Energy loans, bonds continue slide; no impact seen from asbestos talks failure

By Paul Deckelman and Sara Rosenberg

New York, May 7 - The energy sector continued to remain under pressure Friday - pressure which had started at the beginning of this week with Duke Energy's asset sale and which then progressed with Calpine Corp.'s earnings news; Mirant Corp. was being cited as a prime example of an energy name that traded lower.

Elsewhere, traders saw little impact from the news that congressional talks aimed at producing a workable asbestos-claim settlement framework ended Thursday without success and appear over for now.

Bankrupt Atlanta-based power generator Mirant's 2003 bank debt traded around and was quoted at 52.5 bid, 53.5 offered, a trader said, down about a point from Thursday's levels of 53.5 bid, 54.5 offered and down two points since Wednesday.

Also seen trading around on Friday was the bank debt paper of Mirant subsidiary Mirant Americas Generating, at 69 bid, 70 offered, the trader said.

"It doesn't trade as much as the '03 but it's been trading around this week," the trader added.

Mirant's junk bonds also continue to languish; while parent Mirant Corp.'s bonds, such as its 7.40% notes coming due later this year and 7.90% notes due 2009 seem to have steadied, a market source said, quoting both series of bonds at 58.5 bid, unchanged on the session, Mirant Americas Generating slipped, with both its 8.30% notes due 2011 and its 9 1/8% bonds due 2031 seen at 69.75 bid, off two points on the session.

Mirant's bonds and notes have been retreating amid a general feeling of heaviness in the utility and power producing sector.

Earlier in the week, energy names faded on asset sale news from Duke Energy, which disappointed some market players who were expecting the company to get a higher multiple. Duke entered into an agreement to sell its merchant generation assets in the southeast U.S. for $475 million to KGen Partners LLC. It said that total proceeds from the transaction, including the sales proceeds and about $500 million in tax benefits, will be around $1 billion.

As if that less-than-expected sale wasn't enough to depress the sector - continuing to struggle against weak wholesale electricity prices and the continued fallout as the industry restructures in the wake of the Enron Corp. debacle several years ago - then Calpine on Thursday reported first-quarter numbers that showed a loss per share of 17 cents, or $71.2 million, wider than the year-ago loss of per share of 14 cents, or $52 million.

Calpine still weak

Calpine bonds fell on the news on Thursday, and continued to struggle Friday. A market source saw the San Jose, Calif.-based power generating company's 9 7/8% notes due 2011 dipping to 87.75 bid from prior levels at 90. He pegged Calpine's 8¼% notes due 2005 as moving down to 88.75 bid from previous levels at 92, while the company's 7 7/8% notes due 2008 lost three points to end at 65.5 bid. The source also saw Calpine's 8¾% notes due 2013 two points lower at 85, while its 8½% notes due 2011 were likewise down a deuce at 65.5.

At another desk, a trader said that Calpine's bonds "kind of languished," not losing a lot - that, he said, had happened on Thursday - but not strengthening either. He saw the 8½% notes due 2008 down perhaps half a point at 65.25 bid, 66.25 offered.

Asbestos bonds little changed

Elsewhere, news about the failure of talks between Senate Democratic and Republican leaders aimed at hammering out some kind of asbestos claim settlement mechanism before Congress goes home for its summer vacation seemed to have little impact on the bonds of asbestos-challenged companies, a trader said, noting that anyone who was paying any attention to politics at all was instead watching hearings into the alleged abuse of Iraqi war prisoners, which featured Secretary of Defense Donald Rumsfeld on Friday.

"Nobody was even looking at the other thing," he said. "I saw no easing in any of the names, and no sellers coming in," even though the talks - mediated by a federal judge - failed to produce a break in the congressional stalemate that has so far stalled consideration of a plan. A GOP-backed measure that would have set up a $124 billion claims fund mechanism was recently stopped on a procedural vote in the Senate. Dozens of companies have gone bankrupt in recent years under a flood of claims of injury from asbestos, once widely used as a fireproofing material but now considered a carcinogen.

Among bankrupt companies having asbestos exposure, the trader saw Armstrong World Industries' bonds unchanged at 54 bid, 55 offered, and saw Owens Corning's notes likewise steady at 42 bid, 44 offered. He said he had seen "no difference" in USG Corp.'s bonds from their recent levels, while Federal-Mogul Corp.'s bonds were actually seen up two points at 28 - more due, he said, to the company's progress in its reorganization case than any political developments in Washington.

At another desk, however, while the Federal-Mogul bonds were higher at 28 - not two points, but only about half a point, an observer said - Owens-Corning was down a bit at 40 bid from prior levels at 41.25, while Armstrong was unchanged at 53.5 bid, He saw USG Corp.'s 8½% notes due 2005 at 103 bid - up markedly from recent levels just below par.

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