Calpine secured bonds firm, others fall, on court ruling; Greektown, Chaparral, Wind deals price

By Paul Deckelman and Paul A. Harris

New York, Nov. 22 - Calpine Corp.'s unsecured notes were seen in retreat Tuesday after a Delaware judge ruled against the power generating company in its dispute with the collateral trustee for its secured notes over the allowable uses of asset-sale proceeds. However, its senior secured debt was higher.

Elsewhere, General Motors Corp. bonds continued to ease, a day after the money-losing automotive giant announced plans to partially restructure its North American operations. Rival car giant Ford Motor Co.'s notes meantime retreated as Moody's Investors Service said it might cut Ford's debt ratings further into junk territory.

On the upside, Mothers Work Inc.'s bonds were up after the Philadelphia-based maternity wear chain reported fiscal fourth-quarter results. While the company's net loss widened, its executives were optimistic about its prospects in the new fiscal year and also touted the company's strong liquidity picture.

Sources saw the broad high-yield market trade up on Tuesday.

A source from a hedge fund spotted the CDX 100 closing at 99.625 bid, 99.875 offered, up 0.25 on the day.

Meanwhile in the last full session before the Thanksgiving break the primary market saw approximately $1.18 billion of new issuance in four dollar-denominated tranches plus €825 million of euro debt.

Wind leads day

The biggest of them came from Rome, Italy-based telecom Wind Acquisition Finance SA (Wind Telecomunicazioni) which altogether priced €1.25 billion of 10-year senior notes (B3/B-) in two tranches.

In the dollar-denominated tranche, Wind priced $500 million at par to yield 10¾%, on the wide end of the 10½% to 10¾% price talk.

The company also priced an €825 million issue at par to yield 9¾%, on the tight end of the 9¾% to 10% price talk.

Deutsche Bank Securities, ABN Amro and Banca IMI were joint bookrunners for the acquisition financing.

Deals from Chaparral, Greektown

Elsewhere Chaparral Energy Inc. priced a $325 million issue of 10-year senior notes (B3/B) at par to yield 8½%, 12.5 basis points beyond the wide end of the 8¼% to 8 3/8% price talk.

JP Morgan ran the books for the debt refinancing from the Oklahoma City oil and gas producer.

Michigan tribal gaming concern Greektown Holdings LLC, issuing in conjunction with Greektown Holdings II Inc., priced a restructured $185 million issue of 10¾% eight-year senior notes (B3/CCC+) at 98.693 on Tuesday to yield 11%.

The yield came 100 basis points beyond the wide end of the 9¾% to 10% price talk.

Merrill Lynch & Co. ran the books.

The issuer sold the notes via Rule 144A, agreeing to register the notes with the U.S. Securities and Exchange Commission. The notes had initially been marketed without registration rights.

In addition the issuer added one year of call protection, increasing the non-call period to five years from four years.

A informed source told Prospect News that the restructuring, as well as the yield, were driven by a few orders.

Network Communications prices

Finally Network Communications Inc. priced a restructured $175 million issue of 10¾% eight-year senior notes (B2/B-) at 98.691 on Tuesday to yield 11%.

The yield came 25 basis points beyond the wide end of the 10½% to 10¾% price talk.

Credit Suisse First Boston ran the books for the issue, which had originally been marketed with a senior subordinated structure.

The Lawrenceville, Ga. real estate information service will use the proceeds to refinance existing debt.

Commenting on the day's transactions one syndicate source told Prospect News that the buy-side seems to have a lot of pull right now, and added that as 2005 is winding down nobody seems to want to take on very much risk.

A quiet Wednesday on tap

With over $1 billion having priced Tuesday, sources are expecting the Wednesday session to be a quiet one in the primary market.

One deal is left on the forward calendar as business that had been expected to price before the Wednesday close: Gibraltar Industries Inc.'s $200 million of 10-year senior subordinated notes (Ba3/B+) via JP Morgan, were talked earlier in the week at 8% to 8¼%.

Wind up in trading

When the new Wind Acquisition deal was freed for secondary dealings, a trader said that its dollar-denominated 10¾% notes due 2015 had "a nice upward move," firming to 101.5 bid, 102 offered from a par issue price earlier in the session.

At another desk, a trader saw the new bonds doing even better, at 102 bid, 102.5 offered.

That trader also saw Chaparral Energy's new 8½% notes due 2015 at 101 bid, 102 offered, up from their par issue price.

The day's other new issue, Greektown's 10¾% notes due 2013, on the other hand, had "only a slight pop," the first trader said, pegging the bonds at 99 bid, up just a little from the discounted 98.693 level at which the bonds had priced.

Looking at the secondary behavior of Monday's new-deal pricing, the trader said that of the three tranches of Avago Technologies Finance Pte Ltd.'s $1 billion mega-deal, the floating-rate senior notes due 2013 "had the best post-pricing pop - no, don't even call it a pop, just an upward move," firming just a tad to 100.125 bid, 100.375 offered from their par issue price.

In contrast, he said, the company's 10 1/8% senior notes due 2013, at 99.75 bid, 100.25 offered, "were hanging around issue [at par], but it doesn't look very hot." Likewise, he said, Avago's 11 7/8% subordinated notes due 2015 were also a little easier, offered around 99.875 after having priced Monday at par.

He also saw the new Tronox Worldwide LLC 9½% notes due 2012 around 100.375 bid, 100.5 offered, up slightly from Monday's par issue price.

However, another trader saw the Tronox bonds considerably stronger, having hit levels as high as 101.5 bid, 102 offered.

He also saw Metals USA Inc.'s 11 1/8% senior secured notes due 2015 at 100.75 bid, 101.25 offered, up from Monday's par issue price.

As for Avago's new bonds, the fixed-rate tranches were "wrapped around par - no movement there."

Calpine center of attention

Back among the established issues, there were "just a couple of little trades here and there," another trader said. "We were mostly watching the Calpine saga continue," after a judge in the Delaware Chancery Court ruled that the San Jose, Calif.-based power generating company had acted improperly when it spent $313 million of some $1.05 billion of proceeds from the September sale of its natural gas reserves to buy gas for its plants.

Calpine had contended that it was a permissible "investment" under its bond indentures, but the holders of several issues of its senior secured paper disagreed, and at their behest the notes' collateral trustee, Bank of New York, froze the remainder of the money in the escrow account into which the proceeds had been placed and demanded repayment of the money Calpine had spent. Calpine went to court to force BNY to give it access to the funds, but the court vice chancellor Leo Strine, after hearing testimony for several days, sided with BNY and the noteholders and against Calpine.

"The funny thing was," the trader said, "I had assumed that this news was already out - that people already knew that it was going to go this way." Indeed, there had been some news reports in the days prior to the release of the decision quoting people in the market as saying that it seemed like the proceedings had not been going particularly well for Calpine, and some bondholders were dismayed last week when Strine said he needed a few days to mull over the testimony, rather than issuing a quick judgment at that time, interpreting the delay as a potential problem for the company. "They must have had a good idea," he said.

He saw the company's 8½% notes due 2008 trading around 44.5 bid, 45.5 offered before the news came out, at around midday ET. "People must have had sort of an inkling, 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.

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."

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.

Calpine secured notes gain

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.

GM, Ford lower

Elsewhere, General Motors' bonds 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 bought the company's bonds down from their peak post-news levels yesterday 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.

Ford's bonds meantime were also seen on the downside, with the auto giant's 7.45% notes due 2031 "lower by a point or 11/2," a trader said, pegging them at 70.5 bid, 71.5 offered, down from late Monday levels around 71.5-71.75 .

Mothers Work gains

An upside issue was Mothers Work's 11¼% notes due 2010, which were seen at 90 bid, 92 offered, up from 88 bid, 90 offered late Monday, after the company released its results for the fiscal fourth quarter ended Sept. 30.

Mothers Work's NYSE-traded shares meantime rose 99 cents (11.54%) to $9.57 on volume of 75,000 shares, five times the norm.

While the company's net loss widened to $5.3 million ($1.01 per share) from $3.9 million (76 cents) a year ago, company executives expressed optimism on the conference call following the release of the results, noting that they were encouraged by the sales trend seen in September, October and November so far. Chief financial officer Edward Krell noted that while comparable-store sales - the key economic metric in the retailing industry - fell 1.1% in the quarter from year-earlier levels, a year earlier, the comps had been off by 8.3%, and the percentage of decrease had come steadily downward in the subsequent quarters, leading Krell and company president Rebecca Matthias to believe that the corner had been turned after two difficult years characterized by intense competition and what the CFO called "an intense clearance environment" that forced the company to take more aggressive markdowns.

Krell and Matthias noted that the company was in the process of closing down older stores carrying only one of its several product lines, and was meantime also in the process of opening larger, newer stores under its "multi-brand" format, including the upcoming Destination Maternity Superstore which it expects to open in February at Madison Avenue and East 57th Street in New York - in the heart of Manhattan's toniest shopping area. The three-floor store, said Matthias, will be the largest such maternity wear store in the world. While the rent in that pricy district is high, Krell noted that it is "significantly less" than the combined rents the company had been paying on several smaller stores that Mothers Work is closing nearby.

Besides its store opening campaign, Mothers Work is also reaping the benefits of its alliances with the Sears and Kohl's department store chains, the executives said. It sells its Two Hearts Maternity collection through leased departments in 574 Sears locations, and distribute our Oh Baby! By Motherhood collection through a licensed arrangement at 732 Kohl's stores throughout the United States and on Kohls.com.

Krell also declared that "we are very pleased with our strong financial liquidity." Mothers Work had average outstanding borrowings under its credit line during the 2005 fiscal year of $3.1 million, but managed to end the fiscal year with no outstanding borrowings, and more than $51 million of credit line availability. He said it expects to also have no borrowings outstanding at the end of the current 2006 fiscal year.

The company had $3 million of cash and short-term investments as of Sept. 30, although this was about $11.9 million lower than the $14.9 million that it had a year earlier, mostly due to an increase in inventory mostly attributable to its new partnerships with Kohl's and Sears, and the company's decision to bring in fall inventory to its stores earlier than in 2004. "Overall, we are pleased with the level and composition of our inventory," he said, adding "We are optimistic about delivering improved financial results in fiscal 2006."

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