Calpine, Mirant continue lower on analyst's report; AMR, UAL remain on upward path

By Carlise Newman

Chicago, May 22 - Calpine Corp. remained mired in lower levels Thursday, as the market continued to digest the report released Wednesday from Goldman Sachs & Co. equity analysts downgrading the energy company. Goldman downgraded several key companies in the sector, saying their stocks were fully valued after months of consistent gains.

Calpine and other distressed energy companies such as Mirant Corp., El Paso Corp. and Dynegy Inc. have enjoyed a long run of rallies, following a string of debt refinancings from companies in the sector - not, so far, including Calpine - and a rise in gas and power prices.

Calpine's bonds - which had been trading actively in the high 60s to mid-70s in the last month or two - were seen slowing to a crawl Thursday. The 8½% notes due 2011 were quoted falling to 64 bid/66 offered, down two points from Wednesday and down five points from last week when they were seen at 69 bid, said a distressed debt trader.

Goldman Sachs analyst Jonathan Raleigh cut his stock ratings for Calpine, Duke Energy Corp., and DQE Inc. to underperform from in line, and downgraded Ameren Corp., Edison International, and Entergy Corp. to in line from outperform.

"The rebound in shares, in our view, has been the direct result of lender support, better than expected commodity price conditions, and a positive reversal in investor sentiment," said Raleigh in a report. "However, when accounting for current debt levels, we believe most distressed names look fully valued."

As a result of Calpine's slide, a trader said he saw "downside momentum" in Mirant Corp.

Mirant's 7.2% notes due 2004 were seen down three points from Tuesday, at 81 bid/83 offered. Mirant's bonds had been trading in the mid-80s recently.

"This is to be expected. Mirant, Calpine, Dynegy - they were all overbid. Confidence in the sector, which is what everyone was saying during this rally, can only take you so far in distressed," said a trader.

Airlines, which have also been faring slightly better in recent weeks, got a lift in recent days amid a slew of better-than-usual news for the sector.

AMR's 9% notes due 2011 were quoted up three points to 60 bid/61 offered. The Fort Worth-based air carrier had been trading "around 57 bid" early in the week.

The bonds rose, ignoring a report from Blaylock & Partners equity analyst Ray Neidl which cut AMR to hold from buy, noting that the stock has rallied sharply following labor agreements and the end of the Iraq war.

American reached labor cost cuts with union workers in April to stave off bankruptcy, but recent industry traffic and unit revenue estimates have been weaker than expected, Neidl said in a report. The Fort Worth, Texas-based air carrier has reported billions of dollars of losses since the Sept. 11, 2001 hijack attacks.

Barring unforeseen events, AMR should avoid bankruptcy, but no U.S. hub airlines are expected to return to profitability before 2004, Neidl said.

Late Wednesday, at AMR's annual meeting in Dallas, chairman Edward Brennan and chief executive Gerard Arpey both said they will not take a salary or pay hikes "for the foreseeable future." The two also said American will trim leg room out of 23% of its fleet and will pare fares to match low-cost competitors on routes between New York and Long Beach, Orange County and San Jose, Calif.

"UAL's news brought airlines up earlier. Lately things have just been a little better," said a distressed debt trader.

United Airlines parent UAL Corp. bonds have risen this week on a report that the nation's second-largest carrier would work its way out of bankruptcy as soon as this fall - months ahead of schedule.

UAL's 9¾% notes due 2021 were quoted at 10 bid/11 offered Thursday, up a half-point from Tuesday, when they were seen at 9.5 bid/10.5 offered.

"Double digits!" said a trader of UAL's latest trading levels.

The company said it is on track to meet April and May financial targets set by creditors, which was a far cry from March when it appeared the goals would be missed. UAL also obtained $300 million from the federal government as part of the package to help airlines stung by the war in Iraq.

In other news, Motorcoach Industries International's bank debt was quoted at 86 bid, 88 offered, moving up from the high 70s over the past week or so, said a distressed trader, "on supply and demand."

In addition, Western Wireless Co.'s term loan B traded at 921/4, up from 91½ Wednesday. The Bellevue, Wash.-based wireless communications company was "fairly active" Thursday, a trader said.

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