Calpine confusion roils primary, sends bonds lower in secondary

By Paul Deckelman and Paul A. Harris

New York, Feb. 23 - Will they - or won't they?

With all kinds of rumors about what might or might not be going on regarding Calpine Corp.'s planned $2.3 billion financing effort flying around the debt markets Monday, high-yield primary side players were kept off balance. First the scuttlebutt was that the San Jose, Calif.-based power generator's Calpine Generating Co. LLC's $1.3 billion bank debt deal and $1.05 billion junk bond offering was out. Then it was back in. Then it was being restructured.

The Calpine conundrum overshadowed news out of gaming operators Pinnacle Entertainment Inc., which announced plans to sell $200 million of eight-year notes, and Station Casinos Inc., which was heard by syndicate sources to be quickly shopping a $350 million drive-by deal.

In the secondary market, most credits felt heavy, traders said - with none heavier than Calpine, whose existing bonds were being quoted down at least two points on the session in response to the confusion surrounding the company's financing picture.

A trader said ironically that there was "all kinds of fun stuff" going on, starting with Calpine. He quoted the company's 8½% notes due 2011, which on Friday had opened at 79.5 bid, 80 offered and then had eased to 78.75 bid, 79.75 offered, as having eroded down to 75 bid, 77 offered by the end of Monday's dealings.

He also saw Calpine's 8½% notes due 2008 of having fallen to 77.25 bid, 78.25 offered from opening levels at 80 bid, 81 offered.

At another desk, a trader quoted Calpine's 8 ½% notes due 2010 as three point losers, down to 91.75. Its 8 5/8% notes due 2010 were down a deuce at 78 bid.

Elsewhere, a trader said that Charter Communications Inc. bonds were weaker, down about half a point on the session.

"They had lousy numbers last week, and they just keep drifting lower," he said of the St. Louis-based cable TV operator's bonds

He quoted Charter's 8 5/8% notes due 2009 as having backpedaled to 82.5 bid, 83.5 offered from 84.25 bid, 84.75 offered on Friday.

Charter's 10¼% notes due 2010 were meantime pegged at 103.5 bid, down $1.50.

Crown Cork off on court verdict

He also saw Crown Cork & Seal Inc. down about at a point-and-a-half after the Supreme Court of Pennsylvania in a 4-3 decision reversed the June 11, 2002 order of the Philadelphia Court of Common Pleas seen as favorable to the Philadelphia-based packaging maker's efforts to defend itself from multimillion-dollar claim asbestos-related litigation.

"They were hitting bids right out of the chute this morning." he said, "and they didn't recover," although he didn't see that much trading in the name.

He saw Crown Cork's 9½% notes drop to 112.5 bid, 113 offered from 114 bid, 115 offered previously.

The Court of Common Pleas ruling overturned had decided favorably on a motion by a Crown Cork wholly-owned subsidiary for summary judgment regarding 376 pending asbestos-related cases against Crown Cork in Philadelphia.

Level 3 lower

A trader saw Level 3 Communications Inc.'s bonds all lower, its 9 1/8% notes due 2008 dipping to 80.5 bid, 81.5 offered Monday from Friday's close at 82 bid, 84 offered and well down from Friday's open at 84.5 bid, 85.5 offered.

He hadn't seen any fresh negative news out on the Broomfield, Colo.-based fiber optic telecommunications network operator, but said its decline was "just fallout from the [generally negative market] news. A lot of things are spitting up.

"I see a lot of CCCs and single-Bs that have rallied the most over the last year. Anything from posting disappoint numbers to just ho-hum meeting estimates causes bonds to tail off a little bit, and Level 3 is definitely in that category."

In the broader sense, he added, "all of tech land has been really weak recently."

Apart from names such as Calpine and Level 3, he said, "everything else was just treading water. There was not a lot of flow. It was slow volume.

"All in all," he continued, "people are watching stocks and taking a little air out of the tires here.

In the primary, one single deal, a euro issue, priced during the opening session of February's final week of business.

Meanwhile the new deal calendar seemed to build purposefully, with timing and other details surfacing on an even handful of new offers, and announcements were made on an additional two.

Acting like it's a hot market

A buy-side source who spoke to Prospect News on background, Monday afternoon, contended that high yield is not nearly as hot as it was in mid-January - but said the investment banks appear to be operating as though it still is.

"The banks are trying to cram these deals down," the investor said.

"Look at Qwest. Do you remember Qwest?" the investor asked, rhetorically, alluding to the Denver, Colo.-based telephone company's new 7¼% senior notes due 2011, which priced on Jan. 30 at 99.3205 to yield 7 3/8% and its 7½% senior notes due 2014 which priced the same day at 98.2753 to yield 7 ¾%.

"Do you know where those bonds are now?!," the investor continued. "Ninety cents on the dollar. That's nine-zero.

"The banks are acting like this market is still hot and they're cramming these things down with not enough yield. And people are getting creamed."

A sell-side source subsequently quoted the Qwest 7¼% notes of 2011 at 93, and the 7½% notes due 2014 at 92.

Buy-side cash position "not excessive"

Prospect News asked the buy-sider if these circumstances possibly reflect a point of view in the investment banks that - a couple of weeks of outflows from the high yield mutual funds notwithstanding - investors continue to be laden with cash that they must attempt to put to work.

"The cash number we see is 4% or 5% but that's just part of the pool because you've got insurance companies and hedge fund, etc.," the investor responded.

"I think the cash positions are probably decent but not big. They are not excessive.

"At the same time people are worried about rates. If I can buy a mortgage at 5% and investment-grade bonds at 6%, why should I buy a single-B high yield bond at 7¼%?

"Something's gotta give in the high yield market. We ran a screen looking at everything between that has recently come between 8½% and 10½%. And the names it kicked out were not pretty names.

"It's tough to argue that there is a lot of value here but the banks are still cramming down paper."

Esselte upsizes

Only one offering priced during Monday's session in the high yield primary market.

Esselte Group Holdings AB priced an upsized €150 million of seven-year senior notes at par to yield 7 5/8%, according to a market source.

Credit Suisse First Boston ran the books on the refinancing deal from the Stamford, Conn.-based office supply company.

Three gaming companies on the doorstep

New offerings from seven potential issuers came into view on Monday, with timing and other details heard on five of them. Of those latter five, three are gaming or gaming-related companies.

Price talk of 6½%-6¾% was heard Monday on a quick-to-market offering from Station Casinos of $350 million of senior subordinated notes due 2016 (B1/B+), with the deal expected to price on Tuesday.

Banc of America Securities, Deutsche Bank Securities and Lehman Brothers are joint bookrunners on the refinancing deal from the Las Vegas gaming firm.

Also Pinnacle Entertainment, Inc. got set to start a three-day roadshow on Tuesday for $200 million of eight-year senior subordinated notes (existing ratings Caa1/CCC+), with the refinancing deal expected to price on Thursday or Friday, via Lehman Brothers and Bear Sterns & Co.

And Las Vegas-based casino transaction-processing services firm Global Cash Access, LLC began a roadshow Monday for $235 million of eight-year senior subordinated notes (B-), with pricing expected mid-week during the week of March 1.

Banc of America Securities will run the books on offering, proceeds from which will be used to finance M&C's purchase of First Data's 67% equity interest in Global Cash Access.

Elsewhere Nortek Holdings will hold a one-day New York City and Boston roadshow on Tuesday for $150 million of six-year senior floating-rate notes (B1/B+), with pricing late Tuesday or Wednesday, according to market sources.

Deutsche Bank Securities and Bear Stearns & Co. are joint bookrunners on the refinancing offer.

And WH Holdings and WH Capital Corp. (Herbalife) will start a roadshow Wednesday for $275 million of seven-year senior notes (B3/B), with pricing expected on March 3 or March 4.

UBS Investment Bank will run the books on the refinancing deal from the Century City, Calif.-based marketer of weight management and nutrition products.

Two other announcements came during the session.

Omega Healthcare Investors announced in a Monday press release that it will sell $200 million of notes.

Deutsche Bank Securities and UBS Investment Bank will be joint bookrunners on the refinancing deal from the Timonium, Md.-based real estate investment trust investing in and providing financing to the long-term care industry.

And Grande Communications Holdings Inc. announced in a Monday press release that it will offer $125 million of 10-year notes. No other details were available on that deal.

IDBI talk as holidays quiet emerging markets

A buy-side source told Prospect News that due to holidays in Brazil and Russia the emerging markets got off to a quiet start on Monday.

Price talk of 180-185 basis points emerged during the session on Industrial Development Bank of India (IDBI)'s $300 million of five-year bonds (Baa3//BB+), with pricing expected in the middle of this week.

JP Morgan and Citigroup are joint bookrunners on the Regulation S only offering.

Talk, meanwhile, was also heard on the "benchmark size" deal from Korea Development Bank (A3/A-), which is expected to price Tuesday or Wednesday via ABN Amro, Citigroup and Deutsche Bank Securities.

Finally, an Indonesian 10-year sovereign deal will reportedly start roadshowing next week, with Deutsche Bank Securities and JP Morgan running the books.

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