aaiPharma, Calpine notes lower; Armstrong bonds, debt bounce

By Paul Deckelman and Sara Rosenberg

New York, April 18 - aaiPharma Inc. bonds were seen lower for a second straight session Monday as the previously reported delisting of the Wilmington, N.C.-based pharmaceutical company's shares from the Nasdaq for its failure to file its financial reports in a timely manner took effect.

Calpine Corp. bonds were also seen lower across the board amid allegations late last week by a bondholder that the company's efforts to sell a British-based power plant was improper and would leave Calpine unable to fulfill its obligations to holders of certain series of its bonds.

In bank loan dealings, Armstrong World Industries Inc.'s paper bounced higher by about a point, helped by a firming in asbestos company stock and renewed hopes of progress in Washington on crafting a claims payment mechanism. That also helped the bonds of the bankrupt Lancaster, Pa.-based floorcovering maker, which was driven into Chapter 11 earlier in the decade under a veritable flood of asbestos-related medical claim lawsuits.

A trader in distressed bonds saw aaiPharma's 11% notes due 2010 having dropped to 40 bid, 42 offered at the close of trading, well down from 43 bid, 45 offered at the opening.

At another shop, a source saw a less dramatic slide, with the bonds only down a point on the day at 42 bid.

On Friday, those bonds had bounced crazily around at lower levels, opening at around 46 bid, 48 offered, plunging to around 35 bid, 40 offered and then coming part of the way back up to close out Friday's gyrations at 43 bid, 45 offered.

On Friday, it was announced that the Nasdaq would delist the company's shares, forcing them into the over-the-counter market, after aaiPharma's failure to timely file its 10-K annual report for 2004 with the Securities and Exchange Commission.

The company has been struggling with all kinds of accounting problems ever since early last year - problems sparked by revelations of accounting glitches related to apparently inflated sales figures for two popular products.

On Friday, aaiPharma laid further bad news on the investment community, revealing that its financial statements for the period ended last Sept. 30 should no longer be relied upon, and that it would modify its preliminary, unaudited financial data for the fiscal year ended Dec. 31, and will restate the results for the quarter ended on Sept. 30 to increase by approximately $2.1 million its allowance for customer credits, which includes estimated product returns, and thus reduce net revenues.

As restated, the net loss for that third quarter is $36 million, or $1.26 per share, a bit wider than the originally reported net loss of $33.8 million, or $1.18 per share.

The de-listing and the new accounting issues, besides hammering the bonds further down, also caused its shares - now well within the realm of penny stocks - to lose nearly 40% of what little remaining value they had, in their last full day of Nasdaq trading.

Calpine down further

Elsewhere, Calpine "looked like it was down once again," with a trader quoting the San Jose, Calif.-based power generating company's 8½% notes due 2008 at 61 bid, 63 offered, down a point.

Another observer saw those bonds having fallen to 61.5 bid from prior levels at 63, while its 8½% notes due 2010 were a point lower at 72.

A trader - noting that Calpine had been beset with all kinds of rumors Friday of a missed interest payment - speculation which apparently proved not to be true - saw the company's 8½% notes due 2011 "prior to the news [Friday] trading at 65-66. Later in the day today, they were at 61-62. So they were off a couple - but that happened Friday and into today [Monday]. I didn't see them drop off much more today, when there was no news."

At another desk, Calpine's 8¾% notes due 2007 were quoted at 69 bid, well down from the levels they had previously held up till the end of last week, in the lower 70s.

The flap over the interest payment apparently began late last week, when Harbert Distressed Investment Master Fund, Ltd., a holder of Calpine Canada Energy Finance II ULC's 8 7/8% notes due 2011 and 8 3/8% notes due 2008, wrote to the company and to several of its subsidiaries to express its dismay with the Calpine's recently announced sale of its Saltend Power Generating Facility in the United Kingdom, and the issuance of $260 million of redeemable preferred shares by Calpine European Funding (Jersey) Ltd., a Calpine subsidiary, which it charged was "evidence of an effort to strip the value of the Saltend Facility out of Calpine Jersey and, indirectly, its parent, Calpine Canada Resources Ltd., to the prejudice of Finance II's bondholders."

Harbert asserted in its letter that the transaction constituted a breach in the company's obligations to its bondholders and further warned that: "If the value of the Saltend Facility is stripped away, [Calpine Canada] Resources will be unable to meet its obligations to [Calpine Canada Energy] Finance II under the term debenture issued Aug. 23, 2001 in the amount of 275,000,000 pounds and Finance II will be unable to meet its obligations under the bonds."

It demanded that Calpine give written assurances that the cash proceeds of any sale or financing of the Saltend Facility would continue to be held in cash at Calpine Canada Resources until the maturity of the bonds in order to support the company's obligations to its bondholders.

Calpine, in response, said that its plan to sell Saltend is in compliance with all of its debt covenants and legal obligations.

"Calpine and its subsidiaries are in full compliance with all covenants and other legal obligations relating to the Saltend Energy Centre," the company statement declared.

"In the event of a sale, all proceeds will be distributed as permitted by Calpine's existing bond indentures and in compliance with applicable laws."

Armstrong loans stronger

Calpine further said it is continuing to evaluate strategic alternatives for Saltend.

In bank loan dealings, Armstrong World Industries' paper moved up to 83 bid, 84 offered during Monday's session "driven by higher [prices] for equities in asbestos and talk of the Senate Judiciary Committee meeting again [Tuesday] at 4 p.m.," according to a trader.

Other asbestos related names - such as Owens Corning, W.R. Grace & Co. and USG Corp. - however were said to be relatively quiet during trading hours and basically quoted flat on the day. For example Owens went out at 113 5/8 bid, 114 3/8 offered, the trader added.

Back among the bonds, a trader saw Armstrong's bonds, such as its 9¾% notes due 2008, move up to 85.5 bid from prior levels at 83, while Owens Corning's 7½% notes due 2018 and other bonds held steady at 82 bid. Another trader saw the Armstrong bonds at 84 bid, 86 offered, up two points on the day, but saw nothing doing in the bonds of the Toledo, Ohio-based insulation maker Owens Corning, which, like Armstrong, had been driven to seek bankruptcy protection against the numerous asbestos claims lawsuits.

The Senate Judiciary Committee, headed by Sen. Arlen Specter, R.-Pa., is attempting to cobble together legislation that would set up a $140 billion claims fund and payout mechanism to replace the current court-based system. However, the going has been slower than Specter had anticipated, with objections from Republicans who feel that the draft doesn't protect asbestos companies against frivolous, or even fraudulent claims, while Democrats worry that the fund won't be large enough to ensure fair payouts for all who deserve them.

Auto sector unchanged

Elsewhere, traders saw little or no movement in the bonds of the batter auto parts sector, with the most volatile name, Collins & Aikman Products Co.., holding steady, its 10¾% senior notes due 2011 at 75 bid, 76 offered, and its 12 7/8% subordinated notes due 2012 unchanged at 38.

And Delta Air Lines Inc.'s bonds were seen down two points across the board, with its benchmark 7.70% notes due 2005 dipping to 74 bid, 76 offered.

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