Delphi bonds lower in line with derivatives auction; Calpine bonds, bank debt drop on results debacle

By Paul Deckelman and Sara Rosenberg

New York, Nov. 4 - Delphi Corp.'s bonds were lower Friday, pushed down by technical factors related to the auction to determine the value of some derivatives contracts that protected against the bankrupt Troy, Mich.-based automotive electronics manufacturer defaulting on its debt.

Calpine Corp.'s bonds were seen down anywhere from three to five points and its bank debt fell four points after the company late Thursday announced corrections to EBITDA calculations shown in its most recent earnings numbers.

And traders saw not much action in Refco, Inc. bonds as the deadline came and went for final bids for the bankrupt New York-based financial company's valuable futures unit - this in contrast to the marked volatility those bonds had shown over several prior sessions as it appeared more buyers for the asset were emerging.

Delphi "was weaker," a trader said, "on the settlement of their credit default swaps, so there's technical factors pushing them down."

He saw the company's bonds "pretty much across the board" fall to 62 bid, 64 offered, from levels around 66 bid, 68 offered to which the bonds had risen ahead of the CDS auction.

"They had this big auction against the Delphi paper because people were getting toasted on their 'fail to delivers' and that seemed to draw some interest," another trader said, although he also somewhat cynically characterized the whole process as "just another way of dealers screwing people."

At his shop, the Delphi bonds were seen having fallen to 63 bid, 64 offered from 66 bid, 67 offered previously.

Fifteen of the biggest derivatives dealers took part in the auction in order to determine a value at which the CDS contracts could be settled with a cash payment instead of requiring the transfer of Delphi's bonds. The figure they came up with was 63.375%, which pulled the bonds down to that level.

Refco lower

Another auction going on in distressed land on Friday was the U.S. Bankruptcy Court auction of Refco's futures unit. Final bids were due Friday, although a winner will not be known until the coming week. The highest publicly acknowledged bid for the valuable unit in the days leading up to the deadline was an $858 million offer from Refco competitor Interactive Brokers Group LLC, although it was quite possible another of the several other bidders who had expressed some interest might top it.

Refco bonds, a trader said, were at 75.5 bid, 77.5 offered, off a point from Thursday. "I didn't see a lot of it today," although he cited news that "they lost a bidder."

Although over a half dozen names in addition to Interactive had been mentioned as possible buyers, Refco said late Friday it had received a total of five bids for the futures unit or other parts of the company. It did not give details of who had bid and how much they had bid.

Calpine loans, bonds down

Calpine's second-lien bank debt was seen having dropped by about four points in response to the company's embarrassing admission that its numbers were wrong and the market confusion that caused on Thursday.

That second-lien paper was quoted at 73 bid, 75 offered, down from prior closing levels of 77 bid, 79 offered, according to a trader.

Calpine's bonds also took it on the chin Friday, traders in the junk market said. One saw the company's 8½% notes due 2008 down two points at 53 bid, 54 offered, while its 9 7/8% notes due 2011 lost perhaps a point to 71 bid, 72.5 offered.

He saw considerable activity in the name, noting that Calpine "traded quite a bit on Trace and also in the dealer market, where there was a lot of interest in it. Yeah, Calpine was active" Friday.

Another trader saw Calpine "down a couple of points," with the company's 8½% notes due 2011 three points lower at 54 bid, 55 offered.

"People are starting to realize that they come out with their announcement overnight [Thursday going into Friday] why they withheld [the earnings data], which had caused the stock to be halted. It was just a restatement - apparently they just goofed up, but that's a little troublesome, keeping in mind the fact that this company doesn't have the best track record, and that's why the bonds sold off."

It was a case of Calpine shooting itself in the foot, causing dismay and unbelief in the market just at a time when it needs the confidence of the market to continue to believe in its debt-cutting efforts, even though Calpine now says that it may have to complete the $3 billion debt reduction program some time in 2006, instead of by the end of this year, as it had previously projected.

"It smells a little funky, that's all," he said, "The scare sent the bonds lower" Friday.

Yet another trader was even more emphatic in his dismay over the whole Calpine situation. "Man, oh man," he groaned, "I can't even begin to tell you" how fouled up the whole thing was.

"They put out a press release [with their earnings] and have a conference call, and then the same day, they knock off a third of their EBITDA. How does that happen? I can understand why there's a credibility issue with this company."

He saw the 8½% 2011 notes fall to 43 bid, 45 offered by day's end, down from 45 bid, 47 offered at the opening and well down from levels around 47 on Thursday following the initial release of Calpine's third-quarter data. "Those are not their all time lows - but they are their recent lows."

He saw the 10½% notes slated to come due this coming May 15 - "a short piece of paper, with less than a year to go" - dropping to 82 bid, 84 offered, down from Thursday levels before stock trading was halted and bond trading dried up of 87 bid, 88 offered.

Late Thursday night, Calpine said that it needed to correct its third quarter non-GAAP measure of EBITDA to represent a non-cash impairment charge of $136.8 million relating to the sale of its Ontelaunee Energy Center, which was accidentally added back in the line item "(Gain) on asset sales".

For the third quarter, EBITDA as adjusted for non-cash and other charges was revised to $379.6 million from $516.4 million EBITDA, as adjusted for the quarter of $656.2 million remains unchanged.

The San Jose, Calif.-based energy company also corrected its EBITDA, as adjusted for non-cash and other charges for the nine months ended Sept. 30, to $880.4 million from $1.1234 billion. This includes a similar correction for the impairment of the Morris Power Plant of $106.2 million, which was also inadvertently added back in the line item "(Gain) on asset sales".

These revisions do not have an impact on the company's reported loss per share, cash on hand or operating cash flow, the company added.

Nonetheless, Fitch Ratings saw fit to cut its ratings on Calpine deeper into junk territory, as it lowered the senior unsecured notes' rating two notches to CCC- from CCC+ previously. The agency cited deterioration in the company's earnings, its slowing progress in reducing debt and the uncertainties posed by lawsuits brought by several bondholders - notably Harbert Management Corp. - against Calpine

Northwest higher

Elsewhere, a trader saw Northwest Airlines Corp.'s bonds better, "as there was some news out on it, and oil prices were lower today." He cited the news that the bankrupt Eagan, Minn.-based Number-Four U.S. airline carrier's pilot's union had agreed to temporary concessions amounting to a 24% pay cut for the line's 5,200 captains. That would save Northwest $214.8 million a year - 60% of the $358 million Northwest is seeking from the pilots, but enough to get the airline to back off from its stated intention of going to court to have the contract voided altogether.

Northwest's 8 7/8% notes due 2006 were 1½ points better at 31.25 bid, 32.25 offered. "I don't know if it was that news, or oil [down $1.20 per barrel to settle at $60.58 on the NYMEX], or what - but there you go."

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