Mirant up solidly as plan approved; Calpine debt firms, bonds seen easier

By Paul Deckelman and Sara Rosenberg

New York, Dec. 2 - Mirant Corp. bank debt, bonds and convertible debt were all seen higher Friday in the wake of the bankrupt Atlanta-based power generating company winning approval from the court overseeing its restructuring for its plan of reorganization, setting the stage for its emergence from bankruptcy soon.

Power provider Calpine Corp.'s second-lien bank debt was heard to have moved up by another point during market hours Friday, as recovery estimates in a potential Chapter 11 scenario continue to drive the momentum.

Calpine's bonds, however, after an early attempt to move up, gave back all of those gains after the troubled San Jose, Calif.-based generation company was ordered by a judge to repay improperly spent asset-sale proceeds sooner than the company would have liked.

Mirant's 2003 bank debt closed out the day quoted at 114.5 bid, 115.5 offered compared to opening levels of 113.5 bid, 115.5 offered, according to a trader. The bank debt had moved around throughout the session, trading up a couple of a points and then coming back in, the trader added.

A bond trader meantime saw that bank debt having moved as high as 116 during the session, well up from a 111 open, before coming off that peak to close at 114.

He saw the company's 7.90% notes due 2009 having traded as high at 128 bid, up from 122 bid, 123 offered at the opening, with those bonds finishing up 126 bid, 128 offered. He saw its 7.40% notes that were to have come due next year ending at 125 bid, 127 offered, down from its day's peak level at 127, but up from 121 bid, 122 offered at the opening.

"All [the debt] maintained its relative value," he said.

He also saw Mirant's convertibles likewise jump, but then fall back to end off the peaks - but above the opening. Its 2½% notes due 2021 pushed up to 110 bid, 111 offered before ending at 108 bid, 109 offered, up from 106 bid, 107 offered at the opening. Its 5¾% converts due 2007 jumped to 120 bid, 121 offered - up from 117 bid, 118 offered at the opening, though the bonds came off their highs to end little changed on the day at 118 bid, 119 offered.

The 2½% converts "rocketed four or five points in the early going." another bond trader said, as the issue climbed to 110.75 bid from 105 bid, 105.5 offered. The bonds came off their peak, but did go out at 108.5 bid, 109 offered, "still up strongly," he said.

Mirant said that at a Thursday hearing, judge Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas, determined that its plan of reorganization satisfies all the requirements for confirmation and that an order would be entered formally confirming the plan this coming Thursday.

The pan converts nearly $7 billion of debt and liabilities into common stock of the reorganized company, reinstates $1.7 billion of debt at the company's Mirant Americas Generation, LLC subsidiary, and implements settlements between the company and a number of its major constituencies, including the financers of the company's Mirant Mid-Atlantic, LLC subsidiary.

Mirant envisions an emergence from Chapter 11 around year-end.

Calpine secured debt higher

While Mirant is about to come out of bankruptcy, power generation sector peer Calpine may cross paths with Mirant as the California company enters Chapter 11, in the view of a growing number of financial market participants, who've dropped the company's unsecured bonds into deeply distressed levels and its shares into penny stock territory.

However, the idea of a bankruptcy does not scare holders of its secured debt, such as Calpine's second-lien debt, which was quoted at 79 bid, 81 offered, up from Thursday's levels of 78 bid, 80 offered, according to a bank debt trader.

With Friday's positive performance, the paper has now managed to post gains every single day this past week, moving up about a point on Monday, about half a point on Tuesday, about a point and a half on Wednesday and about a point on Thursday.

Calpine unsecured debt active

While Calpine's bank debt moved up, its unsecured bond debt was moving in the other direction, market sources said.

A trader said he saw Calpine's bonds "take off like a bat out of hell. Then some negative news came back. They were up about two or three points in the morning, and then they settled in to be up maybe a half [point] to three-quarters" at the end of the session.

Another trader saw Calpine "down about a point or 11/2. They were volatile. They tried to rally them a little - if you could say that about a 25 cent [on the dollar] bond - but then when it came back that they had to pay back $313 [million] by Jan. 22, they lost all of their steam."

He saw the 8½% notes due 2011 down a point at 24.5 bid, 25.5 offered and also pegged the 10½% notes due 2006 at 36 bid, 37 offered, which he saw down a point on the day, and well off their peak levels early in the day around 40.

At another shop, a trader called Calpine's bonds unchanged to down half a point, with the 8½% notes due 2008 at 28.5 bid, 29.5 offered, its 9 7/8% secured notes due 2011 at 79 bid, 80 offered, and its 9 5/8% notes due 2014 - which the company has offered to buy back - at 102 bid, 103 offered, all off half a point.

Yet another trader did see some upside to Calpine, with "short covering on the short maturities" boosting the 101/2s and the 7 5/8% notes due 2006 to 37 bid, 38 offered, from recent lows around 33 bid, 35 offered. But he saw Calpine's 7¾% notes due 2009 at 32 bid, 24 offered and the 8½% 2008 notes at 29 bid, 30 offered, each unchanged, although "a lot of paper traded around."

Renewed bankruptcy talk began to circulate around the market early in the week after the company announced a complete management shake-up, with Peter Cartwright, chairman, president and chief executive officer, and Robert D. Kelly, executive vice president and chief financial officer abruptly leaving the company.

And, as the days pass, there seem to be more and more signs pointing to a bankruptcy filing in the company's near future, market participants suggested.

On Friday, Calpine announced that it has been given until Jan. 22 to restore to the Bank of New York collateral account approximately $313 million, plus accrued interest at 3.5% per annum, to make up for the company's violation of the second-lien notes indenture through its use of the $313 million of proceeds from the sale of domestic gas assets to purchase gas storage inventory.

The company had gone to the Delaware Court of Chancery - which recently invalidated its use of that money - to plead for 90 days within which to pay back the money rather than paying it back now as disgruntled bondholders had demanded. Calpine said having to pay back the money immediately would severely crimp its efforts to stay solvent.

Court vice chancellor Leo Strine imposed a Solomonic compromise, giving the company until Jan. 22 to make the restitution - a longer period than the bondholders and the trustee for the asset-sale proceeds, Bank of New York, were willing to grant Calpine, but considerably less than the three months the company wanted.

The company had stated on Thursday that "there is a substantial risk that it will not have sufficient cash to satisfy the court ruling and its ongoing debt service obligations and operating expenses - leading to a current evaluation of options, including the possibility of filing for bankruptcy."

In addition to the payment deadline news, Calpine was faced with a ratings downgrade by Moody's Investors Service on Friday, which dropped the company's senior unsecured debt to Ca from Caa3, and dropped Calpine Generating Co. LLC's first-lien bank debt to B3 from B2, second-lien bank debt to Caa1 from B3 and third-lien notes to Caa2 from Caa1.

Moody's said that the downgrade reflects deterioration in Calpine's liquidity position, expectations that poor results will continue in the near term due to difficult market conditions for the company's natural gas fired generating fleet, and the opinion that a default is likely.

The rating agency believes that holders of Calpine Generating Co.'s secured debt will likely see full recovery, but the $4.6 billion of unsecured debt will likely see a substantial loss.

Calpine's rating outlook remained negative reflecting weak near term prospects for the company due to its tight liquidity position, high natural gas prices, limitations on its ability to raise cash through additional asset sales and on-going litigation with debtholders, Moody's added.

Standard & Poor's had already downgraded Calpine's ratings this past Tuesday, lowering the corporate credit rating on the company and its subsidiaries to CCC from B-, with negative implications.

Curative misses coupon

Elsewhere, Curative Health Systems' 10¾% senior notes due 2011 were seen little changed, around 69 bid, 71 offered, following the expiration earlier in the week of the 30-day grace period that the Hauppauge, N.Y.-based medical products and services provider invoked when it failed to make the $19.75 million coupon payment on those $185 million of outstanding bonds on Nov. 1.

The company's chief financial officer, Thomas Axmacher, told Prospect News that Curative was "still in talks" with an ad hoc committee of bondholders, whom, he said, had made no move to declare the company in default, accelerate the bonds or take any other enforcement actions against Curative.

Axmacher said the company and its bondholders were "making some good progress" and he expected to be able to announce a definitive agreement resolving the matter "sometime soon."

But for now, he said, there had been no official actions taken by either party.

"We remain in negotiations," he said.

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