Calpine gains on asset sales; auto names better on expected union concessions; Holly sells small add-on

By Paul A. Harris

St. Louis, June 14 - Sources put the high-yield market a quarter of a point to half a point higher on Tuesday as Calpine Corp.'s existing paper continued to generate positive sparks among junk investors.

And automotive names were jump-started on the growing impression that labor unions are in retreat.

In the primary market one deal priced, as Holly Energy Partners LP brought a $35 million add-on to its 6¼% notes due March 2015 two points below par.

"It was a wishy-washy day," one trader commented. "Some of the guys felt that their stuff was opening up cheaper.

"It caught a bid in the afternoon. We saw stuff up in spots.

"I would say we're up about half a point."

The source noted that the existing bonds of San Jose, Calif., power producer Calpine Corp. got a boost after the company announced an extensive asset sale early in the session.

Calpine plans to sell four power plants. The company announced Tuesday that it is in talks with Tenaska for the sale of its Ontelaunee, Grays Ferry and Philadelphia Water Works plants, for approximately $275 million, total, and with Diamond Generating Corp. for the Morris Power Plant, expected to generate an additional $82 million.

Meanwhile Calpine subsidiary Metcalf Energy Center, LLC, announced in a Tuesday press release that it will obtain a $100 million five-year senior term loan at Libor plus 300 basis points.

Credit Suisse First Boston is leading the deal, according to a market source.

Proceeds will be used to refinance all outstanding debt under the company's existing construction credit facility.

At the same time Metcalf Energy Center announced that it priced a $155 million issue of 5.5-year redeemable preferred shares, also via Credit Suisse First Boston, according the market source.

The shares will pay a dividend of Libor plus 900 basis points.

"Calpine's bonds rallied but then came off a little," noted the trader who marked them up two to three points, before softening slightly late in the afternoon.

The trader said that Calpine's 8½% bonds due 2008 had just traded into a 69 bid, up from 65 bid, 66 offered on Monday.

Meanwhile the company's 9 5/8% notes due 2014 were at 100.125 bid, 100.375 offered, up a couple of points.

Calpine's 8¼% notes due 2005 ended at 98 bid, 98.50 offered, and were "pretty strong," the trader said.

And the source spotted the company's second-lien floating rate bonds at 98.50 bid, 98.875 offered, also up on the day.

Elsewhere another trader told Prospect News that Calpine's existing paper was up on the news of the asset sale.

Auto names up

Meanwhile another trader, who marked the junk market up a quarter to a half point, said that auto names received a lift.

Delphi Corp.'s 6½% notes due 2013 went out at about 80 bid, 81 offered, up four points on speculation of a labor agreement, the trader said.

According to a capital markets source, the firming of Delphi's junk bonds as well as its bank loan paper was pegged to a perception among investors that there has been meaningful movement among General Motors Corp. and Delphi management and the United Auto Workers.

The union appears ready to accept substantial concessions in health care benefits for active and retired workers at GM, the source commented.

The source recounted that an emergency meeting had taken place last Thursday morning involving top UAW officials and the brass from UAW locals at GM and Delphi, the country's largest auto parts supplier which was spun off by GM in 1999 and remains part of the GM-UAW national agreement.

At that meeting the union agreed not to contest GM's three-year plan to cut approximately 25,000 jobs and close as many as six factories, the source added.

However another trader speculated that investors in Delphi and other auto names might have been motivated by forces other than the expected rapprochement between labor and management.

This trader had Delphi "up a good couple of points," and spotted the 6½% notes due 2013 at 80 bid, up from 77.50 bid at the open.

Meanwhile Visteon's 8¼% notes were up around the 97 bid, 98 offered on Tuesday, after trading at 95 bid on Monday.

"The only thing that would account for it is that GM has been in the papers saying that they are going to try to rein in their health care costs," said the trader. "And the Wall Street Journal is leading people to believe that they can do something unilaterally.

"It looks like some shorts might have been covered here," the source added.

Ply-Gem higher

Elsewhere a trader reported a more substantial move in the existing bonds of Kearney, Mo.-based door and window maker Ply-Gem Industries, Inc. The company's 9% notes due 2012 went out at 85 bid, 86 offered Tuesday, "up five points since Monday on no news, just buy interest," the trader said.

Among recent issues, the trader spotted the new 7% notes of Tenaska Alabama Partners LP unchanged at 101.25 bid, 101.75 offered, although they were "pretty active in the morning."

Holly Energy drives through

Only one issue priced during Tuesday's primary market session.

Holly Energy Partners L.P., in conjunction with Holly Energy Finance Corp., priced a $35 million add-on to its 6¼% senior notes due March 1, 2015 at 98.00 on Tuesday, resulting in a 6.53% yield to maturity.

UBS Investment Bank ran the books for the acquisition financing deal.

The original $150 million issue priced at par on Feb. 11, 2005, so Holly Energy paid up in excess of a quarter of a percentage point to issue the new notes.

Meanwhile in the primary South Africa-based Foodcorp (Proprietary) Ltd. is talking its €175 million offering of seven-year senior secured notes (B2/B+) at 9% area.

The Citigroup-led deal is expected to price on Wednesday.

And finally Ocean Rig Norway AS will begin a roadshow Thursday on the U.S. West Coast for its $150 million offering of eight-year senior secured second-lien notes (B3/B-).

Morgan Stanley has the books for the debt refinancing deal from the drilling rig company.

Whither the forward calendar?

In spite of an apparent reversal in high-yield mutual fund cash flows, one junk syndicate official noted Tuesday that there presently appears to be no purposeful buildup in the forward calendar.

"Conditions remain attractive," said the official. "Treasuries have backed up somewhat; the 10-year is now something like 50 basis points wide of where it was late last week.

"But it's still extremely low, historically speaking.

"Secondary levels are better now than they were three weeks ago, but not as strong as they were early last week.

"And the forward calendar hasn't caught up yet."

However, the sell-sider added, with regard to a buildup on the calendar the question is more than likely "when," not "whether."

"Everyone is waiting for the big deals, the big names and the LBOs that people know are coming at some point," the official said.

"The question is, do they all come at the same time and flood the market, or will they be spaced out? Is everyone going to come after the Fourth of July but before the August break, because that's where the traditional window is?

"You would think that some of it would be happening now. But we haven't seen it yet.

"And buyers are out there," the source asserted. "We're not hearing that these deals are seeing crazy oversubscription. But the average deal that is in the market now seems to be going well."

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