National Steel spurred by U.S. Steel labor pact; Mirant falls on downgrade; Calpine retreats further

By Carlise Newman

Chicago, April 9 - Names from the energy, steel and auto sectors took the limelight in the distressed debt markets Wednesday, as National Steel Inc. advanced on news that U.S. Steel reached a contract deal with its unions and said it would resubmit a bid for National Steel on Thursday. Hayes Lemmerz International Inc. reached an agreement with creditors after lengthy discussions.

Calpine Corp. and Mirant Corp. continued to trudge lower after lengthy rallies in recent days, and WorldCom Inc. hit the skids again Wednesday as the company gets closer to filing a reorganization plan.

Distressed traders said National Steel's bonds "shot up a couple of points" after the company completed a conference call that revealed it will soon be acquired by U.S. Steel. National's 9 7/8% notes due 2009 were quoted at 71 bid/73 offered at one desk, two points higher than the opening price of 68 bid/70 offered. Another desk said the bonds were bid at 70, where they had previously been offered.

"I think we'll see the real action tomorrow," said a trader.

The bonds were bolstered after United States Steel Corp. said in a conference call its efforts to buy National were supported by reaching a tentative labor contract with the United Steelworkers of America union. The new contract, which would also cover National Steel employees, scales back pension and retiree health care costs - a problem that has helped push more than 30 domestic steel makers into bankruptcy since 1997.

"This groundbreaking agreement moves us another step closer to acquiring National Steel," said U.S. Steel chief executive Thomas Usher in a statement. "With this labor contract, antitrust clearance and our strong liquidity position, we look forward to participating in the upcoming bankruptcy auction."

U.S. Steel said that the contract provides for work force restructuring through which it expects productivity improvements of at least 20%. The Pittsburgh-based company said implementation of the new agreement would result in some cash costs from early retirement incentives and significant accounting charges related to pensions and other post-retirement benefits.

U.S. Steel's $750 million offer was temporarily derailed in February when the U.S. Bankruptcy Court named rival AK Steel Holding Corp. the lead bidder for National Steel after it submitted a surprise $925 million counter-bid. Both companies are based in Pittsburgh.

Continuing to cause confusion among traders, Calpine fell another two points Wednesday. Its 7 7/8% notes due 2008 were quoted bid at 61 and offered at 63. Its 8½% notes due 2011 slid about a point to 61.5 bid/62.5 offered, after Tuesday's levels of 62.5 bid/63.5 offered and prices as high as 67.5 bid/66.5 offered in recent days.

In addition, Calpine's bank debt was quoted as falling a point. The San Jose, Calif.-based energy provider fell to 92 bid/93 offered, down from 93 bid/94 offered Tuesday.

"I don't really know what's going on with Calpine...I thought it was profit-taking at first, and they haven't seen a big drop, so it still may be," said a distressed trader.

Calpine had risen along with other energy names Dynegy Inc., Reliant Resources and AES Corp. as the latter three announced significant refinancing agreements. Talk circulated that Calpine and Mirant were both planning refinancing announcements of their own.

The buzz surrounding energy company Mirant was quelled to an extent after Standard & Poor's downgraded the company's debt three notches to B from BB. Mirant's 7 5/8% notes due 2006 were seen bid at 68 and offered at 69, two points lower than levels seen on Monday of 70 bid/71 offered, when the refinancing rumors emerged.

S&P said it may lower Atlanta-based Mirant again because the energy provider does not have enough cash to meet debt payments over the next two years. The Atlanta company has about $9.7 billion in debt, including lease-related debt, S&P said.

"Mirant's credit-worthiness has deteriorated materially due to depressed power prices, high leverage, and insufficient cash resources to meet debt obligations over the next two years," S&P credit analyst Terry Pratt said in a statement.

S&P said it is reviewing the company for another downgrade because of "uncertainty about the outcome of Mirant's efforts to restructure debt in advance of the mid-July 2003 maturity of a $1.125 billion term loan." Continuing delay in the release of Mirant's audited financial statements is also a factor in the review for downgrade, it said.

Hayes Lemmerz saw its bank debt rise about two points to 84 bid/86 offered, according to a trader.

Hayes announced Tuesday that it reached an agreement with creditors on a reorganization plan, and set a confirmation hearing for May 7. Under the terms of the new plan, holders of senior note claims will receive $13 million in cash and 44.9% of the new common stock, and holders of unsecured claims will receive 2% of the new common stock.

Holders of prepetition secured claims will receive $453.5 million in cash, $25 million in new senior notes and 53.1% of the new common stock.

Hayes Lemmerz is a Northville, Mich.-based automotive parts manufacturer.

Clinton, Miss.-based telecommunications company WorldCom's bonds were seen falling Wednesday to 26¾ bid. "That's down a little bit, about a point," said a trader, from levels of 27 bid/28 offered Tuesday. WorldCom is expected to file its reorganization plan April 15.

"WorldCom is probably down on profit-taking. They'd been kind of run-up lately," said the trader.

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