Calpine bonds, energy loans weaker; Winn-Dixie down, airlines suffer

By Ronda Fears and Sara Rosenberg

Nashville, May 3 - Energy names attracted much of the attention Monday in otherwise quiet distressed debt markets.

Calpine Corp. saw its bonds slip while energy names generally were quoted weaker on bank loan desks.

Amid an overall soft market tone, traders said all the distressed paper was easier or flat with Winn-Dixie Stores Inc. losing ground as the market took time to digest its earnings news over the weekend.

"There was not a lot of volume, so it was tough to tell whether there was a lot of selling going on in the market as a whole," one trader said. "But there were definitely pockets of weaknesses."

Airline paper, particularly Delta Air Lines Inc., continued to waft lower amid rising oil prices that will translate eventually to higher fuel costs, despite the impending onset of the summer travel season.

Several telecom names also were seen in lower territory, such as MCI Inc.

Calpine off ahead of earnings

Traders noted Calpine was several points weaker and El Paso Corp.'s 7¾% bonds slid to 77 bid, 79 offered on Monday from 79 bid, 81 offered a couple of days ago.

Calpine's decline came without much volume ahead of the independent power producer's earnings report due Thursday and general speculation on its business, traders said.

"I'm hearing two things on Calpine. One is that there was an asset sale by Duke Energy that may have gotten a multiple that caught some people by surprise. So some of that paper weakened up," one trader said.

"And Calpine does its numbers in a couple of days. And there are concerns as to whether or not they're hedged against spark spreads, like some of their competitors are."

Thus, Calpine got rocked. The 8½% due 2008 lost about 2 to 2½ points to 68 bid, 68¾ offered, down from 70.5 bid, 72.5 offered.

"All the Calpine paper, even the short stuff, was a little weaker," the trader said.

Another trader said Calpine's short paper, like the 8¼% due 2005, had been 94 bid, 96 offered but went home Monday at 93, without a bid.

"They [Calpine bonds] got beaten down a little. The 8½% due 2008 are in the high-60s now, 67 bid, 68 offered, on the close. That seems down at least two," the trader said.

"The 81/2s due 2011, which trade behind the 2008 paper, closed at 65 bid, 67 offered. Last week they were all in the low-to-mid 70s. So in a week, they're down 5 to 6 points."

Energy loans weaker

Energy names felt weaker in an otherwise quiet distressed bank loan market, with Reliant Energy Inc. quoted lower by about a quarter to a half a point and Mirant Corp. quoted lower by about a half to three quarters of a point with no specific news pushing the debt lower, according to a trader.

Reliant's bank debt was quoted at 98 bid, 98 ¼ offered while Mirant's 2003 bank debt was quoted at 54 ½ bid, 55 ½ offered, the trader said.

However, a second trader placed Reliant's bank debt at slightly higher levels of 98 1/8 bid, 98 ½ offered. "The bonds were a little weaker this morning and then there was no activity this afternoon," the trader said.

Reliant is a Houston energy company. Mirant is an Atlanta energy company.

Winn-Dixie bonds sacked

Supermarket giant Winn-Dixie bonds on Monday were sacked, losing 1 to 2 points after the market digested its earnings news over the weekend.

The 8 7/8% notes due 2008 were said to be hanging around the 90 bid, 91 offered area at the end of the day, after ending Friday little changed at 91 bid, 92 offered.

On Friday, Jacksonville, Fl.-based grocery chain reported better-than-expected results and the bonds traded lower but recovered the lost ground by the end of the day.

By Monday, amid a weaker market in general, the bonds softened, losing 1 to 2 points, despite the improving earnings scene, a distressed bond trader said.

"Maybe the thought is: if that's the best they can do, it's not good enough," he said.

Winn-Dixie posted fiscal third quarter net earnings of $600,000, or break-even on a per share basis, compared with profits of $50.6 million, or 36 cents per share, a year earlier.

Winn-Dixie also reported quarterly sales fell 5.5% to $2.67 billion, and said it plans to chuck 156 stores and eliminate 10,000 jobs over the next year as it struggles to defend lost sales to discount mass retailers like Wal-Mart. The company noted that same store sales in the quarter were down 6.4%.

For the fiscal nine months ending March 31, Winn-Dixie posted a net loss of $77 million, or 55 cents per share, versus net income of $176.7 million, or $1.26 per share, in the same period a year before. Sales dropped 5.8% to $8.9 billion, with same store sales down 6.6% for the period.

Airlines still losing altitude

Airline paper also was getting waxed, as one trader put it, and "record high [oil] prices don't help."

He put the Delta Air Lines Inc. 8.3% due 2029 at 46 bid, 49 offered, off 1 points from 47.5 bid, 49.5 offered on Friday.

Another trader commented that oil prices are weighing on all the airline paper. Crude oil futures ended higher Monday and now are sitting over the $38 a barrel mark.

"All the Delta Airline paper seems to be going down every day. Oil represents about 25% of their fixed costs. So, obviously if crude oil prices keep going up they're going to suffer," he said.

He put Delta's 2008 bond at 58 bid, 59 offered, down about 1 point, noting, "The paper is just drifting in. There is not a lot of volume."

One distressed bond trader noted other pressures on Delta specifically.

"They have a ton of money that they have to pay out. Their long paper is getting pounded," he said, noting that Delta's 2029 bonds a month a go were 62 bid, 64 offered. He added that the shorter Delta paper, the 7.7% due 2005 are 75 bid, 77 offered, a little weaker, too.

Distressed bonds easier overall

Similarly, another trader said the Trico Marine Services Inc. bonds dropped about 2 points, following an apathetic response last week to the offshore oil drilling services company's announcement that it would explore selling assets, obtain additional financing and/or look at a debt restructuring that would include its $250 million of senior notes due 2012. The bonds were quoted Friday at 45.5 bid, 47.5 offered

Trump Atlantic City's 11¼% mortgage notes due 2006 appeared to be unchanged in the mid-80s, one trader said, after the company said Friday that it would make the scheduled coupon payment within the 30-day grace period, or before May 30.

Telewest Communications plc and Telewest Finance (Jersey) Ltd. bonds were seen nowhere on the heels of the London-based concern filing for foreign company bankruptcy protection in the U.S., in which the company is aiming for a debt-for-equity swap to eliminate the notes.

Several traders reported no traffic in Global Crossing Ltd. bonds on the delisting of its stock on the Nasdaq amid a restatement of previous earnings just three months after its exit from bankruptcy.

MCI Inc.'s new bonds coming out of bankruptcy were quoted down about 1 point in the 90s, which one trader attributed to the drop in the stock. MCI shares fell $1.18 to $13.

Leap falls further

In other news, Leap Wireless International Inc.'s bank debt continued to fall on Monday, according to traders.

One trader placed the debt pretty wide at 104 ½ bid, 107 offered, making it down on the bid side but stronger on the offer side.

A second trader placed the debt trading in the 105 to 106 context, "down one point" on the day.

On Friday, the bank debt was quoted at 105 ½ bid, 106 ½ offered by one trader and quoted bid at 106 even by a second trader.

As has been recently reported, the paper has been rallying, moving up from below par at the start of last week to reach heights of 108 ½ bid, 109 ½ offered by mid-week because people believe there is good equity value behind the name and there was a surge of technical pressure. The company filed for Chapter 11 protection about a year ago.

However, the bank debt started to fall towards the end of last week as the equity markets declined.

Leap is a San Diego provider of communications services.

(Paul A. Harris contributed to this report)

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