TXU deal lifts Calpine bonds, equity; James River Coal better

By Stephanie N. Rotondo

Portland, Ore., Feb. 26 - Calpine Corp. got a boost in both its debt and equity Monday amid buzz that the San Jose, Calif.-based power company could be a prime takeover target.

The rumor mill has circulated this rumor for a while, but the buzz was refreshed on the announcement that TXU Corp. had received a $32 billion private equity bid.

In other power-related paper, James River Coal Co. saw modest gains in its bonds during trading, part of a comeback one trader deems "interesting."

"I thought they were going to file [for bankruptcy]," the trader said.

While bankruptcy is still a possibility, the company will also launch a $135 million credit facility this week.

Overall, the broader distressed market was "dead," according to one trader, with little activity or price movements. Most debt was seen relatively unchanged during the trading day from last week's closing numbers.

Calpine bonds, equity gain

Distressed independent power company Calpine saw its bonds "definitely better," a distressed trader said, as renewed takeover rumors circulated in light of the TXU deal.

Calpine's 8½% notes due 2011 closed at 101.5 bid, 102.5 offered. The trader added the notes saw bids as high as 102 during the trading day.

At another desk, a trader saw the 8½% notes initially rise as much as 4 points on the session, before finishing the day at a wide 101 bid, 105 offered, still up 3 points on the session.

Another trader saw the company's 8½% notes due 2008 "right around 106," while Calpine's 7¾% notes due 2015 were at 96.5 bid, 97.5 offered.

Calpine's 4.75% convertible due 2023 also jumped about 3 points outright on Monday. The convertible traded at 97 against a stock price of $1.57.

Dallas-based TXU, the state's largest electric utility, received a $32 billion bid from an investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group. The offer will also assume more than $12 billion in debt.

Since December, there have been heavily circulated rumors of private equity participation in Calpine's reorganization plan. Earlier this month, Calpine got court approval to seek rights offering sponsors for its reorganization plan, which is supposed to be presented to the court in June.

Calpine shares (Pink Sheets: CPNLQ) shot up by 30 cents on Monday, or 23.62%, to $1.57 with some 21.55 million shares traded versus the norm of 7.2 million shares.

The company is preparing to launch a new $5 billion debtor-in-possession bank facility on Wednesday, which Daniele Seitz, an analyst with Dahman Rose & Co., said will buy the company more time and that will mean more money in the end.

"They are buying time. In six months, there will be more money" paid for any of their plants on the auction block as well as their remaining fleet, Seitz said.

However, in a Monday court filing, debtor indenture trustee Manufacturers & Traders Trust Co. asked the court to adjourn the hearing - scheduled for Tuesday - for approval of the DIP financing.

According to court papers, the trustee is seeking the postponement due, it says, to Calpine's revelation for the first time that it is considering substantive consolidation.

At this point, Seitz said that as far as investing goes, the company's debt might be a better way to go.

"You are better off in the unsecured debt," Seitz said. I think it will be difficult for the equity investor."

James River Coal up

A trader is calling James River Coal the "orphans" of the distressed market, as he says the name rarely gets thrown around. Still, he sees the company as "interesting."

The trader said the company's 9 3/8% bonds due 2012 are moving, closing the day with an 89.5 bid, 90 offer.

"This is not a huge debt," he said, placing the value at $150 million.

What he sees as interesting is the comeback the bonds seem to have made. According to the trader, the value was placed below 85 in late January. Last week, the notes traded around 88.

"I don't know what story, what news is out to bounce these off their lows," he said.

The news could be old news - that is, a new $135 million senior secured credit facility, announced in early February.

In a filing with the Securities and Exchange Commission, the Richmond, Va.-based company released the pricing levels of the facility, expected to close Wednesday. The facility will include a $60 million synthetic letter-of-credit facility, a $40 million six-year term loan B and a $35 million five-year revolver.

Proceeds will be used to refinance existing secured debt and replace existing letters of credit, to provide for working capital and for other general purposes.

The trader also noted that there is "huge short covering" in the company's equity. At market close, the stock (Nasdaq: JRCC) was down 46 cents, or 5.85%, to $7.40.

Tembec steady

A trader saw Tembec Inc. - whose bonds had been in retreat for much of last week on the strong Canadian dollar, which hurts Canadian companies' export sales - "was quoted a bit - but it was pretty much in the same range" where it had been. He saw the Montreal-based forest products company's 7¾% notes due 2012 around 70 bid, 72 offered, while its 8½% notes due 2011 were at 73.5 bid, 74.5 offered, "about the range they had been in," with its 8 5/8% notes due 2009 hovering around the same 83 bid, 85 offered area at which they had finished on Friday.

However, at another desk, a market source quoted the 81/2s up a bit more than a point on the session, at 75.125.

MagnaChip on the radar

A trader saw MagnaChip Semiconductor Ltd.'s bonds quoted around, although he said the South Korean computer chip maker's paper "drifted up and then back down, but all within a point or 1½ - It was just that I saw a lot of quotes in them. At least they were on people's screens."

He saw MagnaChip's 8% notes due 2014 hanging in around a 72 bid, 74.5 offered context, while its 6 7/8% notes due 2011 were at 86.5 bid, 88 offered. "But that was just something that was quoted a few times," he added.

Airlines hovering

Among the airlines, a trader said that Delta Air Lines Inc. bonds were "sort of blah," at 60.5 bid, 61.5 offered for Delta's benchmark 8.30% notes due 2029.

"I didn't see much activity, or many quotes. It just seems like it was a touch lower, because of lack of interest," the trader said.

He also saw Northwest Airlines' bonds continuing to hover "right in the range that they've been in, with Northwest's 8 7/8% notes in the high 90s, around 96 bid, 98 offered, and the 9 7/8% notes around 99.5 bid, 100.5 offered.

Movie Gallery Inc.'s 11% notes due 2012 - which had firmed smartly last week in response to news about the Dothan, Ala.-based No. 2 U.S. video rental store chain operator's refinancing of its bank credit line - were "holding in the same range," a trader said, around 90 bid, 91 offered.

The trader saw Sea Containers Ltd.'s bonds "maybe a little easier - I didn't see much activity in them."

Those bonds had risen several points Friday, possibly in reaction to news that the bankrupt Bermuda-based maritime and railroad transport company was angling to still get a slice of the action even after the lucrative London-to-Scotland rail line, which it now runs on a caretaker basis, is given over to another franchised operator by the British government.

Broad market quiet

In other names the trader saw Dura Automotive Systems Inc.'s senior notes due 2012 at 31 bid, 32 offered, which the trader termed "no big deal," with no activity seen among such other automotive credits as Dana Corp. or Delphi Corp. He saw Fedders Corp.'s bonds "still in the low 60s," at 61 bid, 62 offered, while Le-Nature's Inc.'s 9% notes were showing "not much activity" in a 34 bid, 36.5 offered context.

Ronda Fears and Paul Deckelman contributed to this article.

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