Integrated Electrical bonds nosedive; Calpine bank debt firms

By Paul Deckelman and Sara Rosenberg

New York, Feb. 8 - Integrated Electrical Services Inc.'s bonds were on the slide on Wednesday, a nosedive possibly linked to a possible change in the way the Houston-based electrical contractor plans to reorganize through the bankruptcy courts.

Tembec Industries Inc.'s bonds "popped," in the words of one trader, bouncing back from their recently oversold condition and perhaps encouraged by calls this week by leaders of the Canadian paper and forest products industry - including Tembec's own chief executive officer - for consolidation in the problem-plagued sector.

In the bank debt market, Calpine Corp.'s second-lien paper, which had firmed on Tuesday, was up by another ¼ to ½ a point on Wednesday as the general market had a better tone to it and good trading flow, participants said.

The San Jose, Calif.-based power company's second-lien bank debt closed out the session quoted at 90.75 bid, 91.75 offered, according to a trader. By way of comparison, on Tuesday the bank debt had ended the day quoted at 90.5 bid, 91.25 offered.

Calpine's 8¾% notes due 2007 were meantime seen a point better at 44 bid, although junk bond traders said that overall activity in their market continued to be relatively sedate, with many junk marketeers fleeing chilly New York and other Snow Belt business centers for sunny Florida and the always well-attended JP Morgan high yield conference this week.

One bonds which was seen moving actively was Integrated Electrical Services, whose 9 3/8% senior notes due 2009 swooned to 80 bid, 81 offered from prior levels around 90, a trader said, while a second saw a slightly more restrained fall to 81 bid, 83 offered from prior levels at 86 bid, 87 offered. He allowed that the bonds were "all over the map" during Wednesday's dealings, and suggested that the catalyst for the fall lay in an 8-K filing the company made with the Securities and Exchange Commission on Tuesday.

In that document, the company - which previously announced that it had reached a non-binding agreement in principle on a consensual restructuring with an ad hoc creditors committee, whose members hold a majority of the 9 3/8s - said that instead of pursuing a "pre-packaged" Chapter 11 filing to effect the reorganization it is now considering instead going with a "pre-arranged" filing.

In a "pre-packaged" Chapter 11 filing, the debtor company generally enters into a plan support agreement with creditor constituencies, such as its noteholders, and then solicits acceptances of a proposed plan of reorganization before actually beginning the bankruptcy proceedings. In a "pre-arranged" filing, on the other hand, the debtor company first reaches its agreement with its creditors, then files for Chapter 11, and only after that filing, and the court's approval of its disclosure statement by the court, does it solicit acceptances of the proposed plan of reorganization.

The trader suggested that in the latter case, a "pre-arranged" filing is potentially nowhere near as cut and dried as a "pre-pack" filing. "You've got an agreement [with the creditors], but there's a risk that it will be not as smooth" as a "pre-packaged" deal.

Integrated Electrical did say that it does not anticipate that the treatment of creditors and equity interests in a plan of reorganization would change from what the company had previously disclosed, should it go into a "pre-arranged" bankruptcy filing, rather than the originally expected "pre-packaged" bankruptcy filing.

Tembec rebound continues

Elsewhere, Tembec's bonds have been recovering from their badly oversold levels over the past two or three sessions, with a market source seeing the 8½% notes due 2011 firming 1½ points Wednesday to 50 cents on the dollar, while its other two issues - its 8 5/8% notes due 2009 and its 7¾% notes due 2012 - are likewise a bit better, hovering in the low 50s and high 40s, respectively. Last week, all of them were in the low-to-mid 40s, several points below present levels.

Tembec "was strong," a trader in distressed notes opined, seeing the 8 5/8s at 51 bid, 52 offered, the 81/2s at 49.5 bid, 50.5 offered and the 73/4s at 48 bid, 49 offered.

Yet another trader attributed the sudden strength in the issue to "market rumblings" - at this point strictly unofficial and very much unconfirmed - that the company might be angling to line up some secured second-lien financing. He also acknowledged that "they got destroyed last week, so they're bouncing back."

He saw the 8 5/8s up three points on the day at 52.5 bid, 53.5 offered, the 81/2s at 50 bid, 51 offered, up two points, and the 73/4s likewise a deuce better, at 48 bid, 49 offered.

Tembec has been firming even in the face of daunting industry conditions, including sagging demand for the newsprint that the Montreal-based forest products company produces, higher prices of energy and for wood, and the strong Canadian dollar - which impacts its exports, particularly those to the United States.

Tembec, like sector peers Abitibi-Consolidated Inc. and Domtar Inc., was forced to announce some facilities closures and headcount reductions last year in the face of sagging newsprint demand - the company was even at one point the subject of market speculation that it might be forced into bankruptcy. And its leadership believes that there will be more mill closures this year across the industry as companies rationalize their production capacities.

Tembec's recently installed chief executive officer, James Lopez, made that prediction at a Canadian forest products industry conference Tuesday in Montreal.

At the same time, though, Lopez, John Weaver and Russell Horner - his counterparts from Abitibi-Consolidated and Catalyst Paper Co. (the former Norske Canada) all sounded variations on the same theme - that Canada's fragmented forest products industry must consolidate from a bunch of smaller, less viable companies, into a smaller group of fewer, larger entities to ensure their viability in the global market. For instance, they said, larger companies have better, cheaper access to badly needed capital than smaller ones do.

The paper executives noted that even the biggest paper/forest products concern in Canada - Abitibi - ranks no better than 21st in the world in size when stacked up against its global rivals. Horner was quoted in news reports as having said that the three largest companies in Canada combined "would still be only half the size they need to be." He also called for an overhaul of what he termed antiquated Canadian federal and provincial antitrust laws that might preclude some of the current players from getting together to be better able to compete against larger rivals overseas.

InSight up again

InSight Health Services's bonds - which got clobbered last week on concerns that the Lake Forest, Calif.-based diagnostic services provider might be badly affected by expected coming cutbacks in Medicare reimbursements by the government - continued to show improvement Wednesday for a second straight session, with its 9 7/8% notes seen up ¾ point at 52.5 bid, 53.5 offered - well up from last week's levels in the mid 40s. Its floating rate notes were also better, up 1¼ point to 91.5 bid, 92.5 offered.

GM climbs, revolver down

In the troubled automotive sector, traders saw brisk activity in GM bonds, and in GMAC's, as the carmaker's notes and those of its financing arm seemed to rebound after having skidded lower Tuesday on Moody's Investors Service's bearish ruminations about GM's lack of success so far in its effort to sell a 51% stake in GMAC to some deep-pocketed investment-grade financial company. That effort is now going on four months, and so far the only buyers to emerge have been several investment syndicates led by private equity companies - and Moody's and the other ratings agencies have said that they probably will not up GMAC's Ba1 credit rating back to investment-grade in such a circumstance, which would seem to defeat the whole purpose of selling control of the lucrative unit to someone else.

With the market having had a day to consider whether the selling in GM was overdone, GM and GMAC "were lower in the morning," a trader said, "but now they're up a point to 1½ across the board."

A trader at another desk saw the benchmark GM 8 3/8% notes due 2033 a point better on the day at 72.75 bid, 73.5 offered, while GMAC's most widely traded issue, the 8% notes due 2031, were ending at 97 bid, 98 offered, which he saw as up 1¼ point on the day.

GM "went on a ride," said another trader, who saw the 8 3/8s move up to 72.5 bid, 73.5 offered at day's end from 71 bid, 72 offered earlier. "There was a lot of volume trading, a lot of activity in that name," he said. He also saw the GMAC 8s swinging from 96 bid, 96.5 offered at the opening to 97.5 at day's end, characterizing trading as having "a lot of volatility."

In other, less widely traded GMAC issues, he saw its 6¾% notes due 2014 move from 90 bid, 91 offered at the opening to 91.5 bid, 92 offered, while its 6 7/8% notes due 2012 were ¾ point better at 92.75.

However, another trader late in the session pegged the GM '33s down two points at 71.5 bid, 72.5 offered and said the GMAC '31s at 97 bid, 98 offered, which he saw as down a point. However, he noted that "they were even lower, at 95.5 bid, 96 offered, in the morning, before coming off the lows to end still down a point on the day.

Meanwhile, bank loan market denizens said that GM's tranche A revolver took a tumble Wednesday, as investors continue to be frustrated on the lack of information on the efforts to sell that controlling GMAC stake.

The giant automaker's revolver A closed out the day quoted lower and wide at 79 bid, 83 offered, down from previous levels of 83 bid, 85 offered, a trader said.

On Tuesday, GM outlined a program for cutting additional costs and increasing its competitiveness. The program includes reducing its stock dividend in half to $1 per share per year from $2, lowering the salaries of chairman and chief executive officer G. Richard "Rick" Wagoner and several other top executives, making cuts in the executive pension plan and making changes in the health plan for retired salaried workers.

However, the company had nothing to report on its efforts to sell a 51% stake in GMAC to an investment-grade financial buyer in hopes that such a sale would restore GMAC's credit rating to investment grade and greatly lower its borrowing costs.

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