The distressed debt community took a step backward on Friday - as did the high yield universe - to digest the potential meaning of the massive junk bond mutual funds outflow reported for the most recent week. While traders said there was a fair volume of activity, there was little in the way of bond-price movement to show for it at the end of the day, they said.

"Things were pretty flat," a distressed-debt trader said. "It was a busy day - but with not a lot of price movement. We ended flat."

For instance, he said, WorldCom Inc.'s debt continued to trade around 27 bid all day, he said, and Calpine Corp.'s second priority senior secured notes due 2010 and 2013 - which had priced at par about a month ago and which have slid all the way down to below 90 bid in the interim - were quoted at 88 bid, 89 offered, both tranches essentially unchanged on the session.

One notable exception to that general statement of "nothing going on here," though, was Calpine's new $750 million combination term loan-and-bond deal, which priced late Thursday through the San Jose, Calif.-based power generating company's Calpine Construction Finance Co. LP subsidiary.

The new debt was one of the few things notably trading around. Upon breaking in the secondary on Thursday evening, the upsized $385 million term loan portion of the financing - which had been originally offered to investors 98 - had moved up to around 99 bid, 99.5 offered. In Friday's dealings, the first-priority term loan tranche had moved up to 100.5 bid, 101.5 offered.

Meanwhile, Calpine' Construction's downsized $365 million tranche of second priority secured floating rate notes due 2011, which had priced late Thursday at 98.01, had moved up ever so slightly to 98.25 bid, 98.75 offered.

But apart from that initial firming, another trader said, "not much was going on. There was no big news. Nothing was newsworthy."

There was news out on Amerco Inc., the bankrupt corporate parent of U-Haul. Amerco's bonds - which had been seen Thursday having fallen as low as 78 bid, 83 offered, from prior levels around 83 bid, 85 offered - were quoted in that same general context on Friday, when the Reno, Nev.-based company announced that chief financial officer Andrew Stevens - who had only hitched up with the trailer rental company about four months ago - was leaving to pursue other interests.

The company - which filed for Chapter 11 protection from its junk bond holders and other creditors - also reiterated its intention "to repay its creditors in full, pursuant to a full-value plan of reorganization, without diluting the interests of its shareholders."

Elsewhere in the distressed world, Fleming Cos. bonds were seen unchanged, even as the bankrupt Texas-based grocery wholesaler's real estate advisor announced plans to put 61 properties - warehouses, retail and vacant lands and 13 leaseholds that consist of retail and warehouse spaces - up for auction, in October.

There was a little movement in airline issues, with Northwest Airlines' 7 5/8% notes due 2008 seen a point-and-a- half better, at 68.5, despite a lack of real fresh news - just the same old, same old, with the Eagan, Minn.-based carrier and its unions sparring over whether the airline's call for some $950 million in cost savings is justified, given that Northwest has nearly $3 billion in cash reserves.

Continental Airlines' 8% notes due 2005 were a point better at 85.

Apart from company specific news, sector players pondered the impact of what's believed to be the largest-ever weekly flow of cash out of high yield mutual funds, a closely watched barometer of overall junk market liquidity trends.

The high-yield market has floated along for most of the year on a cushion of easy liquidity, with the funds at one point showing a cumulative net inflow of over $17 billion for the year, according to a Prospect News analysis of the weekly numbers compiled by AMG Data Services of Arcata, Calif.

Even with the big outflows seen over the past two weeks ($2.56 billion in the week ended Wednesday and $1.06 billion the week before that), the overall year-to-date inflow number remains a healthy $13 billion plus, considering only those funds which report weekly and excluding distributions. But given the two weeks of outflows over $1 billion, and a third week before that of a smaller outflow in the $100 million range, the recent trend is clearly negative and could cause some investors to pull back, which may lead to a dumping of positions in some of the weaker names - which could fall into the distressed category.

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