Calpine bank debt firms; asbestos edges up; GM, Delphi continue improvement

By Paul Deckelman and Sara Rosenberg

New York, May 2 6 - Calpine Corp.'s second-lien term loan moved into higher territory during morning market hours Friday, bank paper traders said, as the market headed into the three-day Memorial Day holiday weekend break. However, they credited the rise to improved market technicals rather than to any fundamental change in the bankrupt San Jose, Calif.-based power producer's situation.

Elsewhere, the bonds of asbestos-challenged issuers Owens Corning, Armstrong World Industries Inc. and Federal-Mogul Corp. were each seen about a point or two stronger on the day as they continue to gyrate around the lower levels that those bonds fell to off their recent hefty gains.

In the automotive sector, General Motors Corp.'s bonds posted healthy gains for a second consecutive session, traders said, as did the bonds of such other issuers as the bankrupt former GM subsidiary Delphi Corp., and bankrupt component manufacturers Tower Automotive Inc. and Dana Corp.

Calpine's second-lien bank paper moved up, according to a trader, most probably due to improved market technicals, as no credit-specific news about the utility plant operator was seen.

The trader quoted the second-lien loan at 95.5 bid with no offers - stronger by a point on the bid side when compared to prior levels.

Most junk bond traders meantime saw little or no activity in Calpine's notes during the abbreviated pre-holiday trading session, which officially wrapped up at 2 p.m. ET, although most of whatever real action that went on in the market happened long before that. A trader quoted the company's 8½% notes due 2011 at 41 bid, 42.5 offered, unchanged on the day. However, a source at another shop pegged Calpine's 8¾% notes due 2007 up a point at 60 bid.

Asbestos names gain

Also on the upside Friday were the bank debt and bonds of Armstrong World Industries and the bonds of its sector peers, Owens Corning and Federal-Mogul.

Armstrong's loan paper was seen benefiting from a better market tone, firming to 81 bid, 82.5 offered, according to a trader. By comparison, the bankrupt Lancaster, Pa.-based floorcovering maker's paper had traded Thursday at 78 bid, 79 offered. "Everything felt firmer today [Friday], but it was really quiet," the trader added.

In the junk bond market, a trader said, Armstrong's 6.35% notes that were to have come due in 2003 and its 6.50% notes that were to have come due in 2005 firmed to 82 bid, 83 offered from prior levels at 79 bid, 80 offered, while the company's 9% notes that were to have come due in 2001 and its 9¾% notes due 2008 were trading about a point above those levels, also two to three points higher on the day.

Armstrong was following the trend in the asbestos segment, where bankrupt Toledo, Ohio-based insulation maker Owens Corning's 7% notes due 2009 were seen up a point at 109 bid, and its 7½% notes due 2018 were at 111 bid, 112 offered, likewise up a point. Bankrupt Southfield, Mich.-based automotive brakes maker Federal-Mogul's 8.80% notes due 2007 were at 62 bid, 64 offered, the trader said, up from 60 bid, 61 offered.

All of those bonds have recently been on a roller coaster. After languishing for months, they shot sharply higher in mid-May - Owens Corning to bid levels around 122-123, Armstrong to about 90-91, and Federal-Mogul to 69-70 - after Owens Corning announced that it had come to an agreement on a new restructuring plan with its various categories of creditors, including the holders of several billion dollars of asbestos claims. Those claims would be paid via a trust fund mechanism similar to the one that bankrupt Chicago-based building product maker USG Corp. is setting up for its asbestos claimants as part of USG's reorganization plan.

However, after notching those impressive gains, the three asbestos companies' bonds partly retraced their steps down to just below the current levels to which they moved in Friday's action.

GM continues rise

Among the automotive names, GM rose solidly for a second consecutive session. A trader saw the Detroit giant's benchmark 8 3/8% notes due 2033 at 76.75 bid, 77.25 offered, up 1¼ points, about matching Thursday's rise. He also saw the 8% notes due 2031 of its General Motors Acceptance Corp. financing arm half a point better at 94.25 bid, 94.75 offered.

Another trader saw the GM bonds "a little stronger on the day," with the GMAC 8s up about ¾ point at 94.25 bid, 95.25 offered, while "middle of the curve GMAC paper," like the 7¼% notes due 2011, was up perhaps half a point, with those bonds driving off at 95.5 bid, 96.5 offered.

"There was definitely some strength" in the GM-related issues, he said, "although muted activity, but there was definitely some stuff going on."

Yet another trader, while seeing GM up - the 8 3/8s pushing up to 77 bid, 78 offered, which he saw having risen from 74.5 bid, 75.5 previously - saw little movement in the GMAC issues.

A market source at another desk called GM's 7¼% notes due 2013 up 1½ points at nearly 80 bid, while GMAC's 6 7/8% notes due 2012 were up just ¼ point at 93.5 bid.

Things seemed to be looking up for GM this past week on Wall Street, where first Merrill Lynch & Co. analyst John Murphy on Wednesday, and then Prudential Securities on Friday, upgraded their recommendations on GM's stock. Murphy specifically cited a Detroit News report that as many as 20,000 of the carmaker's 113,000 hourly employees have already accepted GM's offers of buyouts if they take early retirement - two-thirds of GM's previously stated headcount reduction goal of some 30,000 workers by 2008.

"GM and its shareholders are clearly better off if buyouts are widely accepted, as are workers," the Merrill analyst wrote in his upgrade message. "A worker accepting the buyout is contributing to the health of GM making their future benefits more secure, especially versus the worst case scenario of a bankruptcy."

Prudential alluded to the buyout news as well, saying the company's goal of producing savings by workforce attrition was doing better than expected.

GM itself had some news of sorts Friday - making an announcement saying that it plans to make another announcement. It said that it will make what it described as a "major" investment announcement on Tuesday at its transmission plant in Ypsilanti, Mich.

The carmaker also got a psychological boost - even if not necessarily terribly significant financially - from the man widely considered to be America's most savvy stock picker. Fortune magazine's on-line service reported Friday that legendary billionaire investor Warren Buffett was so impressed by GM chairman Rick Wagoner's analysis of the company's problems and what his management plans to do about them in a recent televised interview that the Oracle of Omaha - who up until now was driving a Lincoln Town Car - went out and bought a new Cadillac DTS, at a price which for Buffett is like pocket change, in the $41,000-plus area. He also faxed Wagoner a note commending him on his interview performance and added, Fortune said, that he was "behind GM 100%."

GM lifts other auto names

All of that good GM news, large and small, was seen by traders as a catalyst for other upside movement in the sector Friday.

"If anything," a trader declared, the firmness among other names in the auto sector was "because GM's doing better - some positive stories on GM, upgrades of the stock, the stock's better, so I think some of the auto stuff kind of went up in sympathy with it because there was nothing negative coming out on them. So a little bit of positive news on the sector helped."

He saw Novi, Mich.-based Tower Automotive's RJ Tower Corp. 12% notes due 2013 at 73.5 bid, which he called up 3½ points on the session.

A trader saw the bankrupt Troy, Mich.-based parts maker Delphi's bonds better on the session, also continuing the momentum they've carried over from the earlier part of the week. Its 6.55% notes due 2006 were up ¾ point at 80,75 bid, 81.75 offered, while its 7 1/8% notes due 2029 were as much as 1½ points up, at 79.75 bid, 80.75 offered.

Delphi, another trader said, "was still hanging in there," at 80 bid, 81 offered on the 6.55s and the 6½% notes due 2009. Delphi's Pink Sheets-traded shares meantime jumped 14 cents (10.22%) to $1.51 Friday on volume of 11 million, somewhat more than usual.

Delphi investors seem to have drawn encouragement from the strengthening in GM, its corporate parent till 1999 - perhaps reasoning that stronger GM will be in a better position and better disposed to offering more help to its problem child. The stock has lately climbed, and the Delphi bonds are about 10 points firmer than they were at the beginning of the month.

GM earlier in the year said it would fund early-retirement buyouts that Delphi is offering to 13,000 of its 34,000 hourly workers, while offering to take back another 5,000 Delphi employees. Delphi - which contends its contracts with its union members are too burdensome - is in the midst of negotiations with GM and the United Auto Workers union, seeking to come to a consensual agreement to cut the average $27 per hour wage, with Delphi hoping that GM agrees to make up the difference or otherwise partly subsidize Delphi's employee costs, something GM has not yet committed to do. At the same time, Delphi is seeking Bankruptcy Court approval to junk those pacts and unilaterally impose a lower wage scale - a move which could lead the company's unions to strike Delphi, which would also badly hurt GM, Delphi's biggest customer.

Delphi was back in court in New York Friday for the latest in a series of hearings at which it sought to make its case for voiding the contracts. However, at Friday's hearing lawyers for the union questioned Delphi executives about planned cuts among salaried and hourly employees. Delphi executive vice president Mark Weber acknowledged that the plan called for significant cuts, which would have much greater impact on the hourly workers than among salaried and managerial workers. The hearings resume next Friday.

Also in the automotive parts producer realm, Rochester Hills, Mich.-based Dura Operating's 9% notes due 2009 were seen a point better at 58.5 bid, while bankrupt Toledo, Ohio-based parts maker Dana Corp.'s 7% notes due 2028 were up a point at 78.5 bid, 79.5 offered.

A rare downsider among the auto names was Southfield, Mich.-based interior and seating components manufacturer Lear Corp., whose 8.11% notes due 2009 lost 3/8 point, ending at 97.5 bid, 98 offered.

Outside of the auto names, a trader saw Movie Gallery Inc.'s 11% notes due 2012 a point better at 75 bid, 76 offered, but on no fresh news about the troubled Dothan, Ala.-based video-rental chain operator.

And Foamex International Inc.'s bonds were seen languishing around the lower levels to which the bankrupt Linwood, Pa.-based foam rubber products maker's bonds had fallen on Thursday. Its 9 7/8% senior subordinated notes due 2007 were little changed around 87.5 bid.

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