Refco bank debt, bonds lower; Calpine slide on law-firm hiring continues

By Paul Deckelman and Sara Rosenberg

New York , Oct. 20 - Refco Inc.'s bank debt softened during Thursday's session and its bonds were seen down several points on the session as investors were described as a little jittery over a late-day hearing on loan recoveries.

Calpine Corp.'s bonds were also seen again heading lower amid continued controversy over the San Jose, Calif.-based power generating company's revelation that it had retained a law firm that specializes in bankruptcy restructuring - even as Calpine sought to clarify the situation and reassure the markets that it is not headed for bankruptcy.

A trader in distressed bonds saw the company's 8½% notes due 2008, which he had seen finishing at 61 bid, 63 offered on Tuesday and 58 bid, 60 offered on Wednesday, ending the day Thursday at 56 bid, 57 offered, down another two points on the day.

He saw Calpine's 7¾% notes due 2009 fall to 46 bid, 48 offered from 48 bid, 50 offered on Wednesday and well down from 51 bid, 53 offered on Tuesday.

However, at another desk, a trader saw the company's 8½% notes due 2006 unchanged at 56 bid, 57 offered, while its 8½% notes due 2011 were down just half a point at 48.5 bid, 49.5 offered.

Calpine's second-lien term loan was meantime off by about a point on the day, with a trader in that market also citing bankruptcy fears continuing to weigh on the market amid sector weakness as whole.

The bank debt was quoted at 76 bid, 78 offered, compared to levels of 77 bid, 79 offered at the close of business Wednesday, the trader said.

The word bankruptcy has been thrown around lately as news surfaced that the company is working with law firm Kirkland & Ellis LLP, causing Calpine's bonds and shares to start falling. The New York Post reported Tuesday that the company has hired restructuring experts Kirkland & Ellis to advise its board.

The securities have continued eroding despite the company's efforts to allay the market's bankruptcy fears. Calpine said that it had hired the law firm - which does more than just arrange bankruptcies - some time ago, to help it in its dealings with recalcitrant bondholders.

"Along with other law firms, [Kirkland & Ellis] continues to advise the company on a variety of issues, including ongoing matters and litigation with its secured note holders," Calpine said in a statement when the story first broke. It went on to say that it is using Kirkland & Ellis in the legal battle with noteholder trustees Bank of New York Co. Inc. and Wilmington Trust, rather than for preparations to head off to bankruptcy court.

Refco down on recovery worries

Elsewhere, Refco's bank debt was quoted at 89.75 bid, 91.125 offered, well down from Wednesday's levels of 91 bid, 92 offered, according to a buy-side source, who cited continued investor angst about the likely recovery valuations for the New York-based commodities trading company, although he also noted that the whole market in general felt somewhat weaker.

"There's going to be a hearing [Thursday] night at 5 p.m. ET going over whether adequate protection will be paid to loan lenders," the source said. "There's also a loan lender call [Friday] morning, probably to discuss this hearing."

Junk bond marketeers likewise remained "nervous and skeptical" about Refco, in the words of one trader, who saw its 9% notes due 2012 ending the day at 49 bid, 51 offered - down four or five points on the session, and down even more from the levels around the 61 area seen earlier in the week after Refco filed for bankruptcy.

After the initial filing, which occurred late Monday, Refco then filed new documents on Wednesday showing total assets of $16.5 billion through the end of August - a dramatic drop from the $48.8 billion as of Feb. 28 listed in its initial petition. Liabilities were also cut to $16.8 million in the new filing from $48.6 billion listed earlier in the week.

In conjunction with its Chapter 11 filing, Refco said it had struck a deal to sell its key futures brokerage business for about $768 million to an investor group that includes J.C. Flowers & Co. LLC, The Enstar Group, Inc., Silver Point Capital, MatlinPatterson Global Advisers LLC and Texas Pacific Group.

The formerly high-flying company - which staged a triumphant initial public offering only about two or three months ago - has seen its fortunes quickly head south. The filing came less than two weeks after the scandalous story broke of an approximately $430 million receivable owed to the company by Phillip R. Bennett, now ex-chief executive officer and chairman of the board of directors.

Bennett was subsequently charged with securities fraud by federal prosecutors.

Mirant lower

A bond trader said Mirant Corp.'s bonds and convertibles were down about a point on the session across the board, quoting the bankrupt Atlanta-based power generating company's 7.90% notes due 2009 at 118 bid, 120 offered, its 7.40% notes that were to have come due last year at 119 bid, 121 offered, its 2½% convertibles notes due 2021 at 101 bid, 103 offered, and its 5¾% converts due 2007 at 112 bid, 114 offered.

And he saw the bonds of asbestos-challenged companies headed lower, with Owens Corning's 7% notes due 2009 at 78 bid, 80 offered and its 7½% notes due 2018 at 79 bid, 81 offered, both down three points, and Armstrong World Industries' 9¾% notes five points off at 72 bid, 74 offered, and its 6-handle notes three points behind at 69 bid, 71 offered.

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