Calpine bank debt firmer after Chapter 11, bonds trade up but flat; auto issues easier

By Paul Deckelman and Sara Rosenberg

New York, Dec. 21 - Calpine Corp.'s second-lien bank debt closed out the session higher by about two to three points after having see-sawed around a bit during trading hours on news that the company - finally - had filed for bankruptcy protection.

Calpine's bonds meantime were also seen up several points on the session, although traders noted that the bonds were trading flat, or without their accrued interest, which essentially balanced out the higher nominal prices.

Apart from the latest chapter in the sad saga of the San Jose, Calif.-based power generating company, bond traders saw names in the troubled automotive sector as easier, probably not helped by the news that billionaire financier Kirk Kerkorian - one of General Motors Corp.'s major investors - had cut his 9.9% stake in the embattled Detroit giant to 7.8%, with the sale of some 12 million shares, ostensibly for tax loss purposes.

Goldman Sachs equity analyst Robert Barry wrote in a research note that other, less benign factors might have been behind that sale, including the recent slide in the value of the carmaker's shares, which fell to a 23-year low on Wednesday. That slide has completely wiped out the value of the $1.7 billion that Kerkorian invested in GM, and his stake - like GM itself - is in fact now several hundred million dollars in the red. Barry also mentioned Kerkorian's failure to put aide Jerome York, a former Big Three executive now working for the mogul's Tracinda Corp., onto GM's board, despite his talks with the company, and the relatively modest size of the healthcare cost concessions that GM was able to wring from the United Auto Workers union, which the analyst warned "highlight how little GM can do to address its onerous labor costs."

GM's benchmark 8 3/8% notes due 2033 were seen off about half a point on the day, a trader said.

Delphi, Dura lower

Also down were the bonds of bankrupt former GM unit - and still the carmaker's single largest outside parts supplier - Delphi Corp., which were off a point at 50 bid, 51 offered.

The Troy, Mich.-based automotive electronics maker is currently facing the possibility of a strike some time early next year by the UAW, although it acted to defuse the dispute with the union by withdrawing a controversial demand for extensive labor-cost givebacks. Delphi, attempting to restructure following its Oct. 17 bankruptcy filing, is also trying to fend off insistent demands by its worried shareholders for official representation in the proceedings, saying that its board of directors could adequately protect their interest - but it also said in a regulatory filing that it was "highly unlikely" that they would get any kind of return on their investment.

Also among the auto names, Dura Operating Systems Corp.'s bonds were off, with its 9% notes due 2009 quoted a point lower at 58 bid.

Calpine center stage

But be that as it may, traders all agreed that autos were, at best, a back-seat driver Wednesday, with Calpine, in the words of one of them "the main focus of the day."

The utility's bank debt ended the session at 79 bid, 80 offered, up two to three points from Tuesday's close, but had first bounced around at levels as high as 80 and as low as 77.5 at various times during the day, a trader in that market said. By comparison, on Tuesday, the bank debt had gone home at 76 bid, 78 offered.

Bond traders meantime reported that Calpine's bonds, secured or unsecured alike, were up anywhere from 1½ points to four points on the day, depending on the amount of accrued interest that a particular bond had been trading with prior to the late Tuesday night bankruptcy filing with the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan, and the concurrent filing of its Canadian subsidiaries under the Companies' Creditors Arrangement Act, the Canadian equivalent of the U.S. Bankruptcy Code.

After those filings, the bonds were all trading flat, or without their accrued interest.

A trader, who called Calpine the "bond du jour," noted the apparent rise in the bonds, explaining that "if you look at the accrueds [interest] for each of them, they pretty much just traded up to cover that - so they were pretty much unchanged on the day, if you back out the accrued."

The trader saw the Calpine unsecured 8½% notes due 2011 up three points in nominal price terms, at 25.5 bid, 27.5 offered, "which is really what people were paying yesterday [Tuesday, when the bonds were in a 22ish context] with the accrued in them. Net-net," taking into account the lost accrued interest, "they were unchanged." Similarly, Calpine's secured second-lien 8¾% notes due 2013 nominally rose four points on the day - the same amount as the lost accrued interest - to finish at 79.5 bid, 80.5 offered.

Another trader who saw the company's bonds up 2 to 2½ points in nominal terms - even as they were trading flat - quoted its unsecured 8½% notes due 2008 at 30 bid, 31 offered, and saw its secured 9 7/8% notes due 2011 at 78.25 bid, 79.25 offered.

At another desk, a market source pegged the Calpine unsecured 8¾% notes due 2007 at 37 bid, up as much as four points on the session.

And at yet another shop, a trader pegged the secured 9 7/8% bonds up 1¼ points on the day at 78 bid, 79 offered, while the 8½% 2008s were up an estimated 2¾ points to 30.25 bid, 31.25 offered.

He called the activity level "pretty busy today, without a doubt." He suggested that people covering shorts might be a possible explanation for the activity, as well as the compensation for the lost accrued interest.

One of the other traders said that while dealings in Calpine were quite busy, with "a ton trading, and a bunch of every issue," overall, "it wasn't any more than in the past few days, kind of right in line with that. I wouldn't say there was more of a flurry today because of the news," noting the elevated activity level late Tuesday, when the rumor began making the rounds of the market - true, as it turned out - that Calpine was going to file on Tuesday evening.

In the convertibles market, action was similar. The company's convertibles rose several points on Wednesday but were trading flat, without accrued interest, on the heels of the company's announcement that it filed for Chapter 11 bankruptcy protection.

They were up a couple of points due to among other things settling credit default swaps. "They'll probably drift back down," a Connecticut-based sellside trader said.

The Calpine 4.75% convertibles traded at about 24.5, and the 6% convertibles traded at 17 and 19.

Just hours after the bankruptcy scuttlebutt emerged, the company announced that that it and many of its subsidiaries, including Calpine Generating Company LLC, had filed voluntary petitions to restructure under Chapter 11.

Calpine said it has received a commitment for a $2 billion secured debtor-in-possession financing facility consisting of a $1 billion revolver and a $1 billion term loan. Deutsche Bank and Credit Suisse First Boston are joint lead arrangers and joint bookrunners on the deal.

"After careful consideration of all available alternatives, Calpine's board of directors determined that a Chapter 11 filing was a necessary and prudent step and the best way to obtain the financing necessary to maintain regular operations, and allow for a successful restructuring," said Robert P. May, the company's recently appointed chief executive officer, said in a company news release.

"Calpine has a strong foundation in place, with high quality assets and a professional and experienced workforce. Chapter 11 protection will provide us with the ability to address our financial challenges without disrupting our ability to continue to provide reliable power supplies to the markets in which we operate."

With some $26.6 billion of assets involved, Calpine's bankruptcy is thought to be the ninth-largest corporate bankruptcy in the U.S. since 1980. The biggest-ever insolvency case was WorldCom Inc.'s $103 billion bankruptcy in 2002.

The recent bankruptcy of Refco Inc., with an estimated $33.3 billion of assets, is the largest U.S. bankruptcy this year, with Calpine second, ahead of Delta Air Lines Inc., with $25.1 billion of assets, and Delphi, with about $16 billion.

Calpine's bankruptcy filing - which had been expected for many weeks by traders, analysts and others in the investment community - followed Calpine's final unsuccessful effort last week to appeal a Delaware Court of Chancery ruling ordering the company to repay $312 million of improperly spent asset-sale proceeds by no later than Jan. 22.

Calpine - which had spent the money to buy natural gas with which to fuel its approximately 90 power plants, raising the ire of secured bondholders who contended that this violated their bonds' indentures - had appealed the lower court ruling to the state Supreme Court, but the judges there declined to overturn the Chancery Court ruling.

Calpine's nearly worthless Pink Sheet traded shares meantime dropped about three cents (13.91%) to just under 20 cents, on very heavy volume of 159 million.

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