Salton sinks on skipping coupon, then bounces off lows; Calpine bonds, bank paper still climbing

By Ronda Fears and Sara Rosenberg

Nashville, June 15 - Salton Inc. bonds plunged Wednesday after the company said it would skip the coupon payment on its 10¾% bonds that was due the same day. But they bounced off the lows in the afternoon to settle just a point lower, although a trader remarked that since the paper is now trading flat, or without interest, that shaved off the equivalent of at least a further 4 to 5 points.

Calpine Corp. paper, however, both on bond desks as well as in the bank loan arena, continued to power up on enthusiasm about debt takedowns from money the independent power producer expects to raise from recently announced asset sales.

Elsewhere in bank paper, cable company Adelphia Communications Corp.'s bank debt was active at levels that were stronger by about a quarter to a half a point across the whole complex as there seemed to be good buyer interest in the name, according to a trader.

"Just renewed interest in it, not news driven," the bank loan trader remarked about the increase in activity and levels.

The Century Old paper closed out the session at 98 5/8 bid, 99 1/8 offered, up a quarter-point, the Century New paper closed out the session at 98½ bid, 99 offered, up a quarter-point, and the Century revolver closed out the session at 97¾ bid, 98¼ offered, up a quarter to a half-point, the trader added.

Back on bond desks, airline paper was still spiraling with Northwest Airlines Corp. leading the pack. The carrier's 8 7/8% bonds due 2006 dropped to 68 bid, 70 offered on Wednesday from 73 bid, 75 offered a day before, while the 9 7/8% bonds due 2007 fell to 56 bid, 58 offered from 61 bid, 64 offered.

Auto related bonds were better still, as well, fueled by an extended rally in automakers General Motors Corp. and Ford Motor Co.

Salton bonds drop, spring back

Salton said Wednesday that instead of spending the $6.7 million on paying the interest due on the 10¾% notes, the small appliance manufacturer, fighting to get back in the black amid weak sales in its banner item, the George Foreman grill, would continue to work on refinancing the $125 million notes.

The Salton 10¾% bonds due Dec. 15, 2005, traded as low as 46 bid, 48 offered on Wednesday, a distressed trader said, compared with closing Tuesday at 52 bid, 54 offered, following a sinking spell in recent sessions on continued worries about the company's refinancing prospects. But, he said the bonds recovered off the low to end the day at 51 bid, 54 offered, both quoted flat. The 12¼% bonds due 2008 tracked lower, as well, slipping to 43 bid, 54 offered from 46 bid, 48 offered.

Salton said it will use the 30-day grace period to continue pursuing "strategic options" for refinancing the 10¾% notes, such as issuing more debt, selling assets, cutting expenses or buying back outstanding securities. As a result of skipping the payment, though, Standard & Poor's downgraded Salton to D, or default.

The company has been cutting back operations in an effort to trim costs and return to profitability. A year ago, Salton shed a quarter of its domestic work force - about 200 employees - as it reorganized its U.S. facilities.

Delphi, Tower, Exide rev up

Auto parts makers' bonds again traded higher Wednesday as GM and Ford continued to rise in the broader markets on enthusiasm gearing up over Ford's spinoff of its rental unit Hertz and market chatter that GM is closing in on a deal with its union workers about concessions in health care benefits to lower costs.

Moreover, some watching the auto sector expect the second half of 2005 to improve, one trader said. Thus, he added, buyers were seen for some of the distressed paper in play.

R.J. Tower Corp.'s bonds were better by a point or so, moving to 65 bid, 67 offered from 64 bid, 66 offered. Exide Corp.'s bonds charged ahead, too, with the paper adding around 2 points to 82 bid, 84 offered from 80 bid, 82 offered.

Delphi Corp. went to the party, as well, as it put together a refinancing package. The 6½% bonds due 2006 climbed to 98 bid, 99 offered from 97 bid, 98 offered while the 61/2s of 2009 gained 3 points to 88 bid, 90 offered and the 7 1/8% issue rose in tandem to 74 bid, 76 offered.

Delphi announced Wednesday a refinancing plan comprised of a new $1.8 billion secured revolving credit facility and $1 billion secured term loan, after which its $1.5 billion revolver will be terminated. Also, the company said that on Tuesday, it made a $475 million contribution to its U.S. pension plans, which fulfilled its 2005 minimum pension funding requirements.

Calpine paper rises

Calpine's bonds powered yet higher Wednesday, gaining steam from recent asset sales news and comments from the San Jose, Calif.-based company's top finance executive at a Deutsche Bank Securities conference in New York.

Bob Kelly, Calpine's chief financial officer, told attendants at the Deutsche electric power conference Wednesday that he feels "very good" about the company's chances of achieving a target of $3 billion in debt reductions in 2005, and he noted that amount does not include pay downs from asset sale proceeds. Kelly said Calpine is putting a very heavy emphasis on reducing operating costs from 2006 through 2008, as well.

Calpine's 8½% bonds of 2008 climbed to 71 bid, 72 offered from 68 bid, 70 offered. Meanwhile, Calpine's second-lien bank debt rallied 2 to 3 points.

The company's bank paper closed out the session at 84½ bid, 85½ offered but traded as high as 85¾ before settling down to those levels, a trader said. By comparison, the bank debt opened in the morning at 82½ bid, 83½ offered.

On Tuesday, Calpine announced that it has entered into exclusive negotiations for the sale of four gas-fired power plants, representing nearly 850 megawatts of capacity.

With Calpine powering along strongly in trading, attention was awarded to other names in the energy sector, such as Atlanta-based Mirant Corp., whose bank debt gained about a quarter to a half a point on the day, according to a trader.

Mirant's '03 and '04 bank debt closed out the session at 75¼ bid, 76 offered, the trader added.

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