Energy sector's rally slows; Kmart higher as stock trades OTC for first day; Global Crossing trades

By Carlise Newman

Chicago, May 7 - After a long run, energy companies finally pared back some gains this week after Calpine Corp. warned Tuesday that it would see a first-quarter loss.

Calpine said it expects to swing to a loss in the first quarter and take charges totaling $47 million. The San Jose, Calif.-based power company also said Tuesday that it doesn't expect to file its first-quarter report by the May 15 deadline because of its recent change in accountants. It plans to file the report after PricewaterhouseCoopers LLC's review.

Calpine's 7 7/8% notes due 2008 traded at 71. By day's end, they were seen bid at 70 and offered at 71, down from 74 bid/76 offered Tuesday, according to a trader.

Calpine said it expects to post a loss of 12 cents a share for the first quarter. The company also expects to record a charge of $25 million, related to reserves for equipment repairs, and a charge of about $22 million for losses related to foreign-exchange translation.

Calpine said it continues to work with its lenders on a two-year refinancing of its $500 million and $600 million working-capital facilities. The company said it expects to complete this refinancing in the near term.

"Surprisingly today the paper saw a bigger drop than yesterday when the news came out," said a distressed debt trader. "But energy took somewhat of a hit across the board."

He said Mirant's 7 5/8% notes due 2006 were quoted at 78 bid/80 offered, "down about two points from the open" when they were seen at 80 bid/82 offered.

Mirant, saddled with $8.6 billion in debt, said it is asking creditors to extend payment maturities. In exchange, it will pledge nearly all of its assets as collateral.

The Atlanta-based energy company's goal is to keep lenders at bay until power and energy markets rebound. Mirant recently obtained waivers from its banks in the event of a default on certain terms of its bank loans. The waivers expire at the end of May but may be extended until July 14, when it has $1.125 billion in debt due.

The $5.3 billion of debt being restructured includes $3 billion of bank facilities of Mirant Corp. and Mirant Americas Generation; $230 million of its Turbine facility; $225 million of its gas prepaid business; and will also include some corporate bonds of both Mirant Corp. and Mirant Americas Generation (see story elsewhere in this issue).

"Whether or not any bonds come along - it will be up to them to decide," said Marce Fuller, president and chief operating officer of Mirant, in a conference call.

Mirant, which last week restated certain financial results going back to 2000, said it expects to provide quarterly results for 2002 and 2001 and for the first quarter 2003 "as soon as possible."

Following other energy names lower, Houston-based Dynegy Inc.'s term loan B was down "about a quarter of a point" to 97¾ bid/98 offered, a trader said.

"Kmart was moving a bit. The revolver was up maybe a quarter to a half-point," said a distressed debt trader, quoting the company's old bank debt at 38 bid/39 offered.

Kmart emerged from bankruptcy Tuesday despite objections from one creditor, Eastman Kodak, to its reorganization plan. The company's stock saw its first day of trading on the over-the-counter market on Wednesday.

The Troy, Mich.-based retailer now has 600 fewer stores and new leadership since filing for protection from its creditors in early 2002. It also has a $2 billion loan to help it compete against rivals like Wal-Mart Stores Inc. and Target Corp.

Investor Edward Lampert's was named chairman of Kmart Wednesday. Lampert's company, ESL Investments, and its affiliates expect to own over 50% of the company's common stock, including options that can be exercised and convertible bonds that can be turned into common stock

In other news, Global Crossing Inc.'s bonds reportedly traded at 3½ Tuesday, a trader said.

"There was nothing of note going on today for it to trade. The bonds have been hanging around at that level forever now," said the trader.

Last week, the U.S. said it had expanded its probe in Hutchinson Whampoa Ltd.'s bid for Global Crossing. A report from Bloomberg news said the U.S. government extended its investigation into whether Hutchison Whampoa Ltd.'s $250 million plan to take control of bankrupt network operator Global Crossing will jeopardize national security.

The government told the companies it would take another 45 days to determine whether China would exert undue influence over Hong Kong-based Hutchison's ownership of a fiber-optic network.

Late in the session Global Crossing filed its monthly operating report in court.

For continuing operations in March 2003, the company reported consolidated revenue of $231 million. Consolidated access and maintenance costs were reported as $164 million, while other operating expenses were $63 million.

The company reported a consolidated cash balance of $662 million as of March 31, comprised of $257 million in unrestricted cash, $332 million in restricted cash and $73 million of cash held by Global Marine. Global Crossing posted a consolidated net loss of $89 million for March 2003, and positive consolidated EBITDA of $4 million.

Global Crossing is a Florham Park, N.J.-based communications company.

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