Earnings help Calpine regain losses; Airlines bounce; MagnaChip weaker

By Stephanie N. Rotondo

Portland, Ore., March 14 - Positive earnings helped Calpine Corp.'s bonds rally during Wednesday trading, recouping half a point from the day's low open.

As the overall market has slumped, Calpine has lost some of its edge. Earlier in the week, traders saw the notes trading at least 2 points higher.

Meanwhile, airline paper lost altitude, according to one trader, who said it could be attributed to "sympathy" for a bouncing equity market. However, other market sources saw bankrupt airline paper following the stock market's activity: tanking then rebounding.

The activity in Northwest Airlines Corp.'s bonds could also be attributed to a few ruffled feathers in its bankruptcy case. A group of shareholders wants to look at merger possibilities, as a merger could mean more money - and perhaps a distribution to stockholders.

Elsewhere, not-so-great news in the chip sector prompted MagnaChip Semiconductor Ltd.'s bonds to drop another point, continuing losses garnered over the week.

Speaking of the stock market slump, continued subprime mortgage lender worries are leveling Technical Olympic USA Inc.'s notes. The notes have seen a series of losses on the subprime fallout.

"We finally got some nervousness in the market," one trader said of the stock market's recent volatility. "It hasn't been there for a long time."

"I think it needed it," he continued. "I think people have become way too complacent."

Calpine softer

A trader said earnings news prompted Calpine's bonds to close about half a point down, opening as much as 1 point down.

According to the trader, the bonds' activity was indicative of the whole market: down at the open and then rallying in the afternoon.

The trader placed Calpine's 8½% notes due 2011 at 104.75 bid, 105.75 offered. Another trader, however, said the notes looked unchanged at 104 bid, 105 offered. He added that the bonds had been at 106 "before the market melted."

The San Jose, Calif.-based power company posted a $472.08 million income from operations for 2006, with $6.71 billion in revenues, according to a 10-K filed with the Securities and Exchange Commission. For 2005, the company reported a $4.37 billion 2005 loss from operations on $10.11 billion in revenues.

In the filing, the company said the decrease in revenues was due to a significant decrease in sales of purchased power and gas for hedging and optimization.

Traders mixed on airlines

Distressed airline paper got heavier, according to a distressed trader, possibly in response to the volatile activity in the broader stock market.

Another trader saw wild action in distressed airline bonds - but said that at the end of the day, for all of that, they were not much moved.

The first trader said Northwest Airlines Corp.'s 10% notes due 2009 got "weaker in sympathy" with the equity market, closing at 82.5 bid, 83 offered. He said the high print for the bonds came in at 83.5 while the low print came in at 81.

The second trader saw Northwest Airlines's 10% notes closing out trading at 81.5 bid, 83.5 offered, this after having fallen earlier in the day to as low as 79 bid, 80 offered.

Northwest's 7 7/8% notes due 2008 were also down as much as 4 points in intraday trading, at 82 bid, a market source said, but recovered to only end down marginally.

At another desk, a trader said that the airline bonds "were pretty much following the stock market; when stocks tanked at midday, they traded off pretty significantly, about 4 points on the Northwests, but they did bounce back."

The Northwest 10s were quoted there as low as 80 bid, 81 offered, down 4 points on the day, "but they did bounce back with the stock market, at the end of the day," and the bonds ended down a point, at 83 bid, 84 offered. "It wasn't as bad as it could have been."

The Eagan, Minn.-based airline has had a rough flight this week, as issues in its bankruptcy case are creating concern.

A group of shareholders, led by Owl Creek Asset management, asked the bankruptcy judge to deny the company's request for an exclusivity extension. The group alleges that Northwest has failed to explore possible merger options - which could create a company worth more post-bankruptcy, thus giving the shareholders some relief.

A hearing on the motion is set for Thursday.

In other bankrupt airline paper, the trader called Delta's 8.30% notes due 2029 lower at 52.5 bid, 53.5 offered. He said the previous day saw the bonds close at 54 bid, 55 offered.

Another trader saw Delta's 8.30% notes start the day at 54 bid, 56 offered, drop as low as 51.5 bid, 52.5 offered, but then come off those lows to end down just a point, at 53 bid, 55 offered. Yet another trader saw the 8.30s skid to 52 bid, 53 offered before recovering from that nadir and ending down only slightly, at 53.5 bid, 54.5 offered.

MagnaChip cracks

MagnaChip saw its bonds soften in reaction to Tuesday's news on Texas Instruments.

According to the trader, the Texas Instruments news weakened the chip sector as a whole. Until the recent news came out, MagnaChip bonds had seen a series of drops in its notes, but traders were at a loss to explain why.

A trader pegged the Seoul, South Korea-based semiconductor manufacturer's 8% bonds due 2014 a point lower at 62.

Texas Instruments delivered a less-than-good outlook for first-quarter profit on Monday, prompting a Tuesday dip in its equity. The Dallas-based chipmaker said it expected earnings of 29 cents to 33 cents per share on sales of $3.07 billion to $3.22 billion in the quarter. Analysts and investors, however, were expecting a more upbeat outlook.

Technical Olympic weaker

Continuing concern in the subprime mortgage-lending sector is hitting Technical Olympic in its bonds, a trader said.

The trader said he saw the bonds down about 2 points across the board, with the 9% notes due 2010 closing at 93 bid, 94 offered, while the 10 3/8% subordinated notes due 2012 came in at 86.5 bid, 88 offered.

"[The bonds] are continually finding sellers," he said.

Tuesday saw a huge selloff on the stock market as investors continue to show weariness in the subprime sector. While Wednesday brought a slight turnaround, concerns still hurt companies associated with the jostling sector.

Earlier in the week, traders also attributed the Hollywood, Fla.-based homebuilder's poor performance to a lack of reported quarterly results.

Auto paper mixed

Back on solid ground, a trader said that Remy International Inc.'s battered bonds were actually better on the session after having been battered over the previous several session. The Anderson, Ind.-based automotive electrical systems manufacturer's 8 5/8% notes due 2007 were up a point at 72 bid, 74 offered.

He saw "nothing" going on in the bonds of bankrupt Troy, Mich.-based auto parts maker Delphi Corp., whose 6.55% notes due 2006 stayed around 110.5, while bankrupt Toledo, Ohio-based parts maker Dana Corp.'s 6½% notes due 2008 remained around 74.5 bid, 75.5 offered.

Among the carmakers themselves, "a lot of paper traded" in General Motors Corp., with the Detroit giant's benchmark 8 3/8% notes due 2033 seen down 2 points at 89 bid, 90 offered, while the General Motors Acceptance Corp. 8% notes due 2031 of its still-49% owned GMAC LLC affiliate were about unchanged at 109 bid, 110 offered.

Another trader saw the GM bonds down 1.5 points at 89.5 bid, 90 offered, while the GMAC issue was half a point lower at 109.25 bid, 109.75 offered.

Broad market mixed

Traders saw Fedders Corp.'s 9 7/8% notes due 2014 up a point at 57 bid, 58 offered.

Another trader quoted the Liberty Corner, N.J.-based air-quality products maker's bonds at 58.5 bid, which he said was up a point. He said the bonds were benefiting from statements made earlier in the week by a company official that Fedders expects to make the coupon payment on those bonds that was due March 1 within the 30-day grace period that it invoked at the time.

He also noted that "Friday is do-or-die day" on Fedders' efforts to sell its industrial air quality-products unit, with the projected asset sale at this point still expected to take place.

Meanwhile, a trader saw Movie Gallery Inc.'s 11% notes due 2012 down a point at 87.5 bid, 88 offered. With the decline, the Dothan, Ala.-based video rental store chain operator's bonds spent the momentum they had garnered a few sessions back when the company announced that it would buy MovieBeam Inc. and thus get into the lucrative in-home movie delivery business that many analysts thought they should have gotten into a long time ago.

At another desk, a trader saw Tembec Inc.'s notes "all over the place," pegging the notes down 1.5 points on the day.

"They were beat down in the morning, then rallied in the afternoon," he said.

He said the 8½% notes due 2011 came in at 68, with a low print of 67.

Kelson loan paper slides

Kelson Holdings LLC's second-lien term loan continued to slide on Wednesday in a generally weaker secondary market, according to a trader.

The second-lien loan ended the day at 96 bid, 96¾ offered, down from Tuesday's levels of 97¾ bid, 98½ offered, the trader said.

"It was a tough deal to get done, so it's just getting hit harder," the trader said.

The second-lien loan is priced at Libor plus 650 bps pay in kind. Pricing can be changed to Libor plus 575 bps cash pay if the company's cash flow operations improve enough that EBITDA over interest is greater than 1¼ times.

Kelson, a company wholly owned by Harbinger Capital Partners, is a holding company established for the management and ownership of certain power plants.

Sara Rosenberg and Paul Deckelman contributed to this article.

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