Tembec bonds lower on strong Canadian dollar; Calpine keeps rising

By Paul Deckelman and Sara Rosenberg

New York, Dec. 14 - Tembec Industries Inc. bonds were seen several points lower across the board Wednesday, with most observers chalking that fall up to the rise in the Canadian dollar, which makes its products more expensive in the United States and other non-Canadian markets.

Elsewhere, Mirant Corp.'s 2003 bank debt continued to rise during Wednesday's market hours, traders in that market said. And another power generating name, Calpine Corp., saw its bond prices continue the rise begun Tuesday.

Tembec's 8½% notes due 2011 were seen having fallen to 55.75 bid from Tuesday's levels at 58, a market source said, also quoting the Montreal-based forest products company's 8 5/8% notes due 2009 five points lower at 57.5 bid, and its 7¾% notes due 2010 four points down at 52.

"All of the Canadian paper names were lower, but Tembec was the hardest hit," a trader at another shop said, quoting the 81/2s at 54 bid, 55 offered, the 8 5/8s at 56.5 bid, 57.5 offered and the 73/4s at 52 bid, 53 offered, all down three to four points on the session.

The slide coincided with a sharp intraday rise in the Canadian dollar, which got as strong as C$1.1427 to US$1, a 14-year intraday high, pushed up by divergent Canadian and U.S. trade figures; Canada's trade surplus rose to C$7.17 billion in October, topping expectations for a C$6.8 billion surplus, while the U.S. trade deficit widened to $68.9 billion, exceeding analyst expectations of $63 billion. The Canadian currency eventually came back down to end little changed at C$1.1518 to US$1.

Mirant loans gain

In the power generating sphere, a bank debt trader saw Mirant's 2003 bank debt closing out the session at 115 bid, no offers, up from Tuesday's closing levels of 113.5 bid, 114.5 offered.

That '03 bank debt had started off the week on a negative note, when it dropped about a point to 111 bid, 113 offered after the bankrupt Atlanta-based power generating company reported an unexpected outage at its Chalk Point power plant in Maryland, but since then it has been a one-way trip higher as the gains have kept piling on.

Calpine better

Rival power generator Calpine's bonds were meantime seen a bit better, a trader said, quoting the troubled San Jose, Calif.-based company's 8½% notes due 2011 at 21.5 bid, 22.5 offered, and its 8½% notes due 2008 at 26.5 bid, 27.5 offered, both up a point on the day. Calpine's secured 8½% notes due 2010 were off ¼ point at 76 bid, 77 offered, "about where they had been."

A trader in distressed notes, however, opined that Calpine had been "higher earlier, but now [late afternoon] is unchanged," with the company's 7¾% notes due 2009 ending the day right where they began, at 34 bid, 36 offered, down from the intraday high of 35.5 bid, 37.5 offered. The 8½% '08s stayed at 26 bid, 28 offered, the trader said.

A market source at a different shop called the 8½% '10s up ¼ at 76.25, while the 9 5/8% notes due 2014 were up perhaps 1/8 point at 102.625.

Back among the unsecured bonds, Calpine was up, with its 10½% notes due 2006 up 1½ points to 35.25. The 8 5/8% notes due 2010 were half a point better at 21.5 while the 8½% '08s were ¾ point up at 26.75.

Calpine bonds have been rising all week, pushed up by the news on Monday that turn-around specialist Robert P. May was appointed as its new chief executive officer.

May replaces ousted former chairman, president and chief executive Peter Cartwright - the company's founder - who was recently unceremoniously sacked by the board of directors, along with then chief financial officer Robert D. Kelly. The board said that the changes were necessary if Calpine - which was been the subject of swirling bankruptcy rumors lately - is to survive as a viable entity.

New CEO May most recently served as non-executive chairman of the board of Birmingham, Ala.-based medical outpatient clinic operator HealthSouth Corp. from July 2004 to October of this year, and as interim president and chief executive officer of St. Louis-based cabler Charter Communications Inc., from January to August, overseeing out-of-court turnaround efforts at both companies.

Calpine watchers also awaited Thursday's oral arguments before the Delaware Supreme Court, when Calpine will try to strike down a recent Delaware Court of Chancery ruling that it had improperly spent some $312 million of proceeds from a recent asset sale and had to repay that money by Jan. 22. It filed briefs late Monday with the state Supreme Court, seeking to void that order by Chancery Court vice chancellor Leo Strine. Calpine contends that its use of the money - part of the $1.05 billion of proceeds from the sale over the summer of its natural gas assets - to buy gas for its plants, is permissible under its bond indentures and credit covenants, and should not have been struck down.

The company has also warned that assuming Strine's ruling on the impropriety of Calpine's expenditure is upheld, it might not be able to meet his deadline for repayment of all of the money, and has indicated that it might have to seek bankruptcy protection from its creditors in that instance.

Ironically, part of Strine's ruling is also being appealed by Calpine's opponent in the case, Wilmington Trust Co., which is acting on behalf of holders of some $3 billion of Calpine second-lien debt as the trustee for those notes. While Wilmington Trust and the bondholders support the judge's finding that Calpine mis-spent the $312 million and must repay it, they are concerned that Calpine's deteriorating financial position might lead to its insolvency before the repayment is made, and have petitioned the state Supreme Court to order Calpine to repay the money no later than Jan. 3, if not sooner. The two sides are preparing for oral arguments before the Supreme Court on Thursday.

Charter down

Apart from Calpine, new Calpine chief May's former company, Charter, was down across the board on Wednesday, although there was no news out on the cabler.

A market source saw the Charter 11% notes due 2015 a point down at 82.75 bid, while Charter's 9.92% notes due 2014 down two points at 57. Its 10% notes due 2014 were also at 57, down more than three points on the day. All of the company's bonds, he said were off at least a point or two.

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