Calpine deal grows to $2 billion-plus; CMS prices 7-year notes; Charter bonds up

By Paul Deckelman and Paul A. Harris

New York, July 9 - Calpine Corp.'s upcoming junk bond offering was heard by primary-side players to have morphed into a mammoth mega-deal - potentially one of the biggest junk offerings of this or any other year at more than $2 billion. On a slightly more mundane note, another name from that same merchant power sector, CMS Energy Corp., priced an upsized offering of seven year notes Wednesday at a discount to par.

On the secondary front, news of the Calpine financing's transformation from merely a very large $1.8 billion in junk bonds and bank credit including $1.2 billion of bonds to a colossal $3 billion including at least $2 billion of bonds spurred its existing debt higher. Also solidly higher was Charter Communications, despite a lack of fresh news out about the St. Louis-based cable operator.

In all Calpine's power surge boosted its pass at the debt markets to $3 billion, most of it to come in new junk bonds that are expected to price on Thursday.

And the new issuance market saw two transactions completed during Wednesday's session.

Rockwood Specialties Group, Inc. priced $375 million of eight-year senior subordinated notes (B3/B-) at par to yield 10 5/8%, at the inside of the 10¾% area price talk.

Merrill Lynch, JP Morgan and Goldman Sachs were joint bookrunners on the Princeton, N.J. chemical company's deal.

Also on Wednesday Dearborn, Mich.-based integrated energy company CMS Energy priced an upsized quick-to-market offering of $300 million of 7¾% seven-year senior notes (B3/B+) at 99.668 to yield 8%. The deal was increased from $250 million and price talk on the Citigroup-run offering was for a yield in the 8% area.

But much of the chatter during Wednesday's session focused on the Calpine deal.

The San Jose, Calif.-based firm upsized its bond and bank debt deal to $3 billion from the previously announced $1.8 billion.

Included are a pair of $1 billion fixed-rate tranches: a seven-year non-call-four tranche talked at 8¼%-8½% and a 10-year non-call-five tranche talked 25 basis points behind the seven-year notes.

The remaining $1 billion is expected to come in a combination of four-year non-call-two floating-rate notes talked at Libor plus 575 basis points and a term loan B. The size breakdown between the floaters and the term loan remained to be determined as Prospect News went to press on Wednesday.

Goldman Sachs is running the books on the Calpine deal, which according to market sources is significantly oversubscribed.

One source reported that "the book on Calpine is ridiculous," adding that intense investor demand drove the energy firm to massively upsize its offering.

Two market observers advised Prospect News during Wednesday's session that Calpine could still increase further in size.

"Make no mistake," said one official, "Calpine is going to set the stage for this summer's primary market. If this deal goes well the market could stay hot right through the second week of August."

Calpine looks set to easily pass this year's biggest offering, Crown Cork & Seal Co. Inc.'s $2.1 billion equivalent in three tranches priced on Feb. 11. That in turn was the largest deal since Lyondell Chemical Co.'s $2.4 billion brought to market in May 1999.

One trader noted that the bond deal will be the fourth-largest ever, or (depending on the size of the floating-rate note tranche) possibly even the third, behind Niagara Mohawk's $3.2 billion issue several years ago and a $3 billion Charter offering.

Also during Wednesday's primary market session price talk of 11½% area emerged on Teksid SpA's €225 million of eight-year non-call-four senior notes (B2/B-), which are expected on Thursday, via JP Morgan.

According to an informed source the Barcelona, Spain-based producer of metallurgical products for the automotive industry had dropped a planned dollar tranche.

Finally on Wednesday EaglePicher Inc., a Phoenix, Ariz.-based manufacturer of industrial products, announced an offering of $220 million senior unsecured notes to fund the tender for its 9 3/8% senior subordinated notes due 2008.

A Wednesday press release identified UBS Investment Bank as dealer manager for tender offer, and cited July 22 as the expiration date for the consent solidification. No further information was available.

In the secondary market, Calpine's news "stole the show" and had everybody buzzing, a trader said.

The trader said he had heard that lots of potential buyers were swapping out of "old debt - unsecured, short-maturity debt" and placing orders for the new bonds. He estimated that as much as $1 billion-plus face amount of the existing debt might be involved in such swap maneuverings.

At another desk, Calpine's existing paper was seen well bid-for, with its 10½% notes due 2006 at 99.5 bid, up four points from prior levels, while its 8¾% notes due 2007 rose to 90 bid, up from 85 previously.

A market observer at that desk meanwhile saw Charter Communications as one of the major movers of the session, its 8 5/8% notes due 2009 rising to 76.5 bid from 72.5 on Tuesday, and its 9.92% notes due 2011 going to 66.5 bid to 70.5 bid.

At another desk, the 8 5/8s were seen having climbed all the way to 77.5 bid from 72 bid previously.

A trader who quoted Charter's bonds up three to four points on the session "across the board" noted that there was "no news out" that would seem to justify such a rise, or the 55-cent jump Charter's shares took Wednesday, amounting to 15.03%, to end at $4.21. "That's not a bad move for a $3.50-$3.70 stock," he opined.

"Charter was really on the move," another trader agreed, noting both the sizable stock jump and the solid performance of the bonds. He pegged Charter's zero-coupon/11¾% notes as having moved up to 54 bid, 55 offered from prior levels of 49.5 bid, 50.5 offered , "a 10% move," and quoted its 11 1/8% notes due 2011 as having gone to 80.5 bid, 82.5 offered from 76 bid,78 offered previously.

"They were flying across the board," he declared, also predicting that "there's gotta be an announcement soon."

The troubled St. Louis cable operator - bedeviled by allegations of fishy numbers and slowing subscribers - has been looking to get its financial house in order in recent months, shopping non-core assets in an effort to raise funds and cut is estimated $17 billion debt load debt load. The company's banks recently okayed a complex transactions that would see principal owner Paul Allen making available $300 million via a newly formed Charter subsidiary, with the new funding helping to keep the company in compliance with its credit covenants while it tries to right the ship.

Tenet Health Care is also fighting off allegations of accounting irregularities, and it announced that the Securities and Exchange Commission had subpoenaed documents from the Santa Barbara, Calif.-based hospital operator - an indication that what had formerly been an informal probe has now become a formal investigation.

After the news, a trader said, Tenet's 6 7/8% bonds due 2031 fell to 86.5 bid, 88.5 offered from prior levels at 89.5 bid, 91.5 offered, while its 6 3/8% notes due 2011 eased to 93 bid, 95 offered fro m 94.5 bid, 95.25 offered.

Back on the upside, traders saw Levi Strauss & Co. bonds solidly higher Wednesday, its 11 5/8% notes up two points at 92.5 bid, 93 offered, and its 12¼% notes up more than a point at 89 bid, 90 offered.

A trader suggested that a report by a J.P. Morgan analyst had given out "positive vibes" about the San Francisco-based apparel maker, which he called "one of the bigger movers of the day," while another trader thought the answer might lie in the company's quarterly 10-Q report, which noted the beginning of Levi's sale of its signature jeans line through nationwide retailing giant Wal-Mart Corp.

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