Calpine continues recovery; Premium Standard sets talk, Dimon returns with deal

By Paul Deckelman and Paul A. Harris

New York, May 3 - Calpine Corp. bonds were continuing to recover from their recent lows on Tuesday, with investors apparently reassured by recent company statements and looking forward to not-so-bad numbers on Thursday.

Elsewhere, Charter Communications Inc. bonds were better after the St. Louis-based cable operator issued its first-quarter results, which showed a narrowing of its loss from year-ago results figured on a pro-forma basis to exclude divested assets. And company executives said liquidity is not a concern, at least for the moment.

Overall, on the back of news that new car sales fell in April for Ford Motor Co. and General Motors Corp., the high-yield market traded flat to slightly off during the Tuesday session, according to sources.

"It has been pretty choppy with not much going on," one high-yield syndicate source said shortly after the close.

Issuers step forward

Although no new issues priced during Tuesday's primary market session, one company set price talk and timing, another downsized its deal and revised talk upward, and a third returned to the market after postponing a deal in mid-April.

Premium Standard notes talked at 7¼%

Kansas City, Mo., hog producer Premium Standard Farms Inc. issued price talk of 7¼% Tuesday on its $125 million offering of 10-year senior unsecured notes (B1/BB), with pricing expected on Wednesday.

Morgan Stanley has the books for the debt refinancing deal.

One informed source told Prospect News that, although the company has been in bankruptcy before, it currently has a good operating profile, adding that Premium Standard Farms will be approximately 1.0-times leveraged through the new bond when it's done.

The source added that in a better market the company would get better pricing, but that 7¼% is fair in current market.

Kloeckner downsizes, revises talk

Elsewhere German steel trader Kloeckner Investment SCA downsized its bond offering to €260 million from €350 million on Tuesday, and revised price talk on the 10-year senior notes (B3/B-) upward to 10¼% to 10½% from 9¾% to 10%.

Pricing, which late last week was heard to be coming Tuesday or Wednesday, is now expected on Thursday.

JP Morgan and Barclays Capital are joint bookrunners for the deal, proceeds from which will help fund a leveraged buyout of the company by Lindsay Goldberg & Bessemer.

To compensate for the $90 million decrease in the bond offering, $40 million of equity has been added to the financing, a market source told Prospect News. Also a $50 million dividend payment to the sponsor has been taken out, the source added.

Dimon returns

Meanwhile Alliance One Interntional, Inc. returned to the high-yield primary market on Thursday with a $450 million offering of eight-year senior unsecured notes (B3/B), which it is talking at 10¾% to 11%, with pricing expected Thursday morning.

Wachovia Securities and Deutsche Bank Securities are joint bookrunners for the deal, proceeds from which will be used to take out debt of both Dimon Inc. and Standard Commercial Corp., which are set to merge and become Alliance One International.

On April 19, Alliance One postponed a $650 million three-tranche offering, also via Wachovia Securities and Deutsche Bank Securities, citing adverse conditions in the high-yield debt markets.

That offering was comprised of two tranches of senior notes (B2/B+) and one tranche of subordinated notes (B3/B).

In downsizing the amount of notes that it intends to sell to $450 million from $650 million the company shifted $200 million to its bank loan.

The Fed, according to the script

Finally on Tuesday, one high-yield syndicate official told Prospect News that the Federal Reserve's Federal Open Market Committee acted according to the script by announcing a 25 basis points increase in its key bank-lending rate, boosting it to 3% even.

The official said that the move was widely anticipated, and will likely have little or no impact on the high yield market.

"Had they done anything differently, that would have had an impact," the source said.

"Everybody was expecting the rate to go up by 25 basis points and for the language to remain 'accommodative' because of fears the economy might have slowed down a little."

Calpine stronger

Calpine "was certainly higher," a trader said, quoting the San Jose, Calf.-based power generating company's 8½% notes due 2011 as having risen to 54.5 bid from prior levels around 52.5, its 8¾% notes due 2013 as having firmed to 71.75 bid from 68, its 8½% notes due 2010 as having gone up to 72.75 bid from 71.5, and its 8 5/8% notes due 2010 as having jumped to 58 bid from 51.

"They've been up and down all the past week," he said, noting the volatile behavior of the bonds.

He agreed with the suggestion that market participants who had been spooked since about mid-April by rumors making the rounds that Calpine might default on a payment obligation or even file for Chapter 11 now pretty much agree that "probably" those fears are groundless.

At another desk, Calpine was seen "up nicely," with the 2011s seen having firmed all the way up to 57.5 bid from prior levels in the 53-54 range. "I don't know if it's short covering" following the recent carnage in the company's issues, "or people just getting comfortable with the idea that all of those bad rumors about the company not being true," a trader said. "And, they have numbers coming out on Thursday."

Calpine "has been all over the place - but they were up today," a market source at another desk said, quoting the 2013 bonds as having firmed to 72 bid from 70.5. He also saw Calpine's 7 3/8% notes due 2008 firm to 59 bid from recent levels around 54, pegged its 7¾% notes due 2009 at 58, up from 52.75, and saw its 8¾% notes due 2007 at 66.5 bid, up two points. The Calpine 8¼% notes coming due on Aug. 15, he said, were at 92 bid, up from 90.5.

Equity investors were just as anxious to take Calpine stock up as the bondholders had been to push the notes up. Its New York Stock Exchange-traded shares jumped 33 cents (16.18%) to $2.37, on volume of 25.8 million - more than 2½ times the usual turnover.

Calpine - which has for the past few weeks been addressing the rumors of its impending default or insolvency as "persistently false," went on the attack on Tuesday, with The Wall Street Journal reporting that the company has asked The Big Board to investigate the recent trading of its stock, particularly regarding the recent rumors about its finances.

Calpine shares, and its bonds, were seen as having been victims of a recent wave of short selling, triggered by last month's controversy over the planned sale of its Saltend facility in the United Kingdom. A big bondholder denounced the sale, saying the transaction would leave the company without the means of paying obligations to its bondholders.

Calpine said that it is in compliance with all of its various debt covenants.

Charter rises on earnings

Elsewhere, Charter Communications bonds were up somewhat, after the company reported first-quarter results and gave a hopeful assessment of its prospects on its conference call with analysts (see related story elsewhere in this issue).

Charter "was slightly better today," a trader said, quoting the company's 8¼% notes due 2007 as having firmed to 94.75 bid from 93.5, although he did see its 10¾% notes due 2009 ease to 77 bid, down ¾ point.

Charter "was up as much as two points," another trader said, "but then settled back in and ended up a point" across the board.

The second trader quoted the company's benchmark 8 5/8% notes due 2009 as having gotten as good as 74 bid, 75 offered from prior levels at 72 bid, 73 offered, before finally coming off the high to close at 73 bid, 74 offered.

At another desk, Charter's 11¾% notes due 2010, 10¼% notes due 2010 and 10% notes due 2009, were each seen up about ¾ point, to 79.5, 75 and 76, respectively.

While Charter posted a net loss for the quarter of $353 million ($1.16 a share), more than the average 82 cents a share loss that Wall Street had been expecting, and wider than the year-ago net loss of $294 million ($1 a share) a year earlier, excluding the contribution of cable assets that since have been divested from the year-ago results, the latest numbers actually represent something of an improvement from what would be a pro forma year-ago loss of $391 million ($1.32 per share).

Charter also added 94,000 high-speed internet and 19,900 digital video customers during the quarter, partly offset by a loss of 6,700 analog video customers, although this was the smallest subscriber loss in the last four quarters. The company also said it managed to increase revenue per analog customer - a key cable industry financial metric - by 11%.

On the liquidity front, the company's acting chief financial officer said that with $1.2 billion of available bank credit, Charter's liquidity is good through the remainder of the year - although he also said that next year's liquidity outlook is uncertain.

MCI up again

MCI Inc. bonds, which had firmed solidly Monday on the news that Qwest Communications International Inc. has quashed its quixotic attempt to buy the Ashburn, Va.-based long-distance carrier, leaving it free to merge with its preferred suitor, Verizon Corp., were seen having continued to firm marginally on Tuesday, its 8.735% notes due 2014 getting as good as 111.5 bid, its 7.688% notes due 2009 going up to 105, and its 6.908% notes due 2007 hovering around 102.

Las Vegas Sands down on earnings

Las Vegas Sands Corp. reported lower first quarter earnings, and its 6 3/8% notes due 2015 dipped half a point to 93.5 bid, 94.5 offered.

The Las Vegas-based gaming operator said net income fell to $7.1 million (two cents per share) from $49.9 million (15 cents per share) a year ago, after the company, which operates the Venetian hotel-casino in Vegas, took several charges against earnings.

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