Calpine debt climbs on narrower loss, Aquila payment news

By Paul Deckelman and Sara Rosenberg

New York, May 13 - Calpine Corp.'s bank debt moved up on Tuesday after the San Jose, Calif.-based independent power producer announced that its first-quarter loss had narrowed from a year ago, and also said that it had received $105.5 million from Aquila Corp., following completion of a contract monetization and a restructuring of Calpine's joint-venture interest in Acadia Power Partners, LLC., which had bought natural gas from Aquila and in turn provided it with saleable electricity.

Calpine's bank debt firmed to 97.25 bid/ 97.75 offered, and traded at 97.25 after the company released its earnings numbers and announced the Aquila transaction, according to a trader. On Monday, the paper was quoted at 96.5 bid/ 97 offered.

However, Calpine's junk bond debt was seen little moved on the session, with its 8½% notes due 2008 remaining in the 72-73 bid area, its 8 5/8% notes due 2010 steady at 70.5 bid/71.5 offered, and its 10½% notes due 2006 pegged at 84 bid/86 offered, "all flat, with no change," a trader said. "Calpine was quiet."

The company announced that for the quarter ended March 31, it had a $45.3 million net loss (12 cents per share), versus the year-earlier deficit of $75.7 million (25 cents per share).

The company notched approximately $2.2 billion of revenue for the first quarter 2003, compared with approximately $1.3 billion for the first quarter of 2002. Adjusted EBITDA jumped 160% to 238.9 million in the latest quarter from $92 million a year earlier.

As of March 31, liquidity totaled approximately $615 million, including cash and cash equivalents on hand of $378 million, the current portion of restricted cash of $146 million and approximately $90 million of borrowing capacity under various credit facilities.

Calpine shares rose seven cents (1.38%) to $5.16 in New York Stock Exchange trading on the results - even though analysts had been expecting about a three-cent-per-share profit rather than a loss.

The shares, as well as the debt, may have been given an additional boost after the company announced the payment from Aquila, which paid the $105.5 million to be released from all of its obligations under the 20-year tolling agreement with Acadia Power Partners, a Louisiana power plant joint venture between Calpine and Cleco Corp.

Under terms of that now-terminated contract, Aquila supplied natural gas to the Acadia plant and paid fixed capacity payments for the right to sell 580 megawatts of power generated by the plant on the wholesale market.

While the Kansas City, Mo.-based electricity and natural gas company had to make a large payment in the short run to get out from under the contract, which had been signed in 2000, in the long run, the move should prove beneficial.

Partly offsetting the nearly $106 million payment to Calpine, the transaction returned to Aquila $45 million in posted collateral and eliminates $843 million in payments which would have been due to Acadia over the remainder of the 20-year term of the agreement.

With that obligation now obliterated, Aquila's 2007 and 2012 bonds were "a little stronger," a distressed-debt trader said, "up a couple-three points." Aquila's pro rata bank debt, spurred on by the announcement, was "up slightly with a little bit of activity" on Tuesday, according to a trader, who quoted the paper at 100.25 bid/100.75 offered.

"All of these names are doing well on positive earnings and access to capital markets," the bank-debt trader said regarding the energy and utility sector.

For example, Allegheny Energy Inc.'s bank debt was quoted at 97 bid/ 98 offered, up from a selling price of 97 on Monday, according to the trader.

Dynegy Inc.'s pro rata bank debt was quoted at 96.5 bid/ 97.5 offered, in line with previous levels.

Reliant Resources Inc., a Houston electricity and energy company, also traded slightly higher on Tuesday; however the improvement was attributed to a reason other than overall sector strengthening. According to a trader, the paper - which traded at 86.5 - was up on Monday's announcement of a settlement with the Securities and Exchange Commission, which brings to a close the investigation into allegations of violations of federal securities laws.

Under the settlement, Reliant Resources consented, without admitting or denying the SEC's findings, to the entry of an administrative cease-and-desist order obligating the company to avoid future violations of federal securities laws. The SEC will assess no monetary penalties or fines against the company.

Elsewhere among the distressed power generators and utility operators, a trader said that Northwestern Corp.'s bonds were two to three points stronger, quoting its 8¾% notes due 2012 at 80 bid and its 7 7/8% notes due 2007 at 81.5 bid/82 offered.

The Williams Cos.' 7 3/8% bonds due 2021 were at 89 bid and its 7% bonds due 2031 were at 83.5 bid/85.5 offered, both unchanged on the session;

Williams reported first-quarter earnings of $22 million (four cents per share), excluding charges, about two cents per share better than analysts had been looking for.

Pacific Gas & Electric reported first-quarter earnings of $172 million (45 cents a share) - down from last year's $183 million (50 cent per share), but better than the 43 cents per share analysts had projected.

The San Francisco based utility noted that its troubled National Energy Group wholesale unit is continuing to talk with lenders and bondholders about restructuring options, but with no agreement reached yet. Company CEO Robert Glynn said that the company believes that any restructuring "would be implemented with a Chapter 11 proceeding," with a filing possible even before the current quarter ends in June. The defaulted NEG 10 3/8% notes due 2011 have recently traded around 51 bid, a market source reported.

Lastly, CMS Energy Corp.'s bank debt is strong with the term loan A quoted at 99.75 bid/ 100.75 offered, the term loan B quoted at par bid/ 101 offered and the term loan C quoted at 100.5 bid/ 101.5 offered, sideways from previous levels.

Dearborn, Mich.-based power operator CMS said that it plans to sell its field services unit to Cantera Resources Inc. for $115.5 million in cash plus a $50 million note, as part of a wider plan to sell assets and pay down debt.

But a bond trader, while noting the planned asset sale, quoted the company's 7 5/8% and 6¾% notes due 2004 at 99.5 bid/102 bid, while its 9 7/8% notes were at 103 bid/105 offered and its 8.90% notes were at 97 bid/99 offered, all essentially unchanged. "I didn't see any run-up in that credit at all."

Outside of the power group, Qwest Communications International Inc. bonds were "just a smidgen higher," a distressed-debt trader said, little moved by the news, which moved around the market on Monday, that the Denver-based telecommunications operator may have bought back as much as $200 million of its bonds recently.

"People knew this was coming, and anticipated it," he said. Qwest's 6 5/8% bonds due 2021 held steady at 77.5 bid/its 10 7/8% notes due 2007 were at 85 bid/ and its benchmark 7¼% notes due 2011 were at 83.5.

On Monday, Bloomberg News, attributing its information to unspecified "people familiar with the matter," said that Qwest had bought back up to $200 million of bonds, "helping spur a surge in the price of the debt."

Bloomberg noted that since Qwest had been restricted by its bankers from using cash for the bond buyback, the company had issued shares to buy the bonds back from certain investors, including hedge funds.

It quoted the Qwest 7 ¼% notes as having firmed to around 83 from the 68 bid level the bonds held back in February, when Bloomberg said Qwest had started buying the bonds.

A Qwest spokesman on Tuesday refused to specifically confirm - or deny - the Bloomberg account; instead, he said only that the company, which has a total debt load estimated at $22.6 billion, "continues to look at ways to de-lever our balance sheet and to reduce debt."

The spokesman noted when in Qwest's fourth-quarter 2002 earnings report, which was released in February, the company had said that it would "continue to monitor market conditions for opportunities to reduce debt through strategic financing transactions, which may include debt-for-debt exchanges, debt-for-equity exchanges, and other available financing alternatives."

Elsewhere, "things were quiet, by and large, in the distressed area," a trader said, "beyond a lot of new issues in high yield land that's coming out of the distressed stuff, that's been reconstituted and re-shaped."

For instance, Laidlaw Inc., the bankrupt Canadian transportation operator, will be bringing a $300 million offering of new senior secured notes as part of its refinancing, with the proceeds of the bond offering and of a new credit facility to be used to pay distributions to the holders of its old junk bonds and other creditors when it emerges from Chapter 11, which is expected to happen later in the month; holders of existing bonds are expected to receive cash and new equity, with anticipated returns ranging from 46.1 cents to 70.4 cents on the dollar.

The trader quoted Laidlaw's existing 7.65% notes, for instance, "in the high 50s."

Airline debt was seen as quiet on Tuesday, although a trader noted that the carriers had enjoyed "a hell of a run" from previous low levels.

The bonds of bankrupt auto parts maker Federal-Mogul Corp., gained two points, its 7½% notes due 2009 rising to 17 bid.

WCI Steel reported a $13.4 million second quarter loss and said it has started talks on restructuring its $300 million senior secured notes; but its 10% notes due 2004 were unchanged at 26.5 bid.

Foamex International Inc. posted a first-quarter net loss of $8.1 million (33 cents per share) - well down from the $67.5 million ($2.56 per share) it lost a year ago. The company also said that it is in compliance with its bank covenants. Foamex's 10¾% senior notes due 2009 were unchanged at 73 bid; however, its subordinated 9 7/8% notes due 2007 and 13.5% notes due 2005 "have been moving up the last couple of days," a market observer said, and were quoted at 24 bid, up from their recent 21.

Conseco Inc. debt was seen as having recently firmed, with its extended bonds quoted at a high of 37, up from the 20s; its unextended bonds had pushed up to around 23 bid/24 offered from the low teens and even the single-digit range (the bankrupt Carmel, Ind.-based insurer last year ran an exchange offer for most of its public debt, succeeding in lengthening the maturity on most of its bonds by offering higher interest rates).

The bonds have been going up of late, a distressed-debt trader said, "because investors expect a plan to come out. I think there's been a couple of buyers around."

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