Calpine bank debt lower; Winn-Dixie firmer again

By Paul Deckelman and Sara Rosenberg

New York, Feb. 5 - Calpine Corp.'s bank debt was quoted lower Thursday - along with the San Jose, Calif.-based power producer's bonds - as market participants expressed some degree of skepticism about the company's massive project debt refinancing plan announced earlier in the week.

Elsewhere, Winn-Dixie Stores Inc.'s bonds were seen a little firmer for a second straight session, as the Jacksonville, Fla.-based supermarket operator's debt recovers - a little - from the massive hole it fell into a week ago after the company reported an unexpected quarterly loss.

Bank debt traders said that Calpine's paper was once again seen softening up, after having strengthened earlier in the week. The company's second-lien loan was quoted at 97.75 bid, 98.25 offered, according to one trader.

On Tuesday, that debt had been quoted at 98.5 bid, 99 offered, up by about a quarter to a half a point from a dip late last week on market technicals.

Furthermore, Calpine Construction Finance Co. II LLC's revolver was quoted at 98 bid, 99 offered by a trader, off from Wednesday's levels of 98.5 bid, 99 offered, as investors continued to show their uncertainty about the refinancing reaching completion.

On Wednesday, Calpine said that its wholly owned subsidiary, Calpine Generating Co. LLC (previously CCFC II) would be coming to market with approximately $1.3 billion of non-recourse first priority secured institutional term loans and approximately $1 billion non-recourse second priority secured notes. Deutsche Bank is the left lead on both transactions.

The term loans and the bank debt would be used to refinance amounts outstanding under the $2.5 billion CCFC II credit facility that matures in November. Currently there is about $2.3 billion in outstanding debt under the CCFC II facility including letters of credit.

The term loans and revolver will be secured, through a combination of stock pledges and direct asset liens, by Calpine Generating's power generating facilities and related assets. None of the indebtedness will be guaranteed by Calpine Corp. Calpine Generating also plans on getting a new $200 million three-year revolver that will be used to complete power generation facilities that are still under construction.

Market participants are wary, especially given the sudden southward turn that the debt markets seem to have taken in the last two weeks on the heels of the Federal Reserve's indication that a rise in interest rates could be coming sooner rather than later.

"It's bid at 98, but I'm not paying 98 for it," a trader said of the Calpine Construction Finance revolver paper.

"Say you bought a whole bunch of this at 88 or 91. Say there's a 99% chance it will get refinanced. But, say there's a 1% chance it doesn't get refinanced. Are you going to risk 20 points if it doesn't get done compared to gaining one point if it does? That's the kind of trade that people get fired for.

"There are lots of questions about this [refinancing]," the trader continued. "There's way too much debt on it.

"I think the bank loan gets done no problem. First lien there's about $80,000 of debt per megawatt. Second lien bonds there's about $275,000 of debt per megawatt and you can't say you'll necessarily get covered there. It's the second lien that's the issue And, without the bonds getting done - the bank debt doesn't get done."

Calpine bonds sink as well

Junk bond market players seem equally skeptical of the prospects for the deal, particularly given the downturn in the junk market this past week seen in major indexes put out by brokerage houses such as Bear Stearns & Co. and Banc of America Securities, to name just two, and the pall that news of a massive $1.568 billion outflow from junk market funds in the latest week reported by AMG Data Services is likely to throw over the new-deal sector.

Calpine's 9 7/8% notes due 2011 were being quoted at 98.5 bid on Thursday, down from par on Wednesday, while its 8½% notes due 2010 dipped to 93.5 bid from 95.

Winn-Dixie edges up

While Calpine bonds and bank paper were on the downside, Winn-Dixie was seen a little higher, its 8 7/8% notes due 2008 quoted as having risen slightly to 84 bid, up from closing levels around 83½ on Wednesday.

That paper was trading at better than par a week ago - but nosedived more than 15 points last Friday, down into the upper 80s, after the supermarket operator reported an unexpected loss of $79.5 million (57 cents a share) in the fiscal second quarter ended Jan. 7 - a sharp turnaround from its year-ago performance when it earned $91.4 million (65 cents a share). Analysts were looking for a small profit in the nine cents per share range.

After the initial slide, the bonds continued to retreat, at one point even falling to around 78 bid, before firming off those lows and creeping back up over the past two sessions to around 84 bid.

Level 3 drops

Among other issues, a distressed debt trader noted the sharp fall Thursday in Level 3 Communications Inc. - a name not normally associated with distressed precincts - after the Broomfield, Colo.-based telecommunications company warned that its revenues would remain under pressure for all of the year amid a "challenging" environment, and would likely show a percentage decline in the high single digits from a year ago.

Level 3's benchmark 9 1/8% notes due 2008 were seen having fallen to 87 bid from 94.5.

And the trader said he had seen no movement in the debt of Adelphia Communications Corp., even though some Adelphia shareholders, unhappy with management's reorganization plan that cuts them out completely when the restructured company emerges from bankruptcy, have asked the court for permission to put together their own plan (See report on page one of this issue).

Adelphia's 10¼% notes due 2011 were at 104.75 bid, unchanged on the session.

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