Calpine bonds lower in wake of numbers fiasco; E*Trade, SS&C Technologies slate deals

By Paul Deckelman

New York, Nov. 4 - Calpine Corp.'s notes were seen down anywhere from three to five points on Friday following Thursday's embarrassing snafu by the San Jose, Calif.-based power generating company, which saw Calpine issue third-quarter results and hold a conference call - only to hurriedly pull those results later in the session, causing trading in its shares to be halted and activity in its bonds to dry up as investors wondered what was going on. Hours later, the company admitted that somebody had goofed and some of the numbers were wrong - further shaking market confidence in Calpine.

In the primary market, no pricings were seen Friday - but the forward calendar continued to build, with E*Trade Financial Corp. announcing plans for a 10-year bond sale, which would be the New York-based financial services company's third visit to the junk markets in as many months. Meanwhile, SS&C Technologies Inc., which provides software to financial services companies, was heard by syndicate sources Friday evening to be planning an offering of eight-year bonds to partly fund the company's upcoming leveraged buyout by The Carlyle Group.

More details meantime emerged about Tesoro Corp.'s upcoming $900 million two-part note offering, and price talk was heard on Targus Group International Inc.'s eight-year bond deal. Both of those offerings are expected to price on Tuesday.

In the secondary sphere, Calpine's bonds were actively traded in what otherwise was seen as "a very quiet day, with not much going on," in the words of one trader. "The market didn't do much of anything."

Against that backdrop, he said, Calpine "traded quite a bit on Trace and also in the dealer market, where there was a lot of interest in it. Yeah, Calpine was active" Friday.

He saw the company's 8½% notes due 2008 down two points at 53 bid, 54 offered while its 9 7/8% notes due 2011 lost perhaps a point to 71 bid, 72.5 offered.

At another desk, a trader pronounced the day "boring, except for Calpine," whose 8½% notes due 2011 he saw fall to 43 bid, 45 offered by day's end, down from 45 bid, 47 offered at the opening and well down from levels around 47 on Thursday following the initial release of Calpine's third-quarter data. "Those are not their all time lows - but they are their recent lows."

He saw the 10½% notes slated to come due this coming May 15 - "a short piece of paper, with less than a year to go" - dropping to 82 bid, 84 offered, down from Thursday levels before stock trading was halted and bond trading dried up of 87 bid, 88 offered.

"Man, oh man," he groaned. "I can't even begin to tell you" how fouled up the whole Calpine situation was. "They put out a press release [with their earnings] and have a conference call, and then the same day, they knock off a third of their EBITDA. How does that happen? I can understand why there's a credibility issue with this company.

Yet another trader saw Calpine "down a couple of points," with the company's 8½% notes due 2011 three points lower at 54 bid, 55 offered.

"People are starting to realize that they come out with their announcement overnight [Thursday going into Friday] why they withheld [the earnings data], which had caused the stock to be halted. It was just a restatement - apparently they just goofed up, but that's a little troublesome, keeping in mind the fact that this company doesn't have the best track record, and that's why the bonds sold off."

It was a case of Calpine shooting itself in the foot, causing dismay and unbelief in the market just at a time when it needs the confidence of the market to continue to believe in its debt-cutting efforts, even though Calpine now says that it may have to complete the $3 billion debt reduction program some time in 2006, instead of by the end of this year, as it had previously projected.

"It smells a little funky, that's all," he said, "The scare sent the bonds lower" Friday.

One market participant even suggested - tongue only partly in cheek - that 'if management had wanted to do something to make those bonds go down so they could buy them up cheaper, that would be a way of doing it."

Fitch Ratings weighed in late in the day Friday, cutting its ratings on Calpine deeper into junk territory as it lowered the senior unsecured notes' rating two notches to CCC- from CCC+ previously. The agency cited deterioration in the company's earnings, its slowing progress in reducing debt and the uncertainties posed by lawsuits brought by several bondholders - notably Harbert Management Corp. - against Calpine

Apart from Calpine, traders said, there wasn't that much actually going on.

Trump better on sale

They did see some activity in Trump Entertainment Resorts after the Atlantic City, N.J.-based casino operator agreed to sell its Gary, Ind., riverboat gaming property to nearby competitor Majestic Star Casino LLC for $235 million.

Trump's 8½% notes due 2015, which had opened at 97.75 bid, 98.75 offered, pushed as high as 99.5 bid on the news before coming off that peak to end at 98.75, still up a point on the day on the bid side.

Intelsat down on preferred buyback

A trader saw Intelsat Corp.'s 7 5/8% notes due 2012 down 1½ points to end at 79 bid, 80 offered. He cited the news, revealed in a regulatory filing by the Bermuda-based communications satellite company, that it would pay $200 million to repurchase the company's preferred shares.

"It doesn't meant that they're going to dump any more debt [onto bondholders] like when they were purchased in an LBO and following that, the SPOT transaction [i.e. the largely debt-funded acquisition earlier this year of rival satellite operator PanAmSat Corp.], but the cash will be lower. The bonds are lower since [the $200 million] is going to be used to help the equity holders, and that doesn't help any of the bondholders."

E*Trade plans 3rd deal

In the primary arena, E*Trade Financial Corp. said that it would sell $250 million of 10-year non-call five senior notes via joint bookrunners Morgan Stanley & Co. Inc. and J.P. Morgan Securities Inc.

That bond sale is part of a $1.4 billion, three-pronged financing effort connected with its recently announced planned acquisition of the BrownCo equity trading platform from JPMorgan Chase & Co. Besides the junk bond issue, E*Trade plans to concurrently sell $700 million of common stock and $450 million of three-year mandatory convertible securities to help fund the $1.6 billion BrownCo purchase.

The deal is to be marketed to potential investors via a roadshow scheduled to start Monday, with pricing expected sometime during the following week (beginning Nov. 14).

Assuming completion of the bond deal, it would be the third time in as many months that E*Trade will have tapped the junk market for fresh capital. It sold $350 million 7 3/8% senior notes due 2013 in September, and followed that up with a $250 million add-on offering of the same kind of notes, which priced Oct. 27.

SS&C lines up offering

Another company heard planning a new deal on Friday was SS&C Technologies Inc., a Windsor, Conn.-based provider of software to the financial services industry. Market sources said Friday night that SS&C will sell $205 million of eight-year senior subordinated notes, non-callable for four years, as part of the company's upcoming $982 million leveraged buyout by an affiliate of The Carlyle Group private equity firm.

The notes will be brought to market via bookrunner Wachovia Securities, JP Morgan and Banc of America Securities. Marketing via a roadshow begins Monday, with pricing expected on or around Nov. 17.

Tesoro details

Tesoro Corp. will meanwhile be taking to would-be buyers of its planned $900 million offering of seven- and 10-year notes via an investor call on Monday, followed by pricing some time the following day, syndicate sources were reporting.

The San Antonio-based petroleum refiner and marketer's bond sale will be managed by joint bookrunners Lehman Brothers, Goldman Sachs and JP Morgan. Proceeds will be used to fund a tender offer currently under way to take out the company's three series of existing bonds - its 9 5/8% senior subordinated notes due 2008, its 9 5/8% senior subs due 2012 and its 8% senior secured notes due 2008.

Also on the new-deal front, price talk emerged on Targus Group's planned sale of $150 million 8NC4 senior subordinated notes, which is expected to price on Tuesday.

The deal is being led by joint bookrunners Goldman Sachs and UBS Investment Bank and is expected to yield somewhere between 11¼% and 11½% when it prices.

Proceeds of the deal will be used to help fund the leveraged buyout of the Anaheim, Calif.,-based supplier of mobile computing cases and accessories.

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