Calpine bank debt off, bonds mixed on court ruling; Pliant sub bonds fall on coupon warning, trade flat

By Paul Deckelman and Sara Rosenberg

New York, Nov. 22 - Calpine Corp.'s second-lien term loan dropped off by about a point Tuesday as the company lost its court battle against certain note holders over the use of asset sale proceeds. On the bond side of the ledger, while its subordinated notes swooned on the news, in line with a major stock slide, its secured bonds were seen to have firmed, holders apparently not fearing the outcome of any possible bankruptcy proceeding.

Elsewhere, Pliant Corp's senior bonds seemed to have recovered from the fall they took Monday, after the Schaumburg, Ill.-based packaging maker reported third-quarter earnings - and warned that it will likely not make the scheduled Dec. 1 coupon payment on its 13% subordinated notes due 2010. But those notes, meantime, were seen trading both lower and flat, or without their accrued interest.

A trader noted that "you had numbers [on Pliant] late [Monday] night. They're going to miss the payment on the 13s, I think everybody kind of knew that."

He saw those 13s, which on Monday had fallen three points to 22.5 bid, 24.5 offered, as continuing to head down, to 20 bid, 21 offered, and now trading flat.

However, he saw the company's other two series of notes still trading with their accrued interest - the 11 1/8% senior secured notes due 2009 and the 11 5/8% senior secureds of '09. He saw the former - which on Monday had lost four points, traders said, to 85.5 bid, 86.5 offered - having moved back up to 88 bid, 89 offered, while the latter issue was cruising along at 110.5 bid, 111.5 offered.

Pliant last week had announced that it had received a commitment letter from its banks for a $140 million credit facility, which would replace the current $105 million facility and there had been some speculation at that time in the market that some of that credit facility money might be used to pay the $20.8 million of interest due on Dec. 1. But Plaint said in its 10-Q filing with the Securities and Exchange Commission on Monday that it "does not anticipate" making that payment.

The company would instead invoke the standard 30-day grace period, while it holds talks with an ad hoc committee of holders of the 13% notes.

The outcome of those talks, speculated the trader is "those notes are gonna get skooshed - they're gonna get equitized", with stock likely to be given to the noteholders to avoid having to pay the interest in cash or to have an event of default occur, which could trigger cross-default provisions in the indentures of the other notes. Pliant warned in the SEC filing that it could possibly be forced to seek bankruptcy protection if it cannot come to an accord with the 13% noteholders.

"The fact that the 11 1/8s and 11 5/8s are still trading up," while the 13s are deeply distressed seems to point to some kind of "equitizing" for the 13% notes, he reiterated, while the other notes, secured, would not be much affected by anything that happens.

Calpine second-lien loans lower

Elsewhere, Calpine's second-lien bank debt was quoted at 76 bid, 77 offered by day's end, pushed down by the news of the court ruling, compared to previous levels around 77 bid, 79 offered, according to a trader.

The Delaware Court of Chancery ruled Tuesday that Calpine's use of approximately $313 million of proceeds from the sale of domestic gas assets to purchase gas storage inventory violated its second-lien notes indenture.

Furthermore, vice chancellor Leo E. Strine, Jr. ruled that future use of the proceeds for similar contracts is impermissible.

Calpine had been fighting it the use pf proceeds issue with The Bank of New York, collateral trustee for the company's senior secured note holders, and Wilmington Trust Co., indenture trustee for the company's first-and second-lien notes since September.

Approximately $400 million from the sale of Calpine's domestic gas assets remains in an account at the Bank of New York.

Calpine itself sought to put the best possible face on the bad news, issuing a statement Tuesday afternoon which seemed to say that Calpine did not have to immediately give back the $313 million it had spent - that there would be further proceedings and the judge would make the determination on the timing of the remedy, and that Calpine is meanwhile still "permitted to use its natural gas asset sale proceeds to purchase certain natural gas assets or repurchase certain secured debt in accordance with the company's indentures."

Calpine secured bonds gain, unsecured drop

While the bank debt was lower, the San Jose, Calif.-based power generating company's bonds were mixed on the news.

A trader saw the company's 8½% subordinated notes due 2008 trading around 44.5 bid, 45.5 offered before the news came out, at around mid-day ET. "People must have had sort of an inkling [that the ruling was coming] because they weakened up to around a 43-45 context, and then the bottom dropped out after the news came out and they were in the high 30s."

However, the bonds bounced off those lows, he said and ended around 41 bid, 42 offered, down around three points on the day. Calpine's 8½% notes due 2011 finished off about 2½ to three points on the session, he said, at 35 bid, 35.5 offered.

"People say 'oh, they've got $1 billion of unrestricted cash, so they're probably not going to file [for Chapter 11 protection],'" he said, in analyzing the bounce off the day's lows, "and then a few bids came in there. They're thinking [a filing] is not imminent."

He also saw Calpine's 10½% notes due 2006 going home at 61 bid, 63 offered, down from 67.5 bid, 69.5 offered Monday.

At another desk, a market source saw Calpine's 8¾% notes due 2007 having fallen three points on the day to 45 bid.

Another trader saw the 8½% 2008s at 41.5 bid, 42 offered late in the day, down from 44 bid, 45.25 previously.

But not all Calpine debt was heading lower. He saw the company's 9 5/8% notes due 2014 hanging in at 102.75 bid, 103.5 offered, while yet another trader saw those bonds at 103 bid, 104 offered, while its 8½% secured bonds due 2010 were up two points at 73.5 bid, 74.5 offered, and its 8¾% notes due 2013 were at 72.25, up more than a point on the day.

"The junior stuff looks down," a market source said, "while the senior bonds look to be up."

"The secured stuff actually traded up," the first trader said, with holders "thinking that there's probably going to be a filing sooner rather than later," a reorganization in which the secured creditors will come out ahead.

He further noted that Calpine is involved in another court case involving disgruntled bondholders - including frequent Calpine critic Harbert Management - this one in New York, where the company at least temporarily fended off the bondholders efforts to speed a decision on whether as much as $641 million of convertible notes should be immediately turned into cash. The trustee for the bonds, Wilmington Trust Co., had asked for an expedited ruling, based on the evidence.

"So it looks like they've bought some time in this Harbert/Whitebox case, which is not going to be resolved soon."

But the twin court cases may be taking their toll on the company's bondholders he said. "I think everybody's getting tired of Calpine."

Calpine's New York Stock Exchange-traded shares meantime plunged 36 cents (20.57%) to close at $1.36 on volume of 71.8 million shares, almost six times the usual turnover.

Delphi steady

Elsewhere, Delphi Corp.'s bonds were seen "across the board unchanged" at 54.5 bid, 55.5 offered.

The bonds of the bankrupt Troy, Mich.-based automotive electronics manufacturer's one-time corporate parent, General Motors Corp. - which itself has recently been the subject of renewed bankruptcy buzz, particularly in the credit default swaps market - were seen a little weaker, continuing the negative trend seen in the latter portion of Monday's trading, after initial momentum from the company announcement that it will close nine plants and eliminate 30,000 jobs over the next three years dissipated.

That loss of momentum brought the company's bonds down from their peak post-news levels to end Monday's trading essentially little changed, and they continued to head south on Tuesday, with a trader seeing GM's benchmark 8 3/8% notes due 2033 trading at around 70 bid, down from Monday's late bid levels around 71-71.5.

Mirant loans jump

Back in the bank loan market, Mirant Corp.'s 2003 bank debt was up by about 2½ points during Tuesday's session, with no specific news seen sparking the momentum, according to a trader.

The bankrupt Atlanta-based energy company's bank debt was quoted at 107.5 bid, 108.5 offered, up from 105 bid, 106 offered, the trader said.

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