Mirant bonds, loan paper, continues climb as plan wins votes; Tembec sinks on bad results

By Paul Deckelman and Sara Rosenberg

New York, Nov. 17 - Mirant Corp's bonds and its bank loan paper, were each seen higher Thursday in continued investor reaction to the news that the bankrupt Atlanta-based power generating company's second amended plan of reorganization had been accepted by more than 97% of its unsecured creditors and shareholders.

There was meantime not much activity seen in the bonds of another power name, Calpine Corp., as arguments ended in the company's lawsuit aimed at unfreezing the proceeds from a recent asset sale, but the judge did not immediately issue a definitive ruling.

Tembec Industries' bonds were seen solidly lower after the Montreal-based forest products company reported what one trader characterized as "pretty crummy" quarterly results.

A trader in bank loans saw Mirant's 2003 debt stronger by about half a point, moving up to 104½ bid, 105½ offered in reaction to news of the plan's having been backed by creditors.

A trader in distressed bonds meantime said that the company's bonds were up "one or two points across the board" Thursday, with its 7.90% notes due 2009 at 119 bid, its 7.40% notes that were to have come due last year at 118, its 5¾% convertible notes due 2007 at 111 bid, 102 offered, and its 2½% converts due 2021 at 101 bid, 102 offered.

At another desk, a trader saw the 7.90s at 118 bid, 119 offered and the 7.40s at 117 bid, 118 offered, which he said was up about 1½ points in each case.

Confirmation hearings for the plan are scheduled to begin Dec. 1.

Calpine little changed

Thursday's hearing on Calpine's case against The Bank of New York at the state Chancery Court in Wilmington, Del., ended on an inconclusive note, as the judge hearing the company's suit, Leo Strine, declined to issue an immediate ruling, saying he wanted to mull things over, maybe even through the Thanksgiving Day holiday. "I get to chew on this before and maybe after my turkey," news reports quoted the judge as saying.

With Calpine noteholders hoping for a quick resolution to the matter but not getting it the San Jose, Calif.-based power generating company's bonds "looked pretty blah," with its 8½% secured notes due 2010 at 73 bid, 74 offered, while its 8½% unsecured notes due 2008 "didn't look much different" in ending at 46 bid, 47 offered.

A trader at another desk said Calpine was weaker in the morning, its 8½% notes due 2011 falling about two points to lows around 36 bid, 37 offered on investor fears that Calpine might get a negative ruling. However, they came off those lows, he said, to end pretty much unchanged at 38 bid, 39 offered.

Calpine and BNY are battling over the use of about $737 million of embargoed asset-sale proceeds Calpine garnered from the sale of its natural gas reserves in September. BNY is the collateral trustee for several series of Calpine bonds, and several disgruntled bondholders, angered that Calpine had used $313 million of the $1.05 billion total proceeds to buy natural gas for its plants, contended that this was an improper use of the proceeds - claiming that Calpine was supposed to use the proceeds to buy back debt. They directed BNY to demand repayment of the $313 million and to freeze the remaining $737 million. Calpine in turn argues that its use of the money was proper, constituting an "investment" in natural gas under terms of the bonds, and seeks access to the rest of the money.

The case is being closely watched because of its possible impact on other Calpine asset sales, as part of its efforts to cut its debt load by $3 billion.

Tembec drops

Elsewhere, Tembec's swing to a big fourth-quarter loss from a year-earlier profit pushed its bonds down. A trader called the numbers "crummy," and quoted the company's 8 ½% notes due 2011 as having fallen as low as 57 bid, 58 offered after the figures were released - well down from Wednesday's close at 61.5 bid, 62.5 offered. However, he said that after a late-afternoon conference call with investors and analysts "seemed to go OK, with no further bad news," the bonds came off their intra-day lows to end at 58.5 bid, 59.5 offered, "still down three points, but a little off the low, giving hope that they could go higher [Friday]."

He further said that Tembec was "isolated" and that the gyrations of its bonds had no impact on such other forest product names as Abitibi Consolidated and Bowater.

Tembec posted a net loss of C$134.9 million, or C$1.58 a share, in the quarter ended September 24. That compared with a profit of C$90.7 million, or C$1.06 a share, in the year-before period.

Tembec's operating loss in the quarter was C$164.5 million, compared with an operating profit of C$17 million in the same quarter of 2004.

Delphi DIP freed to trade

In bank loan activity, Delphi Corp.'s $2 billion 24-month debtor-in-possession financing facility (B1/BBB-/BB-) allocated and freed up for trading on Thursday, with the term loan quoted at 101 bid, 101.25 offered and the revolver quoted at 99.25 bid, no offers, according to a trader.

"The revolver seems to be held tight," the trader said in explanation of why there were no offers for the paper.

Both the $250 million term loan and the $1.75 billion revolver are priced with an interest rate of Libor plus 250 basis points. Originally, the tranches were launched with price talk of Libor plus 275 basis points but were reverse flexed during syndication.

JPMorgan and Citigroup are the lead banks on the deal.

Proceeds from the DIP, along with cash generated from daily operations and cash on hand, will be used to fund the Troy, Mich.-based automotive electronics manufacturer's post-bankruptcy operating expenses, including supplier obligations and employee wages, salaries and benefits.

Delphi expects to complete its U.S.-based restructuring and emerge from Chapter 11 reorganization in early to mid 2007.

Delphi bonds gain

The company's bonds, meantime, were seen somewhat firmer on the day, apparently bouncing back from their previously oversold condition, even though many market participants are worried about the threat of a possible strike there by workers irritated by management's efforts to impose further wage and benefit cuts on the company's estimated 33,000 hourly workers.

A trader saw Delphi's 6.55% notes due 2006 at 55.25 bid, 55.75 offered, up about a quarter point on the day, while another trader saw the company's bonds end at 55.25, up ¾ point on the day.

Delphi was seen benefiting from an improved general tone among the automotive names, led by General Motors Corp., Delphi's former corporate parent and single largest customer. GM's bonds and shares were reacting to a declaration by chairman and chief executive officer Rick Wagoner that the company has no plans for a Chapter 11 filing.

"GM got a real nice bounce," a trader said, quoting the Detroit automotive giant's benchmark 8 3/8% notes due 2033 as having firmed 1¼ points to 68.5 bid, 69.5 offered, after having hit lows earlier in the session around 65.

He also saw General Motors Acceptance Corp.'s flagship 8% notes due 2031 swinging wildly up and down, opening at 95 bid, 96 offered, then falling as low as 94 bid, 94.5, bouncing off that nadir to get as good as 99.25 bid, par offered, and then coming off that peak to finish the day at 97.75 bid, 98.5 offered.

He saw the 8 3/8s' spread against the comparable Treasury issue came "in by about 30 basis points . . . as the whole auto sector caught a bid and people started taking on risk," after Wagoner "said that thoughts of them going into bankruptcy were greatly overblown."

"We've heard that a million times, from a zillion other issuers," another trader said of Wagoner's assertions, "but still, it gave some solace I guess, so [GM and other auto sector bonds] rebounded a bit."

The GMAC 8s, especially were "getting walloped" early in the session, getting as low as 92.5 bid, 93.5 offered, before firming smartly from that low point to finish out at 98 bid, 99 offered.

Parent GM's 8 3/8s, he said, had been as low as 65.5 bid, 66.5 offered at the open, but ended at 67.5 bid, 68.5 offered, "basically up about a point from [Wednesday] but up two points from the low."

"GM was the big name," yet another trader said, "going down and then up, in a five-point swing," that saw the 8 3/8 bonds, from his view, go as low as 62 bid before bouncing back to end at 67 bid, 68 offered. "They opened lower," he said, "and went down five points, but improved in the afternoon."

The GMAC bonds, he said, "went on a similar ride, through not as severe." He saw the 8s of '31 start "in the lows 90s," fall as low as 91 bid, 92 offered, but then rebound strongly after Wagoner's remarks to finish at 98.

GM's New York Stock Exchange-traded shares closed up $1.34 (6.29%) at $22.63, on volume of 45.7 million shares, more than four times the norm.

GM's bonds and its shares have struggled recently, roiled by the combination of big third-quarter losses, the company's admission that it would have to re-state its 2001 results, sagging sales that forced the carmaker into another customer incentive plan, the possibility of a strike at former GM unit Delphi Corp., which is still GM's largest components supplier, and market scuttlebutt that a bankruptcy filing was near, compounded by credit default swap market action that would seem to point in that same direction.

Despite all of those problems, though, Wagoner asserted in a letter to company employees circulated on an internal GM website that despite GM's recent problems, "there is absolutely no plan, strategy or intention for GM to file for bankruptcy." He said that the company has "a robust balance sheet," with $19 billion in cash and $16 billion in trust fund assets earmarked for retiree health care.

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