Refco bonds, bank debt higher, as new bidder steps in; Calpine recovers

By Paul Deckelman and Sara Rosenberg

New York , Oct. 21 - Refco Inc.'s bank debt headed back up on Friday after the company held a private lender call basically to keep investors informed on recent court events, according to market sources.

Bond traders meantime saw the New York-based diversified financial services organization's notes sharply higher, to the tune of eight to nine points, on the news that a second potential bidder for Refco's up-for-sale commodities futures business had emerged.

Elsewhere in the distressed-debt precincts, Calpine Corp.'s bank debt and bonds were each up, as market fears that the San Jose, Calif.-based power generating company might soon be filing for bankruptcy - sparked by the recent news that it had hired a law firm that frequently advises bankrupt debtors - appeared to be unfounded.

Adelphia Communications Corp. bonds were seen up several points on the session, although traders saw no fresh news out on the bankrupt Greenwood Village, Colo. cable television system operator.

Refco's bank paper was quoted at 92.5 bid, 93.25 offered late in the afternoon, but was seen bid as high as 93.25 at one point during the session, a trader said. By comparison, on Thursday, the paper had gone out around 91 bid, 93 offered, the trader said. However, other sources had the paper going out on Thursday even lower at 89.75 bid, 91.125 offered, making Friday's gains seem even stronger.

Strong gains were also the story in the bond trading pits, where the company's 9% notes due 2012 were heard to have zoomed up to 58 bid, 60 offered from prior levels around 50 bid, 52 offered, a trader said.

Another, noting that the bonds "have been moving around pretty much every day - and it looks like they bounced up" on Friday, saw them going out at 59 bid, up from 50.75 previously.

The bank debt market sources cited an 11:30 a.m. ET Friday call for loan guys to update them "as to what transpired in bankruptcy court over the past two days," one source said, adding that although the call may have buoyed levels, it was overall "pretty uneventful."

However, the bond traders had a different take on the story - they attributed the sharp rise in the notes Friday to the news that Interactive Brokers Group LLC has emerged as a possible buyer for Refco's regulated futures brokerage business, offering $790 million for the asset, which is not part of New York-based Refco's bankruptcy filing.

That bid by Greenwich Conn.-based Interactive is higher than the $768 million offer from an investment group led by J.C. Flowers & Co., which signed a memorandum of understanding with Refco just before the latter filed for Chapter 11 protection from its junk bond holders and other creditors on Oct. 17. That memorandum established that Flowers would buy the futures unit, although Refco retained the option to hang on to 20% of it.

The Interactive bid could render the Flowers offer little more than a stalking horse bid to establish a floor for whatever kind of auction might emerge for the unit, although Flowers could always come back with a better deal for Refco, which would be seen as a positive by the company's bondholders, since it would mean more money would be available for the creditors' recovery. Another scenario making the rounds of the market has the Interactive bid opening the door for yet another would-be buyer -Refco competitor Calyon Securities is seen as a possible suitor, as was a Dubai-based investment group advised by Blackstone Group LP, according to market scuttlebutt and published reports.

But while the bondholders and other creditors would welcome a second suitor, to say nothing of three, four or even more, Refco itself appears uncomfortable with the idea of a protracted back-and-forth tug of war.

Refco on Friday asked the U.S. Bankruptcy Court for the Southern District of New York for quick approval of the J.C. Flowers offer, saying that time was of the essence.

"Given the fragility of the acquired business, the buyer's commitment to proceed with the sale requires that the sale be consummated quickly," Refco said in its filing. Refco noted in its submission that Flowers - whose bid is backed by private equity investors Silver Point Capital LP, MatlinPatterson Global Advisers LLC and Texas Pacific Group - has indicated that it must have a deal in place by Nov. 11, or else it will walk away from the deal - after first collecting a $21.5 million breakup fee.

Several traders latched onto the implied threat from Flowers to scuttle the deal if the deadline is not met, in explaining the rise. If it does so, one said, "that would open the door for others. It raises the potential for other bidders to get involved in the process."

To head off such a contingency, Refco petitioned bankruptcy judge Robert Drain to fast-track the bidding process, with Interactive and any other potential buyers to be required to submit their bids no later than Nov. 4, and bids to be in cash.

Drain has scheduled a hearing at his lower Manhattan courthouse for 10 a.m. ET on Monday, where he is expected to decide what kind of auction procedures - if there are any - will be followed.

Friday's jump in the bonds was the culmination of a roller-coaster week, that saw those bonds first shoot up to around 61 bid immediately after the bankruptcy filing, and then fall as low as around 30 by mid-week, as investors grew cautious and skeptical, waiting for the next unpleasant surprise from the company.

That week, in turn, capped off a whirlwind plunge into chaos for the big commodities trading company, following the revelations earlier in the month that the company carried a loan of over $400 million to then-chief executive officer Phillip Bennett, allegedly concealed from shareholders who bought into Refco's IPO this past summer. Bennett repaid the loan, but it did him no good - he was first placed on leave by the company, then unceremoniously dumped, and was finally indicted by federal prosecutors for alleged securities fraud, causing Refco's bonds to crash down to their current valuation from lofty levels well north of par before the whole scandal was brought to light.

Calpine debt gains

Apart from Refco, Calpine Corp.'s second-lien term loan headed back up on Friday, moving to 77.5 bid, 78.5 offered from Thursday's levels of 76 bid, 78 offered, according to a trader.

Its bonds were also higher, with one trader pegging the company's 8½% notes due 2008 at 57 bid, 59 offered, and its 7¾% notes due 2009 at 47 bid, 49 offered, each up a point.

Another trader saw Calpine's 8½% notes due 2011 1½ points higher at 49.5 bid, 51.5 offered.

"There was no news out," he said. "That's just how Calpine trades - on rumors, rumors, rumors. They get hit really bad, but then they come back when people realize they're not going to file [for bankruptcy protection] in the next day or two."

He also saw the Calpine 10½% notes due 2006 at 90 bid, 91 offered, up from 88.5 bid, 89.5 offered previously.

"They bounced off their lows," he said, acknowledging that some trading was likely propelled by short-covering.

Yet another market source had the 8½% '11s at 50.5 bid, up from 48, its 7 7/8% notes due 2008 a point better at 57, and the relatively rarely traded 9.825% notes due 2019 also a point higher, at 85.

Calpine's bonds and bank debt have recently been under some pressure on bankruptcy fears that were sparked by news that the company had retained the Kirkland & Ellis LLP law firm, whose frequent role is to advise companies that have filed for bankruptcy or that are about to go into Chapter 11.

However, Calpine has been trying to dispel some of the fears, saying earlier in the week that it is using Kirkland & Ellis in the legal battle with noteholder trustees Bank of New York Co. Inc. and Wilmington Trust, rather than for preparations to head off to bankruptcy court.

Tembec, Adelphia higher

In other distressed names, a market source saw Canadian forest products company Tembec Industries Inc.'s 7 ¾% notes due 2012 at 66 bid, up two points on the session, while its 8 5/8% notes due 2009 moved up to 71 bid from 69.75, and its 8½% notes due 2011 gained a point to end at 67.5.

And he saw Adelphia Communications' 10¼% notes due 2006 a point better at 67 bid, 68 offered, while its 10¼% 2011 notes gained two points to end at 70 bid, 72 offered.

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