Calpine bank debt up after Delaware decision; Delphi bond rally fizzles

By Paul Deckelman and Sara Rosenberg

New York, Dec. 19 - Calpine Corp.'s second-lien bank debt headed up by about half a point on the weekend news that Delaware's top court upheld a lower court decision that gave the company until Jan. 22 to repay over $300 million of misused funds. The beleaguered San Jose, Calif.-based power generating company's unsecured bonds were mostly seen unchanged, since the ruling was not unexpected, although here and there an issue might be quoted lower.

In the automotive sphere, the news that Delphi Corp. had withdrawn its controversial wage-cut proposal that it had presented to its unions came too late in the session to be of much help to the bankrupt Troy, Mich.-based automotive electronics maker's bonds. A trader said an attempt to take those bonds higher failed to sustain itself and he quoted Delphi unchanged on the day.

Other automotive component suppliers' whose bonds trade deep in distressed territory were meantime lower on general weakness in the sector.

Calpine's second-lien bank debt closed out the session quoted at 77 bid, 79 offered, a trader said, a gain of about half a point on the day, as the weekend news out of Wilmington was digested by market denizens.

The state Supreme Court there ruled Saturday that the state Court of Chancery had been correct in ruling that Calpine had improperly spent $312 million of asset-sale proceeds and in requiring the company to pay that money back into an escrow account no later than Jan. 22.

Calpine had sought to overturn that lower court ruling, contending that the use of the money to buy natural gas for its plant was in fact a permitted use of the funds under its bond indentures.

While Calpine's appeal of the ruling was quashed by the higher court, the court kept the lower court's Jan 22 deadline in place, despite an appeal by Wilmington Trust Co., the trustee for the second-lien bondholders, which had had been trying to force Calpine into repaying the funds by Jan. 3. The bank had argued that if the funds weren't repaid immediately it could create a default on $3 billion in second-lien secured debt. The bondholders represented by Wilmington are fearful that Calpine might declare bankruptcy before the due date, thus complicating efforts to get the money back.

Bond investors seemed unfazed by the ruling, which had been widely expected, traders said, with the bad news pretty much priced into the bonds.

A trader in distressed bonds quoted the company's 8 5/8% notes due 2010 at 21 bid, seeing "no real changes" in its levels, while its 8½% notes due 2008 were also at the same 27 bid, 28 offered levels at which they had been trading.

"The bonds didn't change much," he said. "The equity changed," with the company's pink-sheet traded stock falling nearly seven cents (19.64%), to about 27 cents, "but it's worthless anyway."

Another trader saw the 8 5/8% 2010s about ¾ point lower at 21.25 bid, 22 offered, and saw its 8½% notes due 2011 down half a point to a point in a 21 bid, 22 offered context, but saw the 8½% '08 notes unchanged at 27 bid, 28 offered.

"There really wasn't much updating" in Calpine, yet another trader said, "not much quoting after noon." He theorized that the news had already been priced into the bonds current levels.

He quoted Calpine's short bonds, its 7 5/8% notes due 2006, pretty much unchanged at 35.5 bid, 36.5 offered, while its secured 8½% notes due 2010 were likewise steady at 75 bid, 76.5 offered. Calpine's 9 5/8% notes due 2014 were also little moved at 102.75 bid, 103.25 offered.

Mirant loans up

Bankrupt Atlanta-based power generating company Mirant Corp.'s '03 bank debt gained another quarter to half a point on Monday, with levels closing out the day at 117 bid, 118 offered, according to a trader.

That bank debt had started last week around 111 bid, 113 offered and has steadily been ticking up since then.

A bond trader saw Mirant's bonds meantime little changed, with its 7.90% notes due 2009 hanging in at 128 bid and its 7.40% notes that had been scheduled to come due last year at 127 bid.

Delphi mostly steady

In the automotive area, a trader saw Delphi Corp.'s bonds dip to 50 bid, 52 offered, from last week's levels around 52 bid, 54 offered.

Another trader, though, saw the company's bonds unchanged on the day after a rally attempt failed. He quoted Delphi's 6.55% notes due 2006 as having traded up to 51.5 bid, 52 offered, but then "they gave it all back" to end at 50.5 bid, 51.5 offered.

Delphi - which has been at odds for weeks with the United Auto Workers union over its demand for sweeping pay and benefit cuts for its more than 30,000 hourly workers - said on Monday that it committed to reaching an agreement with its unions and with former parent company General Motors Corp.

Delphi, facing the prospect of a union strike that could severely disrupt production, said that it would delay filing motions with the bankruptcy court to reject its current labor agreements until Feb. 17 at the earliest, to give the current process time to work. Delphi also shelved, at least for now, proposals it gave to the union last month that called for cuts of nearly two-thirds in wages and other benefit. The union called those proposed cuts unacceptable and threatened to strike.

Delphi, spun off from GM in 1999, inherited high labor costs from its former corporate parent. It has insisted that it needs to bring its labor cost down in line with what other automotive suppliers pay their workers, rather than what carmakers like GM pay.

GM, which depends heavily on Delphi, its largest single supplier, and whose production would be badly disrupted by a strike, has been in talks with Delphi and with the UAW aimed at preventing an impasse. Delphi is hoping for a bailout from GM similar to the one that GM rival Ford Motor Co. extended to Visteon Corp. - a former Ford unit and a Delphi competitor - earlier this year.

Auto sector weak

One of the traders meantime saw other auto supplier names lower, with Delco Remy International's 9 3/8% notes three points lower at 33 bid, 34 offered, while Dura Operating Corp.'s 9% notes due 2009 were down a point at 57.5 bid, 58.5 offered.

Apart from autos, a trader saw bankrupt Lancaster, Pa.-based floorcovering maker Armstrong World Industries' 9¾% notes a point better at 73 bid, 75 offered and its 6.35% bonds also up a point, at 72 bid, 74 offered. He saw no news, however, on the asbestos-challenged company - and saw no change in the bonds of another asbestos name, bankrupt Toledo, Ohio insulation maker Owens Corning, whose 7½% notes due 2018 were steady at 78 bid, 80 offered.

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