Calpine firms on potential refinancing deal; Northwest Airlines, Delta mixed

By Stephanie N. Rotondo

Portland, Ore., Feb. 28 - A potential refinancing deal prompted Calpine Corp. to see its bonds a little bit firmer during trading on Wednesday.

Traders put the notes up as much 2.5 points, though trading was light. The company is seeking approval from a bankruptcy court to approve a $5 billion replacement debtor-in-possession credit facility, which would be used to pay down some of its debt and obtain a better interest rate.

"They had an 8-K out basically outlining what they've done so far and what they plan to do in terms of restructuring, and they officially filed for a $5 billion debt refinancing - they knew they were going to do that, but now that it's in the 8-K, it's official," a trader said.

Bankrupt airline paper stabilized a bit on Wednesday after Tuesday's stock market plunge caused a drop in Northwest Airlines Corp. and Delta Air Lines Inc. notes. Results were mixed in the companies, as traders could not decide which way the debt was moving.

Traders across the board said the day was slow, as investors were still weary from the previous day's volatile market activity.

"It didn't feel like much," one trader said. "People were waiting around to see what would happen."

"There was no panic today," a distressed trader said. "That was good. I think there was a lot of nervousness coming in."

Another trader was hoping the market would "shake up," but it seemed that was not the case.

"After yesterday's crash, nothing happened," he said. "There was no fallout for the bond market."

And, he said, no fallout was a bad thing.

"We need a shake up to get things trading," he said.

"It was not the sell-off everyone was expecting," he continued. "It was such a muted response."

The trader also noted that many investors, who said they had big Wednesday trading plans, saw those plans fall through once the morning markets showed the equity market bouncing back.

Calpine firms

The bonds of integrated power company Calpine gained during trading as the judge in the company's bankruptcy case put off ruling on a new financing deal.

One distressed trader placed the 8½% notes due 2011 up 1 to 1.5 points at 101.5 bid, 102 offered. Another trader said the bonds "had a good run." He pegged the senior unsecured notes up 2 to 2.5 points at 102.5. At yet another desk, a trader placed the notes at 102 bid, 103 offered.

The 8½% notes due 2008 were also seen finishing at 105 bid, 106 offered, up 2.5 points on the session.

A trader also said that, while the bonds did see some activity, they were "not as active as they should have been," and the closing price "should have been higher."

According to an 8-K filed with the Securities and Exchange Commission, the company is seeking approval from a bankruptcy judge on a proposed $5 billion replacement DIP credit facility. The bankruptcy court heard arguments from Calpine on Tuesday, as well as the deal's objectors, known as the CalGen lenders. However, according to a media report, the judge said he would rule later. If the judge approves the deal, the facility could close within the next 30 days.

Calpine held a bank meeting on Wednesday, launching its proposed $5 billion two-year DIP credit facility to investors.

The facility consists of a $4 billion term loan and a $1 billion revolver with a 50 basis point commitment fee.

Pricing on the DIP facility will be based on ratings. For ratings of Ba3/BB- with stable outlooks, pricing will be Libor plus 200 bps; for ratings of B1/B+ with stable outlooks, pricing will be Libor plus 225 bps; for ratings of B2/B with stable outlooks, pricing will be Libor plus 275 bps; and for ratings of B3/B- or lower, pricing will be Libor plus 325 bps.

Because ratings have yet to emerge on the deal, specific price talk was not announced at the meeting, sources said.

Credit Suisse, Goldman Sachs, JPMorgan and Deutsche Bank are the lead banks on the deal.

The facility has a $2 billion accordion feature that can be used to repay project-level debt.

In addition, the DIP facility can be converted into an exit financing facility if the company meets certain requirements. These requirements include having a minimum liquidity of $250 million, being in compliance with total debt/EBITDA, facility debt/EBITDA and EBITDA/interest covenants, getting credit facility and corporate credit ratings, and providing financial projections for five years.

Proceeds will be used to refinance the company's existing DIP facility and repay $2.516 billion of operating subsidiary Calpine Generating Co., LLC's secured pre-bankruptcy debt.

With the new DIP facility, lenders would get a beefed up collateral package through the addition of a direct lien on CalGen assets.

The commitment deadline is set for March 15, and funding and closing is targeted for March 29.

Calpine is a San Jose, Calif., power company.

Airlines mixed

It was mixed messages in the airline sector, as Northwest Airlines' bonds were deemed unchanged by a distressed trader, who placed the 10% notes due 2009 trading at 95, while another called the notes weaker at 93.5 bid, 94.5 offered.

The bankrupt airline received approval Tuesday to purchase Mesaba Aviation Inc., a regional feeder carrier whose only customer has been Northwest.

In a Wednesday court filing, Mesaba obtained court approval of the disclosure statement for its plan of reorganization, which allows the also-bankrupt company to emerge as a subsidiary of Northwest. The plan also allows a $145 million claim by Mesaba in Northwest's bankruptcy case.

Mesaba's plan confirmation hearing is scheduled for April 9.

In other bankrupt airline paper, Delta was seen a little better. A trader pegged the carrier's 8.3% notes due 2029 at 59.5 bid, 60 offered. However, another trader placed the notes "maybe a little lower" at 59 bid, 60 offered.

Movie Gallery up

Movie rental chain Movie Gallery Inc. saw its bonds a little bit better, with one trader quoting the 11% notes due 2012 in the 89 bid, 90 offered context. Another trader called the notes up about a point at 89.5 bid, 90.5 offered.

At another desk, a trader saw the company's bonds "moving around a little, though on no big volume." He saw those bonds trade down to 89, and then later come back up to 90 bid, 91 offered, which he called about unchanged on the session, amending his initial characterization of the activity level; there was, he said "some volume."

The Dothan, Ala.-based company fell slightly in Tuesday trading, with a last trade coming in at 88 - about 1 to 2 points lower than where the notes had traded most of the day. A market insider speculated the dip could have been due to a large piece sale. Rival Blockbuster Inc.'s posted fourth-quarter earnings could also have caused the drop.

But the last few weeks have seen Movie Gallery firmer, up from its lows in the 60s. One analyst, Evan Mann of Gimme Credit LLC, reports that the recently announced $900 million refinancing deal has boosted the outlook of the company. The refinancing will help with liquidity issues, as well as buy the company some time to sell underperforming stores and draw down inventory.

Mann noted in his report that, given the recent performance of the company's debt, "For investors sitting on big gains, we recommend selling half your position."

On the automotive front, a trader called Dana Corp.'s bonds "probably a little better, maybe a point," on what he called "decent volume."

The bankrupt Toledo, Ohio-based components maker's 6½% notes due 2009 finished at 75.25 bid, 76.5 offered, although he saw its longer paper, like the 7% notes due 2028 and 2029, at 73.5 bid, 74.5 offered, unchanged.

Remy International's bonds "bounced around, and went out pretty much where they ended yesterday," he said, with the Anderson, Ind.-based auto electrical systems maker's 8 5/8% notes due 2007 going home around 82 bid, 83 offered.

"It was a lot of blah," he said of the issue's gyrations.

Tembec down, James River up

On the downside, Tembec Inc.'s 8 5/8% notes due 2009 were seen down about a point, at 82 bid, 83 offered, off their day's high bid level around 83, while the Montreal-based forest products company's 8½% notes due 2011 eased to 72 bid, 73 offered.

"There was some volume, but not a lot," a trader said.

Meanwhile, James River Coal Co.'s 9 3/8% notes due 2012 ended in the high 80s, at 88 bid, 90 offered, a trader said "up off the lows of yesterday" around 86 at Tuesday's close. He said that volume was "very thin."

Technical Olympic down

Homebuilder Technical Olympic USA Inc. dipped about half a point, according to one trader, who placed the 9% notes due 2010 at 98.5 bid, 99.25 offered.

The trader said the company was expected to release its earnings report this week. However, the company had said it might delay releasing the numbers if the Hollywood, Fla.-based company was still in discussions with Deutsche Bank to extend its mortgage deadline.

Autosphere loan paper better

Generically speaking, the secondary market felt about an eighth of a point better on Wednesday, now that the stock market is back on a positive course, creating an environment in which General Motors Corp., Ford Motor Co. and Visteon Corp. could improve, according to a trader.

General Motors, a Detroit-based automaker, saw its term loan close the day at 101 bid, 101 3/8 offered, up from par ¾ bid, 101 offered, the trader said.

Ford, a Dearborn, Mich.-based automaker, saw its term loan close the day at 101 bid, 101 3/8 offered, up from par 7/8 bid, 101 1/8 offered, the trader continued.

And, Visteon, a Van Buren Township, Mich., automotive parts supplier, saw its term loan close the day at 101.25 bid, 101.5 offered, up on the bidside from 101 bid, 101.5 offered, the trader added.

Sara Rosenberg and Paul Deckelman contributed to this article.

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