Calpine bonds power up; Standard Pacific notes mixed, active; Federal-Mogul goes on a ride

By Stephanie N. Rotondo

Portland, Ore., Dec. 11 - Investors started out Tuesday optimistic, pushing not only the stock market higher, but the bond market as well.

The market was eagerly anticipating yet another interest rate cut to come out of the Federal Reserve's monthly meeting, giving some hope in the doom-and-gloom environment brought on by a credit crunch and mortgage meltdown.

And, in fact, the Fed did issue another cut, bringing the federal funds rate down to 4.25%, a 0.25% dip.

But that cut came in below what the market was hoping. One trader said that while the consensus was a quarter-point cut would come, some were "secretly hoping" that the Fed would take more drastic measures and cut the rate half a point.

Once the rate cut was announced, the entire market took a downturn, with the Dow Jones Industrial Average falling just under 300 points day over day - but about 350 points from open to close.

"It was an up and down day - in that order," a trader said.

"The market started out with a firm tone," said another trader. "[The Fed cut] was supposed to be good. But now, folks are thinking the Bush administration, they can't get anything right."

As is typical in the current wait-and-see state of things, volume was also reportedly light.

"I don't know who is doing all the trading," one trader mused. "Maybe it is one guy going from desk to desk."

Another trader opined that the recent gains in the bond market were simply due to short covering going into the Fed cut.

"I think there is a fair amount of people short out there," he said. As many names had modestly run up recently, some of the day's losses were likely due to profit taking.

Still, it was Calpine Corp. that bucked the trend, managing to hold on to its gains on the day. The power producer's bonds edged up about 2 points - adding on to its 2-point gain from the previous session - and traders are still not sure why.

Meanwhile, Standard Pacific Corp.'s bonds were "actively quoted," a trader said. The homebuilder's debt was, like Calpine, also up slightly, or unchanged depending on the issue. A trader said interest in the name was not news-specific, but more likely because it is in "better shape" than other names in the sector.

Federal-Mogul Corp. took a ride during the session, pushing up as much as 4 points on the day, before giving back most of that to end just 1 point higher. One trader said that kind of movement typified what was occurring in the overall market following the Fed rate cut.

Calpine better

San Jose, Calif.-based Calpine saw its bonds gain yet again this week. Traders still had no explanation for the move, though one suggested it could be due to the company monthly operating report.

"The numbers were better, but I don't know if it warrants the bonds going up 2 points," he said. Still, he called the name the "biggest mover" of the day.

The trader quoted the 8½% notes due 2011 at 113 bid, 114 offered, while another placed the bonds at 113 bid, 113.5 offered, up from 111.5 bid, 112 offered. Elsewhere, a trader said the 2011 piece ended up 1 point at 112.5 bid, 113.5 offered. The 8¾% notes due 2007 were seen up 2 points at 109, and its 8 5/8% notes due 2010 were up 4 points at 113 bid.

The company reported $75 million in October income from operations on $649 million in revenues. That equaled an almost $20 million gain in income from September, when the company posted $56 million in income on $619 million in revenues.

But the company also dropped to a $64 million net loss from September's $3.78 billion net income. The loss included more than $100 million in interest expense as well as $24 million in reorganization costs.

Calpine Canada reissue coming

But in other Calpine news, Lehman Brothers is marketing a $144.25 million reissue of Calpine Canada Energy Finance ULC 8½% senior notes due May 1, 2008 to qualified institutional investors, according to an informed source.

Standard Pacific active, Tousa loan better

In a world of struggling homebuilders, most market players do not consider Standard Pacific to be at - or anywhere near, for that matter - the bottom of the dog pile.

"Standard Pacific is in better shape than, say, Technical Olympic," a trader said.

That could be why investor interest seemed to be going strong in Tuesday trading. The trader said the Irvine, Calif.-based company's debt was "actively quoted" and ended the day slightly better to unchanged.

The trader called the 9¼% notes due 2012 up 1.5 points at 52.5 bid, 54.5 offered, while the 7% notes due 2015 were unchanged at 71 bid, 72 offered.

Another trader said the 7% notes were down 1 point at 70 bid, 71 offered. At another desk, a source saw the 7% notes sink to 68.5 bid, 70.5 offered from 71 bid, 73 offered before. But another source saw its 6½% notes due 2010 up 3 points at 73.

The trader also said that Technical Olympic USA Inc.'s debt was quiet, "believe it or not." He said the junior notes - the 7½% notes due 2011 and 2015 - were quoted at 5 bid, 6.5 offered, "but there's nothing going on." Another trader saw the 8¼% notes due 2011 fall 3 points to 41 bid, 43 offered.

However, the Hollywood, Fla.-based company's first-lien term loan traded a little stronger during market hours on the back of the company disclosing a new amendment proposition, a trader said.

Early Tuesday, the homebuilder said in an 8-K filed with the Securities and Exchange Commission that it is asking lenders to amend its first-lien term loan and revolving credit facility to extend through Feb. 1, 2008 the waiver of financial covenants.

The amendment, among other things, would also modify a provision regarding the obligation to pay amounts owed in connection with certain land banking arrangements.

In return for consents, lenders will be paid a 25 bps amendment fee.

Following this news, the first-lien term loan traded as high as 963/4, and it went out at 96¼ bid, 97¼ offered, up from 96 bid, 97 offered, the trader said.

The trader went on to explain that the amendment was not much of a surprise and that the positive momentum in the first-lien term loan was likely a result of investors responding to the proposed amendment fee that they would be paid.

A rollercoaster for Federal-Mogul

A trader said Federal-Mogul's bonds went on a "rollercoaster" during Tuesday trading, with the bonds moving higher into the Fed's meeting, then falling back down afterwards.

The trader said the automotive parts supplier's notes - the company's various issues trade in line with each other - were 3 to 4 points better in the morning, getting as high as 77. But in the afternoon, the bonds gave back some of their gains to end at 75.

Another trader said the bonds got as good as 76.5 bid, 77.5 offered, before closing at 74.5 bid, 75.5 offered.

"They were up 3, then down 2, ending up 1," he said.

Another trader said the bonds firmed a point to 74 bid, 76 offered, while another market source called the 7½% notes that were to have come due in 2004 up 3 points at 76 bid.

Elsewhere in the sector, Delphi Corp.'s bonds were "up early," according to one trader, who placed the bonds up 1 point in early trading. However, he said, the bonds ended the day virtually unchanged, its 6.55% notes that were to have matured last year and its 6½% notes due 2009 closing around 60.

Another trader agreed that the bonds were unchanged, with the company's 6.55% notes ending the day at 59 bid, 61 offered, although the bonds had been up a point earlier in the day.

Dura Automotive Systems Inc.'s 8 5/8% senior notes continue to lose steam. A trader quoted the bonds at 22.5 bid, 24 offered.

Primus unchanged

Rumor of an asset sale boosted Primus Telecommunications Group Inc.'s bonds on Monday, but the market did not follow through come Tuesday.

A trader deemed the bonds unchanged on the day, its 14¼% notes at 100.25 bid, 102.5 offered, its 8% notes due 2014 at 55.5 bid, 57 offered and its 12¾% notes due 2009 at 94 bid, 97 offered. He added that activity in the name consisted mainly off odd lot trades.

Another trader pegged the 14¼% notes at par bid, 101.5 offered.

According to the trader, a news story indicated that the telecommunications company was looking to unload its Australian assets. Monies from that would pay down its bank debt, with the hope of getting a larger bank deal. With a new bank deal, the company would then be free to continue to buy back its corporate debt.

But another trader, who said he did not see much activity in the company's debt, did not hold much stock in the story.

"I think it is BS," he said. "But somebody started trading off of it."

Consumer-driven names mixed

Consumer-related names did not follow any specific path Tuesday, with some ending lower and some trying to rally.

A trader said Blockbuster Inc.'s 9% notes due 2011 were "up slightly" at 84.5 bid, 85 offered. He also called Linens n'Things floating-rate notes "up a little" around 58.

But another trader saw names like Burlington Coat Factory Warehouse Corp. and Bon-Ton Stores Inc. slipping. Burlington's 11 1/8% notes due 2014 fell 2 points to around 85.5 from 87 bid, 87.5 offered, while Bon-Ton's 10¼% notes due 2014 dipped just a half point day over day to 80.5. The trader noted that the bonds had been as high as 82 pre-Fed cut.

At another desk, a trader said retailers' bonds behaved like the homebuilders - up in the morning but down in the afternoon - following news of the too-small Fed rate cut. He deemed Bon-Ton's 10¼% notes up half a point in the morning but down 1.5 points at market close to 79.5 bid, 80.5 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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