Calpine convertibles mixed after news whammy; market firms on fewer redemptions

By Rebecca Melvin

Princeton, N.J., June 9 - More news from Calpine Corp. on Thursday caused the convertibles market to take another look at the bonds of this debt-laden energy company, while an eclectic mix of other issues, including those of software company Computer Associates International Inc. and satellite radio broadcaster XM Satellite Radio Holdings Inc., saw activity in a still firmer, albeit trendless, market.

The diminishing specter of hedge fund redemptions this month helped support trading, at the same time that some New Yorkers started to wilt from a fifth consecutive day of sultry heat that has hit the region like a branding iron this week.

"It's still solid," a sellside New York desk analyst said of the convertibles market. He suggested that "at least for today" the negative expectations associated with the redemptions were a little better. The redemptions "are still out there. But it's more business as usual."

A buysider said, "We are gingerly sticking our toe back into the market." He explained that by now almost everybody on the Street knows what their redemptions are going to be because of the 30-day notice period. With a firmer June, he continued, it's likely that July and August will be better, and if that's true, "come September, a lot of the nervous money will have shaken out, and we'll have the longer-term folks."

Symantec Corp. remained strong after enjoying a climb of about 7 points in the last two weeks, and Cephalon Inc. and Ivax Corp. were also strong, traders said.

Calpine mixed on SEC query

Regulators asked Calpine for documents in April relating to a downward revision of proved oil and gas reserve estimates as of the end of last year, the company revealed Thursday. Miscellaneous charges were also called into question in the request, according to a buyside analyst.

The request by the SEC's Division of Enforcement also had to do with statements made to various regulatory agencies by a former Calpine employee regarding the company's determination of state sales and use taxes and the company's upward restatement in April of its previously disclosed net income for the third quarter and the first three quarters of 2004.

Calpine, which made the disclosure as part of its potential sale of natural gas assets, has been weighed down by a heavy debt load since the Enron Corp. crisis. And along with bankruptcy rumors in recent months, market observers wonder about the impact of large asset sales of late - including a plant in England that the San Jose, Calif.-based company sold last week.

Also on Thursday, Calpine announced that it is doing a tender offer on $785 million worth of outstanding 9.625% first priority senior secured notes due 2014. That clouds the picture as debtholders eye the food chain of those that will get paid back before them.

Early Thursday, Calpine's 4.75% convertibles due 2006 traded as low as 50.5, with a stock price of $2.82, a Connecticut-based trading firm said. But the 4.75s went out at 58 bid, 58.50 offered versus the $2.81 stock price late in the day, a Connecticut-based buyside source said.

Calpine 6% convertibles due 2014 were at 78; and Calpine Capital Trust III, bearing a 5% coupon, went out at 46, down 1.50 points, or 32%. Calpine shares ended up 2 cents, or nearly 1%, at $2.83.

XM Satellite up on firmer credit

XM Satellite Radio Holdings Inc. announced that it has placed about 9.7 million shares of its class A common stock in a public offering underwritten by UBS Securities. The company said proceeds total $300 million, which it plans to use for working capital and general corporate purposes, which may include payments for the launch of its XM-4 satellite in mid- to late-2006, construction payments for XM-5, payments for third-party programming, repayment of debt and other strategic initiatives.

Trade in XM Satellite was healthy Thursday.

"It was two-way flow. The company shows it has more cash on the books and it's credit positive," a sellside trader said of the stock sale.

XM Satellite's 1.75% convertible senior notes due 2005 were up half a point at about 88. Its stock listed on the Nasdaq Stock Market closed down 52 cents, or 1.5%, at $31.31 on the day.

Lighter smoke-out lifts Vector

Vector Group Ltd. saw its stock and convertibles rise on news of a revised tobacco settlement that is less onerous for cigarette companies. The Justice Department on Tuesday scaled back the cost and duration of a national quit-smoking campaign it had been expected to seek in its racketeering case against cigarette makers.

Justice Department attorney Stephen Brody told a federal judge that cigarette makers should be forced to pay $10 billion over five years to help smokers quit, compared with $130 billion over 25 years proposed last month.

Vector's 6.25% convertible subordinated notes due 2008 were at 92.875. Its stock price was up 83 cents, of 4.5%, on the day at $19.26.

Mix of techs, biotechs in play

Islandia, N.Y.-based Computer Associates International Inc. aimed to extend its recent buying spree, announcing on Thursday plans to acquire software company Niku for about $350 million in cash.

The acquisition, intended to strengthen Computer Associates' technology that tests and manages the performance of computer systems, follows three other software purchases since September. Computer Associates' 1.625% convertible due 2009 was traded at 140 versus a stock price of $27.01.

Elsewhere in the technology sector, Agilent Technologies Inc.'s 3% convertibles traded at 98.25. Its share price rose 25 cents, or 1.02%, to 24.70. The Palo Alto, Calif.-based company saw its convertibles strengthen contrary to its stock price on Wednesday after the company said it was looking to sell its money-losing semiconductor products division.

In addition to convertibles of Cephalon and Symantec in play on Thursday, trades were also reported in ViroPharma Inc., LSI Logic Corp., UTStarcom Inc., a networking company, and Washington Mutual Inc., which made headlines on Monday when it announced a $6.5 billion merger with Providian Financial Corp.

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