Calpine bank debt, bonds firmer as bankruptcy seen possible; no word on Curative Health

By Paul Deckelman and Sara Rosenberg

New York, Dec. 1 - Calpine Corp.'s bank debt continued to move higher during Thursday's session as investors are still mulling over valuations based on the assumption that the rumored bankruptcy filing may actually come to pass. Calpine even admitted as much in a company statement updating investors on several court battles it is involved in. And its unsecured bonds - which got clobbered earlier in the week on news of an abrupt regime change at the troubled San Jose, Calf.-based power generating company - seemed to be holding their own or even doing better, possibly on short covering.

Elsewhere, the already bankrupt power generator Mirant Corp.'s bonds were seen continuing to gain, up another point across the board.

Lower oil prices were seen giving a lift to several of the bankrupt airline issues, such as Delta Air Lines Inc., Northwest Airlines Corp. and the parent company of bankrupt United Airlines, UAL Corp.

And there was no immediate word on Curative Health Services, which had to make a tardy coupon interest payment or face default.

Calpine's second-lien debt was quoted at 78 bid, 80 offered, up from Wednesday's levels of 77 bid, 78 offered.

In fact, bank loan traders said that Calpine's second-lien has spent every day this week grinding higher - gaining about a point on Monday, about half a point on Tuesday, about 1½ points on Wednesday and then came Thursday's approximately one point gain.

Bankruptcy talk began to circulate around the market on Tuesday after the company announced that Peter Cartwright, chairman, president and chief executive officer, and Robert D. Kelly, executive vice president and chief financial officer were leaving the company.

Calpine's bonds, meantime, continued to bounce around in the wake of the boardroom coup earlier in the week that resulted in the sudden exits of Cartwright and Kelly, which in turn sparked renewed financial market speculation that Calpine could be headed for a bankruptcy filing, probably sooner rather than later.

The company's bonds initially melted down Tuesday, with some issues off more than 30 points on the session, but then appeared to stabilize and even push up from the lows they hit Tuesday.

On Thursday, a trader said, Calpine moved up "strictly due to short-covering," with its 7¾% notes due 2009 up three points at 33 bid, 35 offered and its 8½% notes due 2008 "not up that much" at 29 bid, 30 offered, a gain of two points on the session.

"Once again, it was mainly Calpine," another trader said, although he only saw the latter issue at 28.5 bid, 29.5 offered, while Calpine's 8½% notes due 2011 were at 25.5 bid, 26 offered.

"They were down a point initially," he said, "but then they moved up a bit to where they were."

However, he said, later in the day, "there were nasty rumors floating around," spurred, he said, by an assessment from Fitch Ratings, which said that unsecured holders would likely do no better than 11 cents on the dollar - less than half their current value - while holders of secured bonds could expect recoveries between 94 cents on the dollar and par on the first- and second-lien notes.

He noted the company's announcement late in the session, seeking more time from the Delaware Court of Chancery to repay $313 million of asset-sale proceeds, which the court ruled last week had been improperly spent by the company to buy natural gas with which to fuel its power plants. Calpine asked the court to knock that amount down to $199 million, and asked for 90 days to restore the funds, saying that to force immediate repayment of the funds would lead to severe financial disruptions. The court has scheduled a special hearing Friday to determine how much Calpine should return to an escrow account holding those asset-sale proceeds, and on what timetable.

Calpine for the first time also began using the dreaded B-word, saying that it was continuing to evaluate its options, possibly including bankruptcy.

"They've changed their tune," he noted facetiously. "What a shock."

With Calpine pleading for more time and raising the specter of bankruptcy, "clearly, they've got issues," he declared. He speculated that ousted chairman/CEO Cartwright may have been too reluctant to bite the bullet and take necessary but painful steps that would lead to a bankruptcy filing because of his emotional attachment to the company he founded 20 years ago.

"It's difficult for guys who create companies to take them into bankruptcy," he opined, "and while they're milling around trying to determine what to do, the assets can degrade, and they'll take steps they shouldn't sometimes - short-term moves, and this company has been the master of the short-term moves to get liquidity.

"He rode it a little too far, and if it does go BK, the recovery on the sub[ordinated] debt is going to be lower, because they've sold off so many EBITDA-producing assets."

He predicted a long bankruptcy, "if it goes there" - and an ugly one, with conflicts between the various bondholder classes.

Besides updating its investors and the public on the latest developments in the Delaware court case - which revolved around Calpine's use of proceeds from the sale of its natural gas reserves earlier this year - Calpine also gave an update on a separate case in the New York courts pitting it against a holder of its convertible notes, Harbert Convertible Arbitrage Master Fund, Ltd.

And another Harbert fund separately gave its own update about yet another Calpine court case, this one involving bonds of a Canadian-based Calpine financing subsidiary and the use of proceeds from the sale of Calpine's British power plant earlier this year (see related story elsewhere in this issue).

Yet another trader called the Calpine bonds "active," pegging the 8½% 2008 bonds at 28.25 bid, 29.25 offered, its 7¾% notes due 2009 at 33 bid, 34 offered, and its 7 5/8% notes due 2006 - which were trading in the upper 60s at the start of the week - at 34.

Meanwhile Calpine's 4.75% convertibles due 2023 traded at 25.75 on Thursday, slightly higher than on Wednesday. But its 6% convertibles due 2014 traded lower at 15.5.

Mirant keeps climbing

Also in the power sphere, a trader saw Mirant Corp.'s notes all "up a point again [Thursday]."

The trader saw the restructuring Atlanta-based company's 7.90% notes due 2009 firm to 122 bid, 124 offered, its 7.40% notes that were to have matured last year at 121 bid, 123 offered, and its convertible notes up as well. In the latter category, Mirant's 2½% notes due 2021 rose to 106 bid, 108 offered, while its 5¾% converts due 2007 finished at 117 bid, 119 offered.

Among the airline names, Delta's notes firmed slightly to 21 bid, 22 offered, a gain of half a point, while UAL's improved to 18 bid, 19 offered from 16.5 bid, 17.5 offered, a trader said. Northwest's bonds ascended to 39 bid, 40 offered, a two point gain on the session. Airline bonds have recently risen as oil prices - a leading indicator of future jet fuel price trends - have remained relatively moderate, staying in the mid-to-upper 50s, well down from ranges above $70 per barrel near the end of the summer.

And Curative Health's 10¾% senior notes due 2011 were being quoted in a bid range of 66 to 69, just slightly below recent levels around 70. There was no immediate word on what the Hauppague, N.Y.-based medical goods and services provider did about the approximately $9.94 million interest payment on those bonds, which was originally due on Nov. 1. At that time, Curative invoked the standard 30-day grace period - now expired - and began talks with its bondholders.

"We heard they hadn't paid," a trader said late in the session, although he did not know whether a default had been formally declared. "The bonds were jumping all over. Maybe we'll know more on Friday."

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