Calpine bank debt, bonds continue lower; Curative bonds marginally easier as Chapter 11 looms

By Paul Deckelman and Sara Rosenberg

New York, Dec. 5 - Calpine Corp.'s second-lien bank debt was heard to have taken a breather on Monday, dropping a bit lower on the bid side, after spending all of last week trading higher and higher. The problem-plagued San Jose, Calif., power company's bonds were meantime seen predominately lower in the wake of an unfavorable court ruling Friday and new signs that a bankruptcy filing is probably not to far off.

Another company likely to seek court protection soon is Curative Health Services Inc., which said Monday that it reached an agreement on a restructuring plan with its bondholders, and it expects to implement that soon via a Chapter 11 case.

Calpine's second-lien bank debt was quoted at 77.5 bid, 79 offered, according to a trader in that market, down on the bid side from Friday's levels of 78, 80 offered.

All last week, Calpine's second-lien kept gaining ground as investors were thinking about recovery estimates in a potential Chapter 11 scenario.

Bankruptcy talk has been compounding as the company abruptly removed its top executive management, received ratings downgrades from Moody's Investors Service and Standard & Poor's, and stated that there is a substantial risk that it will not have sufficient cash to satisfy the court ruling that it must restore to the Bank of New York collateral account approximately $313 million, plus accrued interest at 3.5% per annum, and its ongoing debt service obligations and operating expenses.

On Friday, the Delaware Chancery Court, which ruled just before Thanksgiving that Calpine had improperly spent that $313 million of asset-sale proceeds to buy gas for its plants, ruled that Calpine must make the repayment by Jan. 22 - far less time than the 90 days that the company had sought.

Calpine's bonds were seen as a mixed bag on Monday, with a trader seeing some of the previously hard-hit unsecured debt better on short-covering. Among the gainers, its 7¾% notes due 2009 moved up to 35 bid, 36 offered from 32 bid, 34 offered, while its 7 5/8% notes due 2006 improved to 38 bid from 36.

"Unsecured U.S. dollar-denominated debt was doing better, but its Canadian dollar debt was lackluster," he said.

On the downside, he saw Calpine's 8½% notes due 2008 off two points at 27 bid, 28 offered, while its 8½% notes due 2011 were off as much as three points at 22 bid, 23 offered.

A market source at another shop said "most" of Calpine's issues went down, while only "a few" went up. On the downside, he saw the secured debt, such as the 8.40% notes due 2012, down a point at 91; the 8¾% notes due 2013 a point down at 76; the 9 5/8% notes due 2014 at 78 bid, down from 80.25; and the 9 5/8% notes due 2014 a quarter-point lower at 102.25.

He also saw the unsecured 10½% notes due 2006 at 36 bid, down from 37.25, and the 8 5/8% notes due 2010 dropping to 23 bid from 25.5.

On the upside, he saw the company's 7¾% notes due 2009 half a point better at 35.5, while the 8¾% notes due 2007 were unchanged at 35.

Another market source also saw those bonds at 35, but estimated them up a point from Friday.

Investors noted that the New York Stock Exchange announced plans to de-list the company's shares - now deeply into sub-$1 penny stock territory - amid continued speculation that a bankruptcy filing is not far off. Meanwhile, the Delaware court issued the terms of the final order in connection with its ruling last week that Calpine had to repay the $313 million by Jan. 22, an order that Calpine said it will appeal.

Under terms of the order, signed Friday by court vice chancellor Leo Strine and released Monday, Calpine can use the money that it owes, until Jan. 22, to buy certain kinds of assets, like oil and gas production properties, or to repurchase outstanding first-lien debt. It cannot use the money to buy gas to fuel its plants. However, on Jan. 22, it must deposit whatever has not already been spent for those purposes, and use the money to launch a tender offer for its second-lien debt.

Mirant loans down

Also in the power-generation sector, Mirant Corp.'s 2003 bank debt was lower, moving to 113 bid, 114 offered from 114.5 bid, 115.5 offered on Friday, probably on profit-taking after having experienced a bit of a run-up last week on news that the bankrupt Atlanta-based company's plan of reorganization was approved, a trader said.

Another trader saw the company's 7.90% notes due 2009 unchanged at 126 bid, 128 offered, and its 7.40% notes - which were to have come due last year - at 125 bid, 127 offered.

He pegged Mirant's 2½% convertibles notes due 2021 down a point at 107 bid, 108 offered, while its 5¾% converts due 2007 were unchanged at 118 bid, 119 offered.

However, at another shop, the Mirant bonds, though considered unchanged on the day, were seen hovering at somewhat higher levels, with the 7.90s at 129 and the 7.40s at 127, a source there said.

Curative Health slips

He also quoted Curative Health's 10¾% notes due 2011 half a point lower at 69.5 bid, while another trader had those bonds down a point on the day at 68. However, he said there was "not much movement" going on in the issue.

The Hauppauge, N.Y.-based provider of medical products and services, failed to make the scheduled $9.95 million interest payment on its $185 million of outstanding bonds on Nov. 1, invoked the standard 30-day grace period, which expired Dec. 1, and went into talks with its bondholders.

The company said Monday that an ad hoc committee of bondholders, representing the holders of approximately 80% of the notes, agreed to swap their bonds for a cash payment of $27.75 million and all of the equity in the reorganized company. General Electric Capital Corp. meantime agreed to a forbearance stating that it would refrain from exercising any rights and remedies under its credit agreement. Curative will institute the reorganization via a pre-packaged Chapter 11 bankruptcy filing.

UAL up, Delta, Northwest down

Among bankrupt airline issues, a trader saw United Airlines' parent company, UAL Corp.'s bonds firmer by a point at 18 bid, 19 offered.

However, he saw the bonds of rival bankrupt carriers Delta Air Lines Inc. and Northwest Airlines Corp. each a point easier, with Atlanta-based Delta's notes at 20 bid, 22 offered and Eagan, Minn.-based Northwest's at 38 bid, 40 offered.

Also on the distressed scene, Finova Corp.'s 7½% notes due 2009 dipped nearly two points to 34.5 bid, a source said, while bankrupt Toledo, Ohio-based insulation maker Owens-Corning's bonds were half a point better at 82 bid.

Canadian forest products company Tembec Industries' bonds were down 1½ points across the board, its 8½% notes due 2011 at 58.5 bid, its 7¾% notes due 2012 at 75 bid, and its 8 5/8% notes due 2009 at 63 bid.

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