Calpine slips on convertible suit; Delphi gains; Refco ends steady; Level 3, Charter up on sale news

By Ronda Fears

Nashville, Oct. 25 - Calpine Corp. paper was off late in the day Tuesday when news hit the tape that a couple of hedge funds holding its 6% convertible bonds had filed suit for the second time since July, alleging a technical default because of the trading levels of those bonds. The independent power producer's paper overall did not see a lot of action Tuesday but were described as off a half-point or maybe a point on the news.

Distressed debt desks were quiet on whole Tuesday, traders said, without a lot of news to move players.

Refco, Inc. was, of course, still a hot topic now that an all-out bidding war has begun for the once high-flying commodities and futures brokerage. Generally, bondholders on Tuesday seemed more optimistic that a rising price tag for Refco's main operating unit, the futures business, will mean they will recoup more in the bankruptcy. The 9% notes due 2012 seesawed during the session from 66 to 72 and then closed out the day about where they ended Monday.

Bankrupt auto parts maker Delphi Corp. finally got its $2 billion debtor-in-possession financing launched, after trouble last week, and was said to be firming at 275 basis points over Libor - wide of talk. The distressed bonds were lifted about 2 points.

A couple of communications names familiar to distressed players got lifted Tuesday.

Internet provider Level 3 Communications, Inc. was higher by about 1 point as it announced the sale of a subsidiary for $81.5 million and said it was "evaluating" the proposed initial public offering of its wholly owned subsidiary, Technology Spectrum, Inc.

Too, St. Louis-based cable company Charter Communications Inc. said it may sell assets for $1.2 billion to deleverage its balance sheet, including certain groups of subscribers in West Virginia, Illinois, Indiana, Kentucky, Nevada, Utah and New Mexico. The Charter 8 5/8% bonds due 2009 were quoted late in the day at 82 bid, 83 offered - up 1.5 points on the day.

Delphi DIP launch gets off

Troy, Mich.-based Delphi's $2 billion DIP financing facility was firming at 275 basis points, the wide end of price talk of 250 to 275 basis points over Libor, a buyside source told Prospect News on Tuesday. The facility is comprised of a $1.75 billion revolver and a $250 million term loan.

On bond desks, traders said the Delphi issues were about 2 points better at 69 bid, 70 offered, up from 67 bid, 69 offered at the close Monday.

Proceeds will be used to fund post-bankruptcy operating expenses, including supplier obligations and employee wages, salaries and benefits. Delphi is a supplier of vehicle electronics, transportation components, integrated systems and modules, and other electronic technology to vehicle manufacturers.

Delphi moved the bank meeting to launch the 24-month DIP facility from an originally anticipated last Thursday launch, according to a market source. JPMorgan and Citigroup are the lead banks.

Last week the facility - both the revolver and term loan - were said to be expected to launch with opening price talk of 275 bps over Libor, a different market source said. Then, an 8-K filed with the Securities and Exchange Commission put the DIP tranches at Libor plus 250 bps.

Proceeds from the DIP, along with cash generated from daily operations and cash on hand, will be used to fund post-bankruptcy operating expenses, including supplier obligations, employee wages, salaries and benefits. The company has already received interim court approval to use up to $950 million of the $2 billion DIP commitment. Delphi expects to emerge bankruptcy in early to mid-2007.

Refco seesaws amid bid fracas

Refco bonds fluctuated in a range of about 6 points Tuesday without any fresh news to move the paper now that J.C. Flowers & Co. dropped out of the bidding for its futures business and as many as 50 bidders are readying offers that are due in around a week.

Once Flowers pulled out of the race Monday the 9% bonds lost about 2 points to the 69/70 area, one distressed debt trader said, and they closed there on Tuesday. He saw the paper as high as 72, and another distressed debt trader saw it as low as 66.

At least six groups have expressed interest in buying Refco's futures trading arm even though the initial bidder, a Flowers-led group of U.S. private equity firms, dropped out. But, according to The New York Times, there may be as many as 50 bidders for the unit.

Meanwhile, Refco creditors are contesting the breakup fee with Flowers, and at least one investment fund has sued Refco over the shuffling of its accounts. When Refco filed bankruptcy Oct. 17 it also froze accounts for 15 days because of an onslaught of requests to cash out.

According to media reports, two commodities funds backed by investor Jim Rogers sued Refco on Monday, demanding the immediate return of $362 million in assets they said were seized in a deceitful and fraudulent manner. They assert monies from their futures positions and margin accounts were deceitfully arranged to be diverted to Refco Capital Markets. The Rogers funds also claim that just days before Refco filed for bankruptcy, and without authorization, about $22 million in cash was taken from the funds' segregated customer accounts and deposited with the capital markets unit.

Calpine off on hedge fund suit

A late-day alert that Calpine was being sued again by Whitebox Advisors LLC and Harbert Management Corp., hedge funds that hold its 6% converts, was not overly exciting, traders said, but they pegged Calpine paper heading south on the litigation.

The Calpine 8½% notes due 2011 were quoted at 48 bid, 49 offered, off 1.5 points, and the 10½% notes due 2006 at 89 bid, 91 offered, off 1 point, by one trader. Another put the 81/2s at 49.5 bid.

Minneapolis-based Whitebox and New York-based Harbert, which together holds about $200 million of the $641 million 6% convertible issue, assert that the price level for the paper has caused a technical default. Bloomberg reported that an attorney for the hedge funds said the bond indenture allows holders of the bonds to convert when the bonds falls below a certain price threshold and recent levels have created a default.

A sellside convertible shop put the 6% issue at 59.5 at Tuesday's close, with Calpine shares at $2.37 - off 1 cent, or 0.42%.

Calpine paper had still been spiraling Monday from news last week that it was working with the Kirkland & Ellis law firm in a legal battle with noteholder trustees Bank of New York Co. Inc. and Wilmington Trust, rather than preparations to head off to bankruptcy court. But the market was skeptical of the San Jose, Calif.-based company's line to divert bankruptcy chatter.

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