Mirant gains; Calpine softer; Adelphia higher; UAL better; Pegasus steady on stock split

By Ronda Fears

Nashville, Aug. 5 - Mirant Corp.'s bonds and bank debt were higher Thursday as an appeals court sent back to the district courts its dispute with Pepco Holdings Inc. over a power supply contract, although no decision was reached. A trader said there also was some positive sentiment in the power sector created by an industry report on private equity funds pumping a lot of capital into that group.

General attitudes aside, Calpine Corp.'s straight bonds were lower on the company's earnings, which were a big disappointment to investors although they beat equity analysts' expectations, as well as the independent power producer's willingness to "sacrifice" cash and stock to take out some more of its convertible debt.

Pegasus Communications Corp. announced a 2-for-1 stock split, and the stock soared although volume was below average, but the bonds remained steady at 64 bid, 65 offered in the wake of the announcement earlier in the week of the sale of its satellite assets to The DirecTV Group Inc. A trader speculated that Pegasus' majority stockholders, Peninsula Investment Partners LP and Peninsula Capital Advisors LLC, were picking up more of the stock, which rose over 7% on the day, in light of the split.

In cable television, the nemesis of satellite television broadcasters, Adelphia Communications Inc.'s bonds were described as a couple of points higher with the 101/4s of 2011 at 88.5 bid and the 101/4s of 2006 at 86.75 bid.

There was no news on the Adelphia story itself, but one trader said there was some positive spillover from the rumors that Charter Communications Inc. chairman Paul Allen and some heavy hitting investors were preparing to pump some $1.5 billion of new cash into that cable company, and speculation suggests that Adelphia's assets would be a cheap acquisition for another cable company like Charter.

Charter's bonds, however, were unchanged as no confirmation of the capital infusion has been forthcoming, and the company is scheduled to report earnings on Monday.

UAL Corp. bonds were a little lower, in the 6 bid, 7 offered neighborhood as airline flight delays remained the heated subject of a debate among federal regulators meeting in Chicago at the busy O'Hare airport - a United Airlines hub - where congestion is at its worst. United said every hour of delay costs it $1,800 per flight, and regulators said that over the past 10 months more than 32% of flights arriving at O'Hare were delayed with a third of those more than an hour behind schedule.

RCN Corp. said it anticipates filing reorganization plan before the end of the month, but traders had no mention of those bonds. On Wednesday, the Princeton, N.J.-based telecom operator's 10% notes due 2007 were off 2 points at 50.5 bid, 51 offered.

Mirant bonds rise to 81 bid

Mirant's bonds gained about 2 points to the 81 bid, 82 offered area and the 2003 bank debt was up about half a point to a point on the day in reaction to the Pepco news with the bank paper quoted at 58 bid, 59 offered, traders said.

The Mirant paper "went on a little ride" actually as a result of the news on the lawsuit, one distressed trader said. Initially, the bonds rose and then backed off a bit, settling still a couple of points higher from Wednesday.

Mirant shares also were sharply higher on the day. The stock gained 2 cents, or 6.67%, to 32 cents on very heavy volume with 7.8 million shares changing hands, versus the three-month running average of 961,454 shares.

The U.S. Court of Appeals for the 5th Circuit remanded the power supply contract dispute between Mirant and Pepco back to the federal district court, advising the district court that a contract for electricity is unique, due to the inherent public interest, so the court should think about applying a more rigorous standard than ordinary contract law.

While Mirant is seeking to reject the Pepco contract, in a report Thursday credit analysts at Standard & Poor's said the ongoing uncertainty continues to be negative overhang for Pepco because of the $160 million in cash payments that S&P "conservatively" estimates will become payable if Pepco "ultimately loses the case."

An ultimate ruling may be a protracted matter, as further appeals are likely.

Pegasus solidly at 64, 65

Pegasus bonds remained steadied at 64 bid, 65 offered on Thursday although the related stock shot up sharply on the Bala Cynwyd, Pa.-based satellite television programming distributor's stock split. The shares rose $1.37, or 7.33%, to $20.05 on the news, but volume was around half the three-month average with 143,362 shares trading.

After falling out of bed on the bankruptcy filing in June, Pegasus' bonds were bumped up on the news Monday that Pegasus had agreed to sell out to former partner and arch-rival DirecTV for $938 million - $875 million cash plus forgiveness of a $63 million legal judgment that DirecTV won against Pegasus.

The acquisition, subject to approval by the federal bankruptcy court is expected to be completed within six weeks and has already been stamped for approval by the creditors committee.

One distressed trader speculated that Pegasus' major stockholders were snapping up more stock to boost their standings. He said Peninsula Investment Partners had 3,440,250 shares as of June 18 and Peninsula Capital Advisors had 2,296,300 as of March 31.

"I think probably Peninsula will end up in control of what is left of Pegasus, those 'intangible assets,' whatever that is," the trader said. "Them buying killed the short play, although for their purposes it inflated the price and increased their exposure."

Pegasus declared a 2-for-1 stock split to holders of record on Aug. 19, saying it was necessary in order to boost the public float so that the stock can remain publicly traded. After the split, Pegasus said the float will double to around 1.8 million shares.

Pegasus filed for bankruptcy in early June as part of its ongoing battle to hang onto its exclusive right to distribute DirecTV service to its 1.1 million mostly rural customers - a set up that DirecTV itself has been trying to end for months.

Calpine bonds slip to 60 bid

Calpine's numbers were a disappointment, particularly EBITDA or operating income, and the buyback of $181.6 million of convertibles and notes for cash and stock irked straight bondholders. All the straight paper was lower, a trader said, putting the 81/2s of 2008, or example, at 60 bid, 61 offered.

"The bonds got a little better as the day went on but they still ended lower," the trader said. "The numbers, EBITDA, were bad. And the company made it clear that they are willing to sacrifice cash and use stock to take out the convertibles, there will be no refinancing with more bonds or convertible preferreds."

Calpine's remaining convertibles - a 4.75% bond - were better by 1 to 1.25 points on the buyback news.

Calpine shares lost 24 cents on the day, or 6.5%, to close at $3.45. Earlier this year, the stock had hit a new 52-week high of $6.42.

Calpine reported a wider second-quarter net loss blamed on a combination of charges, lower spark spreads - the difference between what it costs to generate electricity and the price at which it can be sold in the market - and new power plant costs. In the quarter, Calpine added five plants to its power portfolio.

The San Jose, Calif. power producer posted a net loss of $28.7 million, or 7 cents a share, in second quarter, compared to a net loss of $23.4 million, or 6 cents a share, in second quarter 2003 and gross profits fell 61% to $67.7 million, while revenue rose nearly 7%, exceeding $2.31 billion.

Calpine said it still expects to breakeven on a per-share basis in 2004.

Also Thursday, Calpine said it secured a $250 million letter of credit with Deutsche Bank that matures October 2005 to guarantee power and gas obligations of Calpine Energy Management, a new financing entity, secured with power sales receivables as collateral.

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