Calpine Canadian bonds jump, other issues up; Movie Gallery continues firming

By Paul Deckelman and Sara Rosenberg

New York, May 19 - Calpine Corp.'s bonds were seen having firmed smartly on Friday, particularly those of its Calpine Canada Energy Finance II ULC unit, even as the bankrupt San Jose, Calif.-based power producer filed its long-delayed annual report, disclosing large operating losses for the fourth quarter of 2005 and the whole year.

With Calpine providing most of the juice in Friday's distressed-debt market, traders said not a whole lot else was going on. They did see bankrupt Toledo, Ohio-based insulation maker Owens Corning's bonds continuing to struggle after those notes had been chopped down from the lofty levels they'd held the week before. Profit-taking was blamed for the retreat, although the bonds are still well above par.

And Movie Gallery Inc.'s bonds continue to firm, riding the crest of momentum from earlier in the week when the bonds and the shares both rose following a Securities and Exchange Commission filing by one of the company's major shareholders.

Traders in the bank-loan market meantime reported very little trading in distressed paper there, noting that many market players cut out early.

That was also the case in the junk bond market, traders said, with some participants heading for the exits around midday to try and get a jump on the weekend - sort of a rehearsal for this coming Friday, when the market will see an abbreviated session ahead of next Monday's full market close for Memorial Day.

"It was pretty boring," a distressed-bond trader said, "like watching paint dry."

He did see some activity in Solutia Inc.'s junior bonds, with the bankrupt St. Louis-based chemical manufacturer's 6.72% and 7 3/8% notes up "a couple of points" at 93 bid, 95 offered, perhaps helped by the news that the company will raise prices on one of its key products. Solutia announced an across-the board price increase of 7 cents per pound across its Ascend and Vydyne polyamide 66 resins in the American markets, $150 per metric ton in the Asian markets, and €200 per metric ton in the European, Middle Eastern and African markets, on all orders shipped on or after June 1.

And the trader did see Dothan, Ala.-based home-video rental chain operator Movie Gallery's bonds "a little better," with the 11% notes due 2012 trading as high as 76 bid, before coming off that peak level to end at 73 bid, 74 offered, which he still called up about a point from Thursday's levels.

The company's bonds had moved sharply higher the previous week after it reported much better-than-expected quarterly numbers, but dropped back a little on profit-taking early in this past week amid a general junk market downturn.

However, Movie Gallery's shares and bonds both caught a bid around mid-week and then kept on rising after major shareholder Schultze Asset Management LLC disclosed in an SEC filing that it had upped its stake in the company to over 13% from 8.6% previously and reiterated its intentions - first announced in an SEC filing earlier in the month - to suggest that the company raise capital via a rights offering, or in some other manner, and use the proceeds to possibly pay down debt.

Calpine jumps

But the real activity was in Calpine. A trader said that the Calpine Canada bonds were "the big winner," quoting the company's 8½% notes due 2008 six points better on the day at 59.5 bid, 60.5 offered. He saw other Calpine issues also doing better, though not quite so dramatically, with the 8½% notes due 2011 up three points at 39 bid, 40 offered, and Calpine's 10½% notes due 2006 two points better at 58.5 bid, 59.5 offered.

"That was the bulk of the excitement in the market Friday," he opined.

Another trader also saw those Canadian bonds having jumped five points on the day, to 58.5 bid, 59.5 offered, while the 8½% 2011s were two points better at 39.5 bid, 40.5 offered, and the 8½% secured notes due 2010 were ½ point better at 92.5 bid, 93.5 offered.

Yet another trader saw the Calpine Canada bonds get as good as 60 bid, 61 offered, which he merely termed up "several points, and probably the most active bond."

Calpine - which sought Chapter 11 protection from its junk bond holders and other creditors last Dec. 20 - issued its long-delayed annual report - and much of the news was not good, with Calpine warning that total claims against the company will be "significantly greater" that the $17.4 billion of debt it listed. Observers suggested that sorting this all out will likely delay the company's reorganization and emergence from bankruptcy, for which no firm timetable has been set. The company reported operating losses for the fourth quarter of $9.26 billion and a yearly operating loss of $4.37 billion (see related story elsewhere in this issue).

However, Calpine also said it was working on a new business plan that could leave it cash-flow positive on an operating basis in 2007.

The first trader suggested that Calpine's bonds may have risen, despite the huge operating losses and the likely greater liabilities, on indications that revenues had grown.

And he said that the 8½% Calpine Canada bonds likely rose because "there's also some legal mumbo-jumbo going on that they [the bondholders] might be entitled to higher remuneration. That's the rumble out there."

Owens stuck at lows

Elsewhere, traders said that Owens Corning's bonds failed to gain any traction toward recovery, after having dropped sharply from their week-earlier levels well above 120 bid, on profit-taking.

Its 7½% notes due 2018 were quoted at 112 bid, 114 offered, and its 7% notes due 2009 "settled down on the week," a trader said, at 110 bid, 112 offered.

Those bonds had shot up to the 122-123 bid level the prior week, on the news that Owens Corning had reached an agreement with its creditors - including the holders of billions of dollars of asbestos-damage claims - on a reorganization plan that would set up a trust fund mechanism to pay those claims, pay off the other creditors, including the bondholders, as well, and set the stage for the company's emergence from Chapter 11 this year. It has been in Chapter 11 since 2000.

Bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries Inc. - also driven into Chapter 11 by asbestos claims around the same time - usually rises and falls in tandem with Owens Corning. Armstrong's bonds - which had traded as high as bid levels in the 90-91 area when Owens Corning went up - have also dropped back lately. A trader saw them Friday at 82 bid, 83 offered, down one point on the day.

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