Calpine bank debt, bonds better on accelerated debt paydown; Visteon up on Ford deal

By Paul Deckelman and Sara Rosenberg

New York, May 25- Calpine Corp.'s second-lien bank debt and its bonds were stronger Wednesday, as the company revealed that it is accelerating its debt paydown strategy by targeting a reduction of more than $3 billion by the end of 2005, as opposed to the previous target, by the end of 2006.

Another big mover was Visteon Corp., after the automotive components manufacturer and former corporate parent Ford Motor Co. announced plans for a comprehensive restructuring of the Van Buren Township, Mich.-based company.

And asbestos-challenged companies' bonds continued to firm on expectations that the Senate Judiciary Committee might be able to finally finish its work and vote to send a bill establishing a payment mechanism for asbestos-related medical claims out to the Senate Floor by Thursday.

A bank debt trader saw Calpine's second-lien bank debt closing out the day at 73.5 bid, 75.5 offered, while another saw it at 74 bid, 74.5 offered, versus Tuesday's closing levels of 71.5 bid, 72.5 offered.

In addition, the Calpine Generating Co. LLC bank debt was up as well, with the first-lien paper quoted at par bid, 101 offered and bids seen as high as 100.5 during market hours, as compared to Tuesday when the offer side was right around par, according to a trader.

Furthermore, the second-lien paper was quoted at 94.75 bid, 95.5 offered Wednesday, compared to previous closing levels of 93 bid, 95 offered, another trader said.

In the junk bond market, a trader saw Calpine's 8½% notes due 2008 - which had finished Tuesday at 50.5 bid, 51.5 offered - as having opened at 52 bid, 53 offered, then having gotten as good as 55.5 bid, 56.5 offered, before falling back slightly from those highs to 54 bid, 55 offered. However, the bonds put on a burst of strength late in the day that took them back up to 56.5 bid, 58.5 offered.

The trader also saw the company's 8¼% notes slated to come due later this year at 96.5 bid, 97.5 offered, up two points on the session.

Another trader, who saw the 8½% 2008s finish at 55.5 bid, 56.5 offered, up four points on the day, the 81/4s up 1½ points at 96 bid, 97 offered, and its 8½% notes due 2011 four points up at 54.5 bid, 55.5 offered, observed that the bonds were "very strong, with the stock up 33% and a combination of people buying and short-covering."

Calpine's New York Stock Exchange-traded shares jumped 66 cents (33.33%) to $2.64, on volume of 67.4 million shares, some six times the usual turnover.

On Wednesday, the San Jose, Calif.-based energy company said that it is aiming to sell certain power and gas assets to reduce debt, lower annual interest cost and increase cash flow. In addition to previously announced potential asset sales, the company is targeting the sale of up to eight plants.

Furthermore, the company is looking to decrease operating and maintenance costs and lower fuel costs to improve the operating performance of power plants, significantly boosting operating cash flow and liquidity (see related story elsewhere in this issue).

"Calpine has set an aggressive and timely program to strengthen our financial and competitive position," said Peter Cartwright, the company's chairman, president and chief executive officer, in the company news release. "To operate effectively in a business environment that has changed dramatically over the last few years, we are reviewing all options to provide near-term results, while continuing to focus on long-term value. We have already recognized several attractive opportunities, which we expect will improve our operating cash flow.

"We are refocusing and streamlining our business to take advantage of market opportunities as industry and economic fundamentals continue to improve in several of our key power regions. By taking these decisive actions, we're positioning Calpine to best capture the strong cash and earnings potential of our efficient, gas-fired and renewable, geothermal power fleet. The program we're presenting today is in its early stages. It will serve as a blueprint for a new and more powerful Calpine," Cartwright continued.

"Our number one financial priority is de-levering the balance sheet to bring it in line with the current and future power markets and the related spark spread-generating capability of our modern fleet. This program is the first step toward achieving our long-term target of total debt equal to six times EBITDA, as adjusted. With the new financial focus and power initiative outlined today, we expect to significantly strengthen our balance sheet, lower our annual interest payments and improve our debt coverage ratios," added chief financial officer, Bob Kelly, in the release.

Visteon gains on Ford deal

While a bond trader dubbed Wednesday "Calpine day," due to its dominance of the day's dealings, he also saw considerable activity in Visteon following the announcement of its tentative agreement with Ford on restructuring the carmaker's former subsidiary to give it a stronger financial footing. The companies announced plans to transfer 24 Visteon plants in the U.S. and Mexico to Ford in an attempt to streamline the company.

He saw Visteon's 8¼% notes due 2010 pushing up to 89 bid, 90 offered from prior levels at 85 bid, 86 offered, while its 7.95% notes scheduled to come due on Aug. 1 - which last week traded around 95, and which finished Tuesday at 98.75 bid - improved to 99.75 bid, 100.5 offered.

Another trader saw the 81/4s at 90 bid, 91 offered, up five points on the session, and pegged its 7% notes due 2014 also up about four or five points, at 81.5 bid, 82.5 offered. The trader saw the 7.95s up "a point and change" to par bid, 100.5 offered.

Visteon's delayed-draw term loan was stronger by about a point on the day, a bank debt trader said.

He saw that paper closing out the session at 96 bid, 97 offered compared to prior levels of 95 bid, 96 offered.

Visteon's New York Stock Exchange-traded shares closed up 90 cents (14.35%) to $7.17, on volume of 18.9 million shares, more than seven times the daily average turnover.

In addition to the asset transfers, the Visteon plan also calls for the termination of the current leasing arrangements for approximately 17,400 Ford-UAW employees, relief of Visteon's remaining liability, including about $1.5 billion of previously deferred gains, related to Ford-UAW post-retirement health care and life insurance benefit obligations, and reimbursement by Ford of up to $550 million of further restructuring actions.

Ford will also provide Visteon with a $250 million secured loan of to refinance the 7.95% bonds due Aug. 1, which would be repaid at the closing of the transaction. Visteon will in turn issue to Ford warrants to purchase 25 million shares of its stock at an exercise price of $6.90 per share.

The transaction is expected to result in a net gain in the range of about $450 to $650 million, depending upon the actual amount of assets transferred.

The companies said the non-binding memorandum of understanding is subject to certain customary conditions, regulatory approvals and the ratification of the affected Ford-UAW members assigned to Visteon. Visteon and Ford expect to sign a definitive agreement on or before Aug. 1 and close the transaction by the end of the third quarter.

"This is a milestone agreement which, upon completion, will create a more competitive business structure for Visteon in the United States and remove a number of structural barriers to the company's long-term sustainable success," said Mike Johnston, chairman-elect and chief executive officer, in a company news release. "Visteon will have a more competitive North American structure, a more balanced global customer portfolio and a healthy regional mix. We will be able to accelerate our focus on products most valued by our customers and be well-positioned for growth."

Collins & Aikman steady

Among other automotive names Wednesday, Collins & Aikman Products Co.'s 10¾% senior notes due 2011 stayed "pretty much where they had been," a trader said, quoting them at 40.75 bid, 41.5 offered.

The bankrupt Troy, Mich.-based automotive interior components manufacturer's 12 7/8% subordinated notes due 2012 continued to languish around 5.75 bid, 6.75 offered.

Metaldyne Corp.'s 11% notes due 2012 went from a close Tuesday at 69 bid, 71 offered to offered at 69 Wednesday, with no bids seen.

Asbestos names better on law hopes

Elsewhere, bonds of companies with sizable asbestos liability problems continued to push higher Wednesday, now that it is back to business as usual in the Senate with a confrontation over the filibustering of judicial nominees averted. That is seen as a positive sign for hopes that the Senate Judiciary Committee might be able to finish working on amendments to its asbestos legislation and report the bill out to the floor, possibly as early as Thursday.

It can't come soon enough for companies such as Owens Corning and Armstrong World Industries Inc., both of which were driven into bankruptcy under a flood of damage claims from people who said they had suffered medical problems due to their past exposure to asbestos.

Lancaster, Pa.-based floorcovering maker Armstrong's notes were seen having moved up to 87.5 bid, 88 offered from previous levels at 84 bid, while Toledo, Ohio-based insulation manufacturer Owens Corning's notes, which had "a huge move [Tuesday]" moved up to 82.5 bid, 83.5 offered, from 81 bid Tuesday.

Airlines hold unchanged

Airline names were seen pretty much unchanged, despite world crude oil prices having spiked back upward to $50.98 per barrel of light, sweet crude for July delivery. That ended up $1.31 on the day on the New York Mercantile Exchange, after having gone as high as $51.60 earlier in the day.

Crude prices are seen as a good barometer for the future direction of jet fuel prices, and their fall into the mid-40s over the previous several sessions had been the driver for a surge in the airline bonds.

"There was nothing new," a trader said, after seeing Delta Air Lines Inc.'s flagship 7.70% notes due 2005 a point better at 79.5 bid, 80.5 offered.

"Oil went up - but no one went down."

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