Calpine bonds up as case proceeds; possible mortgage fix lifts lenders, builders; Star Tribune loan easier

By Paul Deckelman

New York, Nov. 30 - Calpine Corp.'s bonds were better Friday, traders said, continuing to ride the crest of momentum from favorable rulings this past week in the San Jose, Calif.-based power generator's bankruptcy case.

Troubled mortgage and homebuilding companies got a big boost from the possibility that the Federal Reserve may again cut interest rates in its final meeting of the year and speculation that the Bush administration is working on a plan with the mortgage industry to stop the swelling rate of residential foreclosures which is at the heart of the credit crunch currently affecting the financial markets. Gainers included Countrywide Financial Corp., Residential Capital LLC and the latter's parent, GMAC LLC, and troubled builders like Standard Pacific Corp.

In the bank debt market, Star Tribune Co.'s first-lien term loan B lost some ground during the trading session on the heels of a private lender call that was held to discuss October numbers, according to a trader.

Calpine climb continues

A trader saw Calpine's 8½% notes due 2008 push up to 103 bid, 107 offered from prior levels at 101.5 bid, 103.5 offered. He saw similar movement in its 7¾% notes due 2009.

The trader also saw Calpine's convertible notes better, its 4¾% notes due 2023 ahead by 2 points at 94 bid, 96 offered.

Another trader saw the company's 8½% notes due 2011 up 3 points at 108 bid, 109 offered.

A market source at another desk pegged its 8¾% notes due 2007 up 5 points at 107 bid.

The traders saw no fresh news out about the company, feeling instead that it was helped by the overall stronger tone in the junk market as well as continuing to ride a wave of good news during the week, as the judge in Calpine's Chapter 11 reorganization case issued rulings that bring its eventual emergence from bankruptcy that much closer.

A key ruling came Tuesday, when judge Burton Lifland of the U.S. Bankruptcy Court for the Southern District of New York okayed settlements with holders of Calpine's first-lien debt and first-priority CalGen debt. They had complained that they lost future interest payments when Calpine decided to pay off hundreds of millions of dollars in bonds before the debt was due.

Lifland said the settlements defuse "the risk of litigation" that could derail Calpine's plan to emerge from Chapter 11 early in 2008.

Lifland also okayed Calpine's request to be allowed to walk away from $80 million in payments it made to businesses before it filed for bankruptcy, feeling trying to pursue the claims would be a waste of effort. All told Calpine plans to abandon as much as $2 billion in assorted claims it does not wish to pursue.

And another federal judge, John Koetl, recently threw out claims from holders of Calpine convertible notes, who sought damages for the loss of conversion rights, ruling that the bankruptcy filing in late 2005 was the equivalent of maturity of the notes and conversion wasn't permitted after maturity.

He also upheld an earlier ruling by Lifland that the convert holders were appealing, which stated that the conversion claim was filed after the last day for filing claims and should be quashed on that basis alone.

Lifland is scheduled to hold hearings in mid-December on whether he should approve the company's Chapter 11 plan. On Friday, another group of creditors filed motions, asking that the plan not be approved.

Countrywide up on mortgage plan buzz

Another sizable gainer was Countrywide Financial, whose 6¼% notes due 2016 were seen up as much as 6½ points at one stage in the day, a market source said, at 66.5 bid, well up from prior levels around 60, before coming off that peak to end around 64.

Another trader said that the news that a mortgage relief plan for beleaguered borrowers was in the works helped Countrywide's bonds "quite a lot," quoting the 61/4s at 62.5 bid, 64.5 offered, up from "a 59ish" level on Thursday.

At another desk, a trader called the bonds 3 point gainers at 62 bid, 63 offered, while its 4¼% notes slated to come due in about two weeks were ½ point better at 98.

Its 4% notes due 2011 were also ½ point better at 74, a source said, while he had the 61/4s up nearly 4 points at 63.75.

The Calabasas, Calif.-based mortgage giant's New York Stock Exchange-traded shares meanwhile zoomed as much as 29% intraday before coming off that peak and settling in up $1.52, or 16.34%, at $10.82. Volume was 98 million shares, not quite triple the norm.

The bonds and shares moved up solidly on the news that government banking regulators and executives of companies such as Countrywide, Citigroup and Wells Fargo & Co. had held talks on crafting a plan to stop the cascade of mortgage foreclosures that have hurt the financial companies - which depend on selling pools of un-defaulted mortgages to investors in order to keep funding their lending operations - and, especially, the homebuilders, whose fortunes depend on the availability of credit to homebuyers. News reports said that Treasury chief Paulson might announce the details of such a plan some time in the coming week, perhaps even as soon as Monday, when he is scheduled to deliver an address to a national housing conference.

The major thrust of the initiative would be to get the lenders to extend for a number of years the unusually low introductory rates that were offered over the past few years on subprime mortgages made to borrowers with weak credit histories. Many of those borrowers have found their low "teaser" rates have now reset to much higher levels, upping their monthly payments and in some cases, leading to default and foreclosure.

Even more of the loans are scheduled to re-set at the higher rates in the coming year - meaning time is of the essence to prevent a further, larger wave of defaults than has already been seen. The idea is to freeze the interest rates the borrowers are paying on their mortgages, giving them time to refinance and shift into fixed-rate loans.

ResCap, GMAC also lifted

Besides Countrywide, traders said other mortgage-linked names like Residential Capital, a Countrywide rival, also benefited from the hopeful speculation. A trader saw its 6 1/8% notes due 2008 up 3 points on the day at 77 bid, 79 offered, while another trader saw its 7½% notes due 2013 up 1 point at 64 bid, 66 offered.

A market source at another desk put ResCap's 8 3/8% notes due 2015 up 1½ points on the day at 65 bid.

Good news for ResCap, in turn, was seen as good news for the Minneapolis-based lender's corporate parent, whose recent quarterly results showed a big loss related to red ink at its problem mortgage unit.

GMAC's 8% notes due 2031 were seen by one source to be up 4 points on the day at around the 88 level, although another trader pegged the bonds 2 points higher at 85 bid, 87 offered. Its 6% notes due 2011 were seen having gained 3½ points to 86.5. GMAC paper, as usual, was among the most busily traded names of the day, a market source indicated.

Builders get a boost

A trader said that the hope that the mortgage crunch might ease helped the battered homebuillders, whose bonds were up "across the board."

He saw "a big mover" in Irvine, Calif.-based builder Standard Pacific, quoting its 6 7/8% notes due 2011 up 3 points at 67 bid, 68 offered. Another trader called Standard Pacific's 7% notes due 2014 half a point higher at 64.5 bid, 66.5 offered.

The first trader also saw William Lyon Homes' 7½% notes due 2014 as 3 point winners at 58 bid, 60 offered, although at another desk, the company's 10¾% notes due 2013 were marked down 1 point at 60.

He also saw Tousa Inc.'s senior bonds improve 1½ points to 40 bid, 42 offered.

Among other sector names, Beazer Homes USA Inc.'s 8 3/8% notes due 2012 were up 2½ points at 76.5 and WCI Communities Inc.'s 9 1/8% notes due 2012 were up 2 points at 58.

However, another trader said that the builders' stocks "had a decent day, but the bonds didn't go anywhere."

He saw WCI "better offered, but the bid side was pretty much unchanged" from Thursday. He saw the company's 9 1/8% notes at 55.5 bid, 57 offered. "It seemed to be better sellers out there. I didn't see any relief rally in the bonds."

Star Tribune loan easier

Star Tribune Co.'s first-lien term loan B lost some ground during the trading session on the heels of a private lender call that was held to discuss October numbers, according to a trader.

The first-lien term loan B ended the day at 79 bid, 81 offered, down from 80 bid, 82 offered, the trader said.

"The numbers themselves were no surprise. They were in line with how the industry is trending and if anything they're starting to stabilize a bit. Still declining year over year but not at as steep a rate?" the trader said.

"People were somewhat happy to see the stabilization but to see it stabilizing and still declining is still not great. No one's hearing anything to make them feel more positive than last month's call," the trader added.

Star Tribune is a Minneapolis-based information provider and includes the Star Tribune newspaper, StarTribune.com and other print and digital products and services.

Sara Rosenberg contributed to this report.

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