Calpine bonds boosted; Autos mixed; ResCap up, Thornburg steady; WCI notes better

By Stephanie N. Rotondo

Portland, Ore., Aug. 21 - Activity in the junk bond sector was more or less the same Tuesday as it had been in the previous session, but investors seemed less weary as they looked to another potential rate cut from the Federal Reserve.

"The market is just creeping higher, but not much volume," a trader said.

Calpine Corp.'s bonds were one of the names "creeping higher," as it was reported a big hedge fund was looking to gain control of the power producer.

Calpine has been looking at alternative reorganization plans, such as the one led by the hedge fund, but it is expected to move forward with it own plan.

Meanwhile, Delphi Corp.'s bonds were seen active and higher by at least 4 points, a trader said. With nothing new out on the automotive parts supplier, the trader speculated that market players were starting to get in while the bonds were low.

Other names in the distressed automotive realm were not faring as well, however. Dura Automotive Systems Inc.'s bonds were called weaker, and one trader pondered that a fight between the senior and subordinated noteholders may be over before it even starts.

Liquidity concerns in the mortgage sector have been hurting many companies of late, and Residential Capital LLC - a unit of GMAC Finance - is one more casualty to add to the list. The company was recently downgraded, and many market participants see a default in the future.

Still, the mortgage lender's bonds moved up on the day by about 4 points.

Elsewhere in the sector, Thornburg Mortgage Corp.'s bonds were seen unchanged after an asset sale announced during the previous session sent the bonds rallying.

Traders gave mixed reports on WCI Communities Inc. One trader called the bonds better in active trading, just one day after news was released on the company and one day before earnings are expected. Another trader, however, said there was "not really notable activity" in the bonds, which he called unchanged to slightly lower.

Calpine bonds boosted

Calpine's bonds were seen up a little on the news that a group led by Harbinger Capital Partners has offered to purchase a controlling stake in the company post-bankruptcy.

A trader said the 8½% notes due 2011 were up about a point to 108 bid, 109 offered, while the 6% convertibles were "up a tad" at 93 bid, 94.5 offered.

A Dow Jones Newswire story cited an unnamed source that said the proposal from the Harbinger group would leave debt levels the same. The source also said Calpine had received other bids and was likely to reject the Harbinger proposal in favor of its own.

Previously, the power company said it would accept outside plans until Aug. 16 and then make a decision on whether to accept an alternate plan or move forward with its own. Under the current plan, Calpine secured $8 billion in loans with low interest rates. That deal, however, is contingent on the company emerging from Chapter 11 protection by Jan. 31.

Delphi higher

In an otherwise quiet day, Delphi's bonds were deemed active and higher by about 4 points across the board.

A trader said the 6½% notes due 2009 and the 6.55% notes due 2006 were trading around 98, while another trader saw the 6.55% notes at 95.5 bid, 96.5 offered shortly before the market closed.

There was no fresh news out to move the bonds, but the first trader attributed the gains to investors getting into the name at the current lower levels. Last week, the bonds slipped 15 to 20 points from their highs.

Another trader, however, saw the bonds up in apparent reaction to news that members of the IUE-CWA union, its second-largest, representing 2000 employees, had ratified a new four-year labor contract over the weekend, bringing the company one step closer to exiting bankruptcy.

The trader said the 6.55% notes jumped to 97.5 bid, 98.5 offered from 92 bid, 93 offered; the 6½% notes were seen at 98 bid, 99 offered, while the 6½% notes due 2013 were 96 bid, 98 offered, "all up 5 points," the trader said.

Dura bonds weaker

Elsewhere in the distressed automotive sector, Dura Automotive Systems' bonds were called weaker - a theme traders said was repeated in most names in that realm.

A trader said the 8 5/8% notes due 2012 were trading around 54. At another desk, a trader saw the senior paper at 52 bid, 54 offered, which he called off 1.5 points.

The second trader said the 9% subordinated notes due 2009 were also weaker at 2.25 bid, 2.75 offered, though most trades were small.

However, according to the trader, that issue could dip further, as holders of that issue are having trouble organizing in their fight against the senior bondholders.

Another trader, however, called the bonds unchanged, with the 9% subordinated notes at 2.5 bid, 3.5 offered and the 8 5/8% senior notes due 2012 at 53 bid, 55 offered.

The subordinated bondholders have been attempting to organize to fight a reorganization plan that leaves them out in the cold. But, from what the trader hears, that is proving difficult. He said that there is no large, aggressive holder who is willing to stand up to the senior holders.

"There is nobody to drive the bus," he said.

The trader also said that he heard there was a bondholder conference call Tuesday, though he was unable to confirm it.

Meanwhile, Federal-Mogul Corp.'s bonds continue to slip as a rumored "one big seller" is driving the value lower.

A trader said the bonds - which move in line with each other - were at 79 bid, 82 offered, down at least 2 points on the bid side.

"There's no reason to throw a high bid out there when nobody wants to buy it," he said.

Visteon Corp.'s 7% notes due 2014 moved up 1 point at 76 bid, 78 offered. The 8¼% notes due 2010 were unchanged at 87 bid, 89 offered.

Residential Capital up; Thornburg steady

Despite mortgage woes and liquidity concerns, Residential Capital's bonds moved up "a couple points across the board," a trader said.

The trader pegged the floating-rate notes due 2008 at 74 bid, 75 offered and the 6½% notes due 2013 at 71 bid, 73 offered. He called those issues "the most liquid."

Another trader said he was not actively involved in the name but noted that he saw the bonds trading in the 70s.

A trader said the 6 1/8% notes due 2008 were up 4 points at 76 bid, 78 offered, while another trader saw the bonds only up a point, but to 77 bid. He suggested the possibility the mortgage industry "might get help from the government." He also saw the 6 3/8% notes due 2010 seen up 3 points to 73.

Still, a Bloomberg report stated that most market players see the private mortgage lender as having a 40% chance of defaulting. Last week, Fitch Ratings downgraded the company to junk, citing "weak operating performance."

ResCap is just one more mortgage lender to flounder, as subprime mortgage concerns have dribbled into the entire market. Though it has said otherwise, Thornburg Mortgage is believed to also be facing a liquidity crunch. That company, however, was recently able to unload more than $20 billion in mortgage-backed securities, giving the company "money in the bank," as one trader put it.

A trader said Thornburg's 8% notes due 2013 were active during the session, though another trader said it was mostly odd lots. The second trader quoted the bonds at 78 bid, 79 offered, "not much changed from yesterday."

Elsewhere, a trader saw the bonds down 1.25 points at 79 though up from day's lows around 76. Another trader called the bonds unchanged.

WCI notes better

A trader said WCI Communities' bonds remained higher and active after Monday's news that the homebuilder had ended its board of directors battle with investor Carl Icahn.

The trader said the 4% notes due 2023 were up 4 points at 86.5 bid, 87.5 offered. He also saw the 8 1/8% notes due 2012 at 81.5 bid, 82.5 offered and the 7 7/8% notes due 2013 at 76 bid, 78 offered.

Another trader, however, said the bonds were not all that active and were trading "in line to a little weaker" from the previous day's high. He saw the 9 1/8% notes at 81.25 bid, 81.5 offered, down from Monday's high of 82.

"Maybe there is some profit taking," he said.

The homebuilder reached a deal with investor Icahn, in which two of his 10 nominees to the company's board would be appointed, along with Icahn himself.

Among other homebuilders, a trader saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 up 2 points at 82 bid, 83 offered. Another, however, saw the company's bonds unchanged from Monday.

Broad market firmer

Fedders Corp.'s 8 7/8% notes due 2014 were seen a little better at 22 bid. Another trader called the bonds unchanged at 19 bid, 21 offered.

Swift Transportation Co Inc.'s bonds were also deemed better, with the 12½% notes trading between 64 and 65.

Movie Gallery Inc.'s 11% notes due 2012 gained 3 points to 22 bid, 24 offered, despite no positive news out. The company did receive a warning from Nasdaq, stating it was not in compliance with listing requirements.

A trader saw Sea Containers Ltd. "up a couple of points," with its 7 7/8% notes due 2008 at 68 bid, 70 offered and its 10¾% notes due 2006 and 10½% notes due 2012 both up 2 points at 70 bid, 72 offered.

Ainswoth, Tembec gain

A trader saw a rise in Ainsworth Lumber Co. Ltd.'s bonds but did not know why, and there was no fresh news seen out on the Vancouver, B.C.-based forest products company. Its 6¾% notes due 2014 were seen up 2 points at 65 bid, 67 offered, while the 7¼% notes due 2012 were at 69 bid, 71 offered, up 1 point.

The trader saw Tembec Inc.'s 8 5/8% notes due 2009 up 1 point at 47 bid, 49 offered and its 8½% notes due 2011 and 7¾% notes due 2012 each up 2 points at 43 bid, 45 offered and 42 bid, 44 offered, respectively.

Earnings hurt White Birch loan

White Birch Paper Co.'s first-lien term loan B dropped considerably after the company released earnings results to lenders, according to traders.

The term loan B ended the day at 79 bid, 81 offered, down from previous levels that were in the high-80s context, traders said.

The financial results were distributed to investors on a private call, one trader remarked, but based on the loan's performance it's obvious that investors were not pleased.

White Birch is a Toronto-based newsprint company.

Sara Rosenberg and Paul Deckelman contributed to this article.

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