Calpine, Mirant remain active; Armstrong World higher on healthier earnings

By Carlise Newman

Chicago, May 9 - The energy sector, lagging during the week after an extended rally, was active again Friday in distressed debt trading, with Calpine Corp. brightening a bit and Mirant Corp. heading in the opposite direction.

Calpine's bonds, having wobbled a bit in recent sessions, were up and running again Friday. Calpine's 8½% notes due 2011 were quoted at 71 bid/73 offered, "moderately higher than Thursday," one distressed debt trader said. The notes were seen earlier in the week in the mid-70s, then fell "about a point a day" to end Thursday's trade at 70 bid/72 offered.

On Friday Calpine said it signed a two-year agreement to provide up to 300 megawatts of power to Brazos Electric Power Cooperative, Inc. Starting in early 2004, Calpine will supply Brazos with power from its fleet of plants in the Electric Reliability Council of Texas.

Calpine, which will be paid based on varying peak and off-peak fixed rates plus a fixed-capacity payment, said it will supply the power through a 300 MW "virtual" power plant, rather than a specific plant, to reduce outage risks.

Calpine currently has 6,000 MW of generation throughout the Texas grid and plans to add 1,000 MW more by June 2004.

San Jose, Calif.-based Calpine said it limits price and outage risks for Brazos by supplying firm on-peak and off-peak power and by eliminating the need to buy power in the volatile spot market.

The agreement will provide about 13% of the electricity Brazos needs for its 17 member distribution cooperatives, three municipals, and Texas A&M University.

"Energy has had a good run. With Calpine some of the fall is profit-taking, and some is a winding down of confidence," said a distressed debt trader.

On Tuesday, Calpine said it expects a first-quarter loss of 12 cents per share, including non-cash charges of about 5 cents for equipment repairs and foreign currency losses, driven by a stronger Canadian dollar, of 4 cents.

Mirant Corp.'s bank debt was seen weakening to 81 bid/83 offered on rumored restructuring uncertainty.

"Mirant was down about half a point," said a trader.

Earlier in the week, the Atlanta-based utility company held a conference call detailing its ongoing restructuring of $5.3 billion of its debt.

The $5.3 billion of debt 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 facility; and will also include some corporate bonds of both Mirant Corp. and Mirant Americas Generation.

Under the plan, the holders of $5.3 billion in debt will be asked to defer repayments of principal.

Mirant's president, Marce Fuller, said in the conference call that the company has been in "detailed discussions" with all three ratings agencies, including Standard & Poor's, Moody's Investors Service, and Fitch Ratings.

"Keep watching Mirant," said a trader. "They could go either way."

Lancaster, Pa.-based Armstrong Holdings Inc.'s bonds were seen "hanging in there" after the company said it posted a first-quarter net income of $1.9 million compared with a net loss of $571.9 million during the same period last year, which included a large accounting charge.

Armstrong's bonds were up three points at 45 bid/47 offered, from 42 bid/44 offered Thursday and 41 bid/43 offered Tuesday.

Armstrong World, the main operating unit of Armstrong Holdings, a flooring manufacturer, filed for Chapter 11 protection in December 2000 to manage asbestos liabilities from products it manufactured.

The company said its latest quarter included a $6.4 million drop in the U.S. pension credit from last year. The quarter also includes a restructuring charge of $3.2 million to consolidate certain functions in the European textiles and sports flooring and resilient flooring segments.

The prior year results included an accounting charge of $593.8 million, along with a $5.3 million benefit from changes in long-term disability benefit policies for certain employees. The results also included a $500,000 restructuring charge in 2002 in the textiles and sports flooring segment.

First-quarter sales rose to $774 million from $748 million a year earlier.

Houston-based chemicals maker Huntsmen Corp.'s bonds moved little on news that the company had bought out its minority interests in Huntsman International Holdings LLC.

"The 10 1/8% notes were bid 101, offered 102, and the zeros were at 49.5," said a distressed trader. "They were unchanged."

Executives of the Huntsman companies announced the purchase of ICI's debt and equity holdings in Huntsman International Holdings, and the purchase of J.P. Morgan and MidOcean Capital Investors' minority interest in HIH.

With the buyouts, HMP Equity Holdings Corp., controlled by the Huntsman family, now owns 100% of all principal Huntsman business entities.

HMP recently issued senior discount notes with warrants. The $315 million of cash proceeds were used to complete the purchase of ICI's 30% interest in Huntsmen International Holdings and Huntsmen International Holdings' senior subordinated discount notes. Approximately $90 million of the notes and warrants were exchanged for the 9% interest in Huntsmen International Holdings, held by JP Morgan Partners and MidOcean Capital Investors.

Additionally, Spectrasite Holdings Co.'s bank debt was active Friday. The Cary, N.C. wireless tower operator's revolver was seen bid at 92 and offered at 93.25, up from levels of 91¾ bid/93 offered Thursday.

The company began a roadshow Friday for an offering of $150 million seven-year senior notes with proceeds to repay bank debt.

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