Electricity names continue to empower distressed market; Elan down on new problem with drug

By Paul Deckelman and Sara Rosenberg

New York, June 2 - There was a lot of activity in the power sector again on Thursday, with Calpine Corp. and Mirant Corp. being the two most focused names in a market that overall continued to contain a strong tone, according to a bank debt trader. Calpine's bonds were meantime also seen better.

Another gainer was Loral Space & Communications Inc., which gained altitude as the New York-based communications satellite company took a further step from emerging from bankruptcy with the approval of its disclosure statement.

On the downside, the troubled Irish drug manufacturer Elan Corp. plc was getting hammered by both bond investors and stockholders Thursday in response to a news report linking one of its main products to a possible fourth case of a very rare - and potentially fatal - brain disease.

San Jose, Calif.-based electric power generator Calpine saw its second-lien bank debt gain about a half a point during the session, with levels closing out the day at 77 bid, 78 offered, a trader said.

At the same time, a bond trader observed that Calpine's bonds were at least 1½ to two points better on the session. The trader quoted its 8½% notes due 2008 up a pair to 62 bid, 64 offered, while its 8½% 2011 notes were 1½ points ahead at 61 bid, 63 offered.

A market source at another desk meantime saw Calpine's 8¾% notes due 2007 up 1½ points to 65.5 bid.

Calpine, which electrified the debt markets last week with its announcement that it was ahead of schedule on its debt-paydown campaign and would likely achieve its goal of taking out $3 billion of debt by the end of this year, rather than by the end of 2006, as originally projected, continued on its roll earlier this week with the announcement that it had agreed to sell its 1,250 MW Saltend generating station in England for the equivalent of $925 million, a clear premium over what it originally paid for the plant. After paying off $620 million of preferred securities linked to the plant, Calpine will use the remaining proceeds to cut debt.

And on Thursday, a Calpine subsidiary, NewSouth Energy LLC, announced that Entergy Corp. has agreed to buy up to 485 megawatts of electricity from its Carville Energy Center in Louisiana for up to one year starting on July 1. Financial terms of the deal were not disclosed.

Meanwhile, Atlanta-based Mirant saw its bank debt end the day at unchanged levels of 75 bid, 76 offered, although there was a good flow of activity in the paper, a trader added.

Loral higher on disclosure approval

Elsewhere, a trader saw Loral's bonds solidly higher, "up about two or three points across the board," and cited the news that the bankruptcy court overseeing Loral's reorganization had approved its disclosure statement - an important step on the company's road to eventual emergence from Chapter 11 (see related story elsewhere in this issue).

The trader saw the company's Loral Space & Communications 9½% notes due 2006 "up nicely" to 31 bid, 32 offered from prior levels at 28 bid, 30 offered, while the company's Loral Orion 10% notes due 2006 rose to 78 bid, 80 offered from prior levels at 76 bid, 77 offered.

However, shareholders were not as enthused, taking the company's over-the-counter bulletin board-traded shares down four cents (12.50%) to 28 cents on volume of 1.7 million, about four times the norm.

Loral is another company whose fortunes seem to be looking up lately; earlier in the week, its two series of bonds had firmed to the levels at which they had opened trading on Thursday on reports in Tuesday's editions of The Wall Street Journal indicating that Loral had won a contract from satellite broadcaster XM to build its next satellite.

The contract is estimated to be worth about $186 million.

The Journal said that Loral was the surprise winner, beating out aerospace giant Boeing Corp., builder of XM's four previous satellites.

The paper said this fifth satellite will be used as a ground spare, to be launched in the event that anything happens to one of the currently orbiting satellites.

Neither Loral nor XM have publicly announced the awarding of the latter's next satellite-building contract.

Elan falls on Tysabri problems

On the downside, a news report that yet another patient taking Elan Corp.'s multiple sclerosis drug, Tysabri, had contracted progressive multifocal leukoencephalopathy - a rare and potentially fatal brain illness - helped put the bonds back on shaky ground.

Ironically, those bonds had firmed smartly on Wednesday with the company's announcement that it had already spent $211 million and would end up spending a total of $241 million to buy back debt maturing in 2008 - and still have a huge cash cushion of over $1 billion available.

But on Thursday, they gave it all back, with Elan's 7¾% notes due 2011 seen down nearly four points at 84.75, while its 7¼% notes due 2008 were two points off at 92.25. Elan's 6½% convertible notes were seen down as much as 14 points on the latest setback, while its New York Stock Exchange-traded shares nosedived $1.14 (14.27%) to $6.85 on volume of 43.1 million, nearly double the usual turnover.

Earlier this year, reports that two patients taking Tysabri had died of MLP during clinical trials and a third was severely affected, had forced Elan and its partner, Biogen Idec Inc., to pull the drug from the shelves. It had been cleared by the Food and Drug Administration for use in treating multiple sclerosis cases just the previous November.

Officials of the two companies had held out hope that the drug might be returned to the market before too long. Elan CEO Kelly Martin told attendees at the company's annual meeting in Dublin that officials from the two companies would meet U.S. regulators to discuss the "path forward for Tysabri" once their own internal review was complete by late summer.

However, the latest reports appear to roadblock those hopes, at least for now.

The Boston Globe reported Thursday that the fourth patient to contract MLP was a 48-year old woman taking Tysabri and also taking another Biogen medicine, Avonex. Two of the other three patients, including one who later died, were also taking Avonex, which like Tysabri, is prescribed for treatment of MS.

However, one of the other patients taking Tysabri died without having taken Avonex, casting doubt on the theory that interaction between the two drugs may have caused the problems.

The FDA said it is in contact with Cambridge, Mass.-based Biogen on the latest report and other aspects of the drug's safety.

Delta rises on sector hopes

Back on the upside, Delta Air Lines Inc.'s bonds and shares were seen better, perhaps given some lift by the news that Continental Airlines Corp. reported stronger-than-expected May traffic figures, raising the possibility that the Houston-based carrier could post a profit in the second quarter - something the traditional old-line "hub-and-spoke" carriers like Delta and Continental haven't been doing much of over the past few years.

That optimism about the prospects for the legacy carriers lifted Continental's 8% notes maturing later this year to 98.75 bid, 99.75 offered, up half a point, while Delta's 7.70% notes due this year were seen up 1½ points to 84 bid, 85 offered, while its 8.30% notes due 2029 were half a point better, a trader said, at 27.75 bid, 28.75 offered.

Delta "started to look like it would ease - but ended higher," a trader said, in seeing the 7.70s at 84 bid, 86 offered, and the 8.30s at 28 bid, 29 offered. He also saw its 10% notes due 2008 up a point at 42 bid, 43 offered.

Delta's bonds were up sharply last week and firmed again this week, helped in the latter case by news that senior lender GE Capital Corp. will relax the key minimum EBITDAR covenant in the Atlanta-based airline's credit facility agreement.

The trader cited as another possible factor an equity analyst's report Thursday recommending Delta's stock, and Northwest Airlines Corp.'s as an attractive play. That apparently caused Delta's shares to jump 36 cents (9.42%) to $4.18, on volume of 4.4 million, somewhat higher than the usual 3.7 million.

But the trader said that all the stock rise proves to him is "there's a lot of idiots out there."

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