AMR bonds up as stock rises on lower oil; Calpine explores DIP financing

By Paul Deckelman and Sara Rosenberg

New York, Dec. 15 - AMR Corp. bonds were seen firmer Thursday in line with a rise in the Fort Worth, Tex.-based U.S. airline industry leader's shares, pushed up by investor optimism over lower oil prices and what such a trend could hold for the battered airline industry.

Elsewhere, Calpine Corp.'s unsecured bonds were seen better on the session - although its secured paper failed to follow along - amid news reports that the troubled San Jose, Calif.-based power generation company was sounding up banks on a possible $2 billion debtor-in-possession financing facility - taken by some in the market as a sign that Calpine is moving toward a bankruptcy filing.

In that same power generating sphere, Mirant Corp.'s 2003 bank debt once again headed higher, this time moving up by about a point during the session as levels closed out the day quoted at 116 bid, 117 offered, according to a trader.

On Wednesday, the bankrupt Atlanta-based energy company's paper was quoted at 115 bid; on Tuesday the paper had been was quoted at 113.5 bid, 114.5 offered.

Meantime, Mirant's 7.90% notes due 2009 were seen up 1¼ point at 128 bid, 120 offered, while its 7.40% notes, which were to have matured last year, were likewise a point better at 127 bid, 128 offered. The bonds of Mirant Americas Generation Inc. unit - MAGI - were seen unchanged, with its 8½% notes due 2011 at 123 bid, 124 offered.

Mirant's bonds and notes have been firming ever since the recent ruling confirming its plan of reorganization from the U.S. Bankruptcy Court in Houston, which has been overseeing the company's restructuring.

Mirant is taking yet another step closer to emergence from Chapter 11, by bringing a new deal for $850 million of eight-year senior notes to the high-yield market. The proceeds from the issue will be used to fund distributions connected with the company's coming emergence from bankruptcy. Price talk of a yield in the 7½% to 7¾% area was heard on Thursday - an important final step before the actual pricing.

Delphi lower

Away from Mirant, Delphi Corp.'s bonds were seen by one trader to be down two points across the board at 50 bid, 52 offered, while another saw them at 52 bid, 53 offered, but called them down a point on the session, as labor talks between the bankrupt Troy, Mich.-based automotive electronics manufacturer and the United Auto Workers union on company demands for pay and benefit givebacks continue to languish.

Tembec sinks

A market source saw Tembec Industries Inc.'s bonds continuing to struggle, with its 8½% notes due 2011 down another two points to 54 bid, this on top of a roughly three-point fall on Wednesday, attributable to the surging Canadian dollar - which makes the Montreal-based forest products company's wood, pulp and paper products cost more in the United States and other non-Canadian markets, thus undermining its sales.

American higher

On the upside, traders were noting the strength of AMR, with one quoting the company's 9% notes due 2012 at 86 bid, 87 offered, up a point, and its 9% notes due 2016 at 84.625 bid, 85.375 offered, each up a point on the day.

"It's getting so that you can't even buy them," he said, "there are so many bids out."

He said that the bonds' rise coincided with strength in the top carrier's New York Stock Exchange shares, which he characterized as "going apes**t today [Thursday]," up $1.83 (9.33%) to $21.44 on volume of 10.8 million shares, about double the norm. The stock, up 79% so far this year, is at a 52-week high.

It was pushed up by the continued easing in world crude prices - which are considered a significant indicator of potential future price trends for jet fuel, which makes up an increasing share of the expenses for AMR and such domestic rivals as Number-Two carrier United Airlines, Number-Three Delta Air Lines Inc., and Number-Four Northwest Airlines Corp, all of whom are currently in bankruptcy, as well as Number-Five Continental Airlines Corp. and Number-Six Southwest Airlines Corp.

Crude oil prices fell 86 cents to $59.99 a barrel in New York Mercantile Exchange trading Thursday, while heating oil, which trades in price ranges similar to that of jet fuel, fell 3.1% to $1.787 a gallon.

At another desk, a trader pronounced the AMR bonds "almost unchanged" on the day Thursday, with the 2012s at 85.5 bid, 86.5 offered, but he acknowledged that the bonds "are certainly up over the last couple of days, though nothing specific today." Over the past couple of weeks, AMR has pushed up to current levels from recent lows in the lower 70s.

Other airline bonds have also shown some strength of late, with Northwest's notes doing the best, hovering in the upper 30s, while Delta hangs in slightly north of 20, traders said. United's parent company, UAL Corp. - whose bonds had been trading as low as the mid-single digits about a month ago or so - is now in the upper teens.

Also helping the sector, market-watchers say, is United's announced plans to emerge from Chapter 11 early in 2006, after having been there since December 2002, and the investor perception that Delta and Northwest are likely to move through the bankruptcy process considerably quicker than UAL has, since the latter company has blazed a trail that they can follow.

Calpine up

Back on the ground - if not necessarily on particularly solid ground - Calpine bonds were up a point on the day, a trader said, with the company's 8½% notes due 2011 moving up to 22 bid, 23.5 offered, "on comments the attorney made for the company" during the court hearing in Wilmington, Del. to the effect that "the company may be going for a possible financial transaction, such as DIP financing, which would mean that they're filing for Chapter 11, or a debt exchange. So there was just some rumblings."

On the other hand, another trader saw Calpine bonds as mixed, with its 8½% notes due 2008 first trading down half a point on the session, but recovering a little later in the say to end up ½ at 27 bid, 28 offered, while its secured bonds, like the 9 7/8% notes due 2011, were down; he saw the latter bonds losing 1½ points on the day to end at 75 bid, 76 offered.

"There was some more babble between the lawyers, more garbage and verbiage," yet a third trader said, in estimating Calpine's secured second-lien bonds, like its 8½% notes due 2010, down half a point at 75 bid, 75.5 offered, while its unsecured bonds, like the 10½% issue due 2006, were at 36 bid, 37 offered, the 8½% notes due 2011 at 22 bid, 23 offered, and the 8 ½% '08s at 26.75 bid, 27.5 offered.

"The unsecured paper is probably up half a point, secured paper is off half a point to a point." While he said that he had seen "no evidence of it from pricing action out there," the idea that the badly troubled Calpine might be lining up DIP funding in preparation for a bankruptcy filing was "an interesting rumor, and probably true. I don't doubt that one."

A bank loan market source told Prospect News Thursday that Calpine is looking to line up a $2 billion DIP facility.

General Electric Capital Corp., JPMorgan, Credit Suisse First Boston and Deutsche Bank are all rumored to be bidding on the lead role for the DIP, the source said.

"Basically all the big banks are looking at it. The guess is that it will get sorted out early next week," the source added.

Meanwhile in court on Thursday, Calpine told the Delaware Supreme Court that if it was ordered to do so, Calpine could repay $312 million of improperly spent asset-sale proceeds before the Jan. 22 deadline set by the state Chancery Court in a recent ruling. An attorney for the embattled power producer said that Calpine is in the process of attempting to enter into financing transactions, although it would prefer to have more time to do so than less. Calpine is challenging the ruling by the Chancery court that it had acted improperly in spending the money - from the sale of its natural gas assets this past summer - to buy natural gas from its plants, an expenditure that its secured bondholders and their bond trustee contend should not be allowed and should be repaid, sooner rather than later.

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