Calpine resumes fall; asbestos bonds climb as bill advances; bankrupt Meridian's bank debt firmer

By Paul Deckelman and Sara Rosenberg

New York, April 27 - A one-day pause in Calpine Corp.'s continued descent came to an abrupt end on Wednesday, with the troubled San Jose, Calif.-based power generating company's bonds swooning another five or six points pretty much across the board.

Going the other way were the bonds of bankrupt asbestos-challenged Owens Corning and Armstrong World Industries Inc., each seen up around four points, with the Senate Judiciary Committee expected to vote Thursday on legislation that would set up a $140 billion claims-payment mechanism.

In bank debt dealings, bids edged higher on Meridian Automotive Systems Inc.'s term loan B paper, as investors continue to anticipate being paid down at par as a result of the company's recent Chapter 11 filing.

Calpine "sure did go down a lot," a trader in distressed bonds said, quoting the company's 8½% notes due 2008 at 50 bid, 51 offered, "down a couple [of points] on the day."

"All of the bonds looked heavy, across the board," he said. He saw most of Calpine's unsecured bonds likewise trading in that same lower-50s context, "Their '09s, '10s, '11s, all of them. 50-53 covers most of 'em."

One bond definitely not at that level, Calpine's 9 5/8% secured notes due 2014, was still "down a few," trading at 95 bid, 96 offered.

"It seems the Calpine bonds took a breather yesterday [Tuesday], when they seemed to stabilize at lower levels, after having dropped 10 to 15 points over the previous several sessions. During that time, the company was forced to formally deny bankruptcy rumors making the rounds of the financial markets, and it insisted it was meeting all of its legal and financial obligations.

"There was no specific news out [Wednesday] that would push them down," the trader said. "But they're under a lot of pressure. They've got a lot of debt to refinance."

He did not hear a revival of some market scuttlebutt that Calpine had missed, or was about to miss, an interest payment on one of its issues, but chalked the slide in the bonds up more to just a generalized investor feeling of dislike for the company.

At another desk, the 8½% notes due 2008 issued by Calpine's subsidiary Calpine Canada Energy Finance were seen as low as the 50 level, down five points, while the parent's 8¾% notes due 2007 were in the mid-50s, still down six points on the day.

Another trader saw Calpine "down sharply." Like the first trader, the second noted no particular fresh negative news out about the company. But with Calpine's NYSE-traded shares also on the slide, "the bondholders got nervous, thinking 'maybe someone knows something.' People were looking to get out."

At the opening of the market, its benchmark 8½% notes due 2011 were at the same 52 bid, 54 offered level at which they had ended the previous session. But by the end of the day, those bonds had swooned to 48.5 bid, 49.5 offered. "It wasn't pretty," the trader said, with no small degree of understatement."

Calpine's 8¼% notes scheduled to come due this August were seen down three points to 87 bid, 89 offered.

Its shares meantime down 14 cents (7.29%) by day's end, dipping to $1.78, on volume of 23.1 million, nearly three times the usual level.

Asbestos names better

On the asbestos front, a trader said that Owens Corning and Armstrong "were down [Tuesday], but they ticked back up [Wednesday]" to levels around 82 bid, 84 offered for Armstrong, a Lancaster, Pa.-based floorcovering maker, and Toledo, Ohio-based insulation maker Owens Corning around 80, "both up a couple of points."

Another trader saw both company's bonds up four points on the session to 82 bid, 84 offered, citing news reports indicating that the Judiciary Committee could vote Thursday on whether to send the claims fund bill on to the full Senate.

However, even at this late date, support for the bill drafted by committee chairman Sen. Arlen Specter, R.-Pa., and his Democratic counterpart, Sen. Patrick Leahey, D.-Vt. is anything but firm, with a total of only seven sponsors or co-sponsors for the bill on the 18-member committee.

The bill has been a hard sell among some of Specter's more conservative Republican colleagues, who feel that his bill doesn't go far enough in preventing the filing of frivolous or fraudulent claims of asbestos-related medical problems, and contains no real guarantee some of those claims won't wind up back in court - the very thing the claims fund mechanism was supposed to discourage. Some of Leahey's more liberal Democratic colleagues are also unhappy with the bill, feeling the claims fund won't be able to pay large enough claims to claimants, or could run out of money somewhere down the road.

Meridian loans better

In the bank debt sphere, Meridian Auto's term loan B was quoted at 99 bid, 99.75 offered at the end of the day, compared to 98.75 bid, 99.75 offered at the close Tuesday, a trader said.

As part of the bankruptcy filing, Meridian got a commitment for up to $375 million in debtor-in-possession financing from JPMorgan that will be used to repay the company's first-lien debt.

The DIP is expected to consist of up to a $175 million revolving tranche A with an interest rate of Libor plus 250 basis points and a $200 million term loan B with an interest rate of Libor plus 350 basis points.

Meridian is a Dearborn, Mich., supplier of front and rear end modules, lighting, exterior composites, console modules, instrument panels and other interior systems to automobile and truck manufacturers.

Given Meridian's decision to file for Chapter 11, auto names have become topical in secondary loan trading as was witnessed by an increase in activity in Federal-Mogul Corp.'s bank debt on Wednesday, according to a trader.

Federal-Mogul's pre-restructured bank debt was seen trading in the 90.5 bid, 91 offered context throughout the session, the trader said, adding that prior to the Meridian news, Federal-Mogul hadn't really been trading much at all.

Federal-Mogul is a Southfield, Mich., supplier of vehicular parts, components, modules and systems.

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