Calpine bank debt keeps gaining; Iridium bonds beaten down

By Paul Deckelman and Sara Rosenberg

New York, Oct. 25 - Calpine Corp.'s second-lien bank debt was seen up by another ½ point on Wednesday on increased market comfort with potential paydowns, market participants said.

In the junk bond market, bankrupt satellite telecommunications operator Iridium LLC's bonds - which had firmed solidly earlier in the month on the news that a court had scheduled a trial for bondholders' actions against former corporate parent Motorola Inc. - were seen giving those gains back.

In the automotive sphere, Delphi Corp.'s bonds - already enjoying momentum from market talk and news reports that buyout specialist Ripplewood Holdings LLC is preparing a bid for the bankrupt Troy, Mich.-based parts maker - got a further boost from indications that its ongoing labor cost talks with its unions and former parent company General Motors Corp. may be moving closer to producing an agreement. GM's own bonds were bouncing around as the giant carmaker reported a smaller loss for the latest quarter than a year ago.

Calpine loan powers up

Bankrupt San Jose, Calif.-based power producer Calpine's second-lien term loan was seen having closed out the day at 109½ bid, 110½ offered, up from Tuesday's levels of 109 bid, 110 offered, a trader said.

Some have said that the debt's recent run up has had to do with rumors that Calpine may go resume making current payments on its loan.

Others are saying that investors are just more comfortable with the credit and future payments as maturities near.

Transeastern term loan up

Also in the bank debt market, Florida homebuilder Transeastern's term loan was stronger during the session, with levels going out at 75 bid, 77 offered, up from 74 bid, 76 offered, according to a trader.

No specific news was seen pushing the Transeastern bank debt higher.

On Monday, Technical Olympic USA Inc., a participant in the Transeastern joint venture, announced that it has amended its $800 million revolving credit facility to make it a secured loan as opposed to unsecured.

The amendment also increased the current borrowing capacity and provided additional liquidity on a pro-forma basis.

Technical Olympic, a Hollywood, Fla.-based homebuilder, said that the amendment process was initiated as a result of a material adverse change in one of its guarantor subsidiaries which holds the investment in the Transeastern joint venture.

Iridium bonds head lower

In the market for distressed junk bonds, a trader saw Iridium's 14% notes that were to have come due last year falling 4 points on the session to 23.5 bid, 24.5 offered, and said the company's other bonds all traded in line with that as well.

A market source at another desk pegged the 14s, as well as the company's 10 7/8% notes due 2005, its 11¼% notes due 2005 and its 13% notes due 2005, all at 24.75, a nearly 3 point drop on the day.

The first trader suggested that the bonds may have been hit because the Motorola hearings "were not going well," although there was no information seen out on the progress of that litigation.

Earlier in the month, the Iridium bonds had been seen trading as high as 29.5 bid, 30.25 offered on apparent investor confidence that the court case, being heard before the U.S. Bankruptcy Court in New York, might produce a sizable settlement for Iridium's bondholders and other unsecured creditors.

They are suing Motorola for $4 billion, alleging breach of contract and other financial misdeeds connected with the 1999 collapse of the once high-flying satellite communications venture. The Schaumburg, Ill.-based electronics giant has denied any wrongdoing, pointing to its own substantial losses from the Iridium collapse, which totaled several billion dollars.

Iridium's bonds had already nearly doubled in price between the spring of 2005 and this past spring, and then continued to rise in the wake of the court scheduling a hearing on the lawsuit, which raised the possibility that Motorola might decide to settle the suit for less than the $4 billion that it would cost should it defend the lawsuit and lose in court.

Delphi keeps motoring up

Meanwhile, Delphi's bonds - already recently trading up on the reports that Ripplewood could bid for the company - "looked strong" again on Wednesday, a trader said, quoting the company's 6.55% notes that were to have come due earlier this year up another 1½ points on the session at 102.75 bid, 103.25 offered.

Another trader, who said the Delphi bonds were "trading high enough as it is," saw the '06s up ½ point to the 102.5 bid,103.5 offered level. Yet a third trader saw them essentially unchanged on the day at 102.625 103.125 offered.

Delphi was helped by indications that it may finally be nearing a deal with ex-parent GM and its unions on consensually bringing down its labor costs.

GM, which reported its results Wednesday, said it expected its total liability from Delphi in a worst-case scenario would be between $6 billion and $7.5 billion - narrowing from its prior estimates of anywhere from $5.5 billion to $12 billion. GM chief financial officer Fritz Henderson said on the company's conference call that the revised estimate, which was accompanied by a $500 million charge in the third quarter, reflected progress in the talks between GM, Delphi and its unions.

GM is helping its problem child - spun off in 1999 - to pay for buyouts and early retirement incentives as Delphi tries to trim its workforce to bring its costs more into line with its lower sales. GM is also taking part in the three-way talks with Delphi and the United Auto Workers union, aimed at reaching a consensus agreement on drastically lowering Delphi's bloated hourly labor costs. GM hopes to thus deter Delphi from taking any unilateral action to impose a new salary and benefits structure on its unionized workers, which might produce a potentially ruinous strike at Delphi - GM's single largest parts supplier. Such a strike would disrupt GM's production, just as the carmaker is trying to get back on track financially.

Delphi's hearing on its motion to reject the union contract and unilaterally modify retiree benefits has been further adjourned to allow for continued talks between the parties - yet another sign of ongoing progress - according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York (see related story elsewhere in this issue).

GM loses early gains

GM's bonds firmed initially Wednesday as the carmaker reported improved numbers, with a lot less red ink, for the third quarter, but came back down later in the day.

"GM traded up initially on the earnings," a trader said, seeing its 8 3/8% notes due 2033 firm as much as a point to 89.5 bid, before retreating to end down ½ point at 88 bid, 88.5 offered. "They traded up and then traded back down."

GM reported that in the third quarter, it lost $115 million (20 cents per share), much less than its loss of $1.7 billion, or $2.94 per share, a year earlier. GM said the reduced red ink reflected the benefits of its turnaround plan. The world's biggest automaker said that excluding special charges, it would have earned $529 million (93 cents per share) in the period, beating Wall Street's 49 cents per share projection.

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