Calpine bonds seen soaring; Revlon paper off sharply; Windstream eyed bringing $2.5 billion

By Paul A. Harris

St. Louis, June 2 - Sources gave various marks on a relatively quiet Friday junk market.

The broad consensus was that junk was unchanged on the session - at least if you were factoring out a forceful move up by the existing paper of bankrupt energy producer Calpine Corp.

One trader, however, insisted that factoring in Calpine's firmness on Friday - with some of the maturities up by as much as seven points - the broad market was up as much as half a point on the session.

Meanwhile the existing bonds of Revlon, Inc. lost a considerable amount of their blush after the company announced early in the morning that it was postponing a previously planned equity offering and debt refinancing.

In the primary market, however, no issues priced, as the market mulls a growing parade of big deals that are expected to commence pricing during the June 5 week.

Calpine paper 'racing up'

Traders focused chiefly on two names Friday, creating a "good news-bad news" scenario.

First the good news.

A source from an account active in both junk and bank loans told Prospect News on Friday morning that Calpine bonds, which had been flat, traded up Thursday and Friday.

This source marked the Calpine second-secured 8½% notes due 2010 at 97.50 bid, up about 2 points over the past two days.

The source added that presently there is the sense that some of the money in the bank loan market is going to the bond market because the bond market has cheapened up quite a bit.

Later in the day a trader, noting that Calpine's stock went traded to $0.47 per share on Friday, up from $0.33, a significant move, spotted Calpine's 8½% notes due 2008 at 67 bid, 69 offered, up two points.

Elsewhere, the source said, the Calpine 8½% notes due 2011 were at 51 bid, 52 offered on Friday, up 2.5 points to 3 points.

And the source saw Calpine's 81/2s due 2010 at 97 bid, 97.50 offered, up 1.5 to about 2 points.

Just after the close, another trader, noting that not a lot of people were around for the session, said that Calpine's paper had been "racing up," and suggested that the positive moves in the Calpine bonds could be attributed to the company's having repaid $646.11 million of its 9 5/8% first priority senior secured notes due 2014, a move the company said would cut its annual interest expense by over $25 million.

Most of the repayment was funded from restricted cash with the balance coming from borrowings under the company's $2 billion debtor-in-possession credit facility.

This trader marked Calpine's 8½% notes due 2011 at 51 bid, 53 offered, up three or four points on the session.

Meanwhile, the source said, the company's 7¾% notes due 2009, its 7 5/8% notes due 2006, its 7 7/8% notes due 2008 and its 10½% notes due 2006 all traded in a 72 bid, 75 offered context, all up 7 or 8 points on the day.

"They had quite a day," the trader commented, adding that the broad high-yield market was unchanged on the day, on low volume.

About 45 minutes after the close another trader characterized the Calpine paper as "very active and very volatile," and marked the 8½% notes due 2011 as 51.50 bid, 52.50 offered. The source added that the paper had closed out the Thursday session at 48.50 bid, 49.50 offered.

Meanwhile the Calpine 10½% notes due 2006, which closed at 64 bid, 65 offered on Thursday, traded as high as 76 bid on Friday, before closing at 71 bid, 72 offered, "a huge move," the source said.

"There's not a lot of conviction out there, but a there's lot of money," the trader said, marking the broad market up about half a point.

"If you average in Calpine being up 10 points early, and finishing up about five or six points, that alone is worth calling the market up half a point," the trader asserted.

Finally early Friday evening a distressed debt trader, sweeping up the bits, said Calpine was the biggest mover on the day, and said that the 8½% notes due 2011 ended 52 bid, 54 offered, probably 6 points better.

Revlon beaten down

As for the bad news, on Friday morning Revlon issued a press release announcing that it was making a downward revision to its 2006 growth projection, blaming less robust growth from its Vital Radiance and Almay brands due to stepped up competition.

The release also made reference to "less effectiveness from certain of the company's revenue driving actions."

Revlon now expects adjusted EBITDA will be at or below 2005 levels, with a significant impact on the second quarter of the current year.

The company also announced that it intends to defer its $75 million equity offering to later in 2006 or early 2007 and will also defer the previously announced proposed refinancing of its current credit facility, noting that its existing revolver and term loan expire in July 2009 and July 2010, respectively.

After the news had a chance to percolate through the market for two hours or so a trader marked Revlon's 8 5/8% bonds due 2008 at 93.50 bid, 94.50 offered, down from 98.75 on Thursday, or about 4 to 5 points.

The source also spotted Revlon's 9½% due 2011 at 93 offered, down from 100 bid on Thursday, a drop of almost seven points.

Later another trader, commenting that the Revlon news "came out of the blue," spotted the 8 5/8% bonds due 2008 going out 93 bid, 95 offered, down from 98.50 bid on Thursday.

The last trade on the 9½% notes due 2011 was 93 bid, down from 97.50 bid on Thursday, the trader added.

The source also noted that Revlon's stock also made a decisive downward move to $1.13 per share, off from $1.91.

After the close another trader said that Revlon had been sloppy on the day. The source also said that the equity offering that the company is deferring was going to be used to pay down some debt.

This trader had the 8 5/8% notes due 2008 closing at 93 bid, 94 offered, down from 98 bid, 99 offered at Thursday's close.

The same source had the 9½% notes due 2011 finishing at 91.50 bid, 92.50 offered, down from 96.50 bid, 97.50.

But a bump for the bank loan

Meanwhile a bank loan trader, also noting the falling prices of Revlon's junk bonds on Friday morning, said that the cosmetics company's bank loan paper had actually improved.

The source spotted the Libor plus 600 bps loan paper at 102 bid, 103 offered, after having been wrapped around 102 bid.

"When they were going to come with this new bank deal it appeared that they were going to cut pricing a little bit," the source said.

Making reference to the fact that until recently spreads in the bank loan market had become notoriously tight, the trader said that the loan market was welcoming news that Revlon's Libor plus 600 deal will stay out there, at least for the time being.

"When the rest of the market is trading around 200, and you have Revlon's B3/B- paper at Libor plus 600, why not clip the coupon?," the trader asked rhetorically.

The auto names

A trader who spoke mid-morning on Friday noted that junk already appeared to be coming off its highs for the day.

"The autos are down," the trader said, adding that General Motors Corp. was down half to three-quarters of a point, with the benchmark GM 8 3/8% bonds due 2033 at 76 bid, "starting to come off.

"They had been stable the past couple of days," the source said.

"Surprisingly did not move with the market."

Later in the day a market source spotted GM's 8 3/8% paper due 2033 down half a point at 75.75 bid, 76.25 offered.

At the close a trader said the GM 8 3/8% notes due 2033 were at 76 bid, 76.625 offered, unchanged on the day.

Meanwhile the General Motors Acceptance Corp. 8% notes due 2031 were unchanged at 93.75 bid, 94.25 offered, according to a market source.

However Ford Motor Co.'s benchmark 7.45% bonds maturing 2031 were up a quarter at 73 bid, 73.50 offered. And Ford Motor Credit Co.'s 7% notes due 2013 were also up a quarter to 87 bid, 87.50 offered.

Delphi stock leads bonds

Elsewhere in the auto sector, a trader saw a 1 point improvement in the paper of Delphi Corp. and spotted its 6½% bonds due 2009 at 85 bid, 86 offered.

"There is a lot of money going into the distressed sector," the trader said.

"The hedgies are buying the equity and getting positions on the reorganizations. The thinking on the capital structure is that if the equity is worth some money the bonds have to be worth more money.

"It's a cycle. It's almost as though the equity is leading the bonds higher."

Nevertheless this source, who focuses on the automotive sector, expressed the opinion that the Delphi situation remains "pretty precarious.

"There have been some positive comments out of the CEO of GM this week that the buyouts are going according to plan. And the talks between the United Automobile Workers and Delphi are 'encouraging,' as he put it.

"There were also 'semi-decent' monthly bankruptcy results from [Dana Corp.]," the trader added.

"And the Dana and Delphi filings are appearing to be more defensive in nature: they appear to be trying to reduce their labor costs. And the businesses, themselves, appear to be pretty viable in the face of a decline in the domestic auto industry."

The source marked Dana's 6½% bonds due 2009 closing at 88 bid, 89 offered, up half a point or so, after having traded as high as 89 bid Friday morning.

Meanwhile a market source spotted the Delphi 6.55% notes due 2006 at 85.25 bid, 86.25 offered, up 1.75, and the 7 1/8% notes due 2029 at 82 bid, 83 offered, up half a point.

The source added that the Dana paper was up a point across the board, and spotted the Dana 6½% notes due 2008 at 89.50 bid, 90.50 offered, in line with the trend with a 1 point gain just before the Friday close.

Meanwhile the source had the Dana 5.85% bonds due 2015 at 81 bid, 82 offered, up a point, while the 7% notes maturing in 2028 were at 82 bid, 83 offered, also up a point.

The source said that Lear Corp. bonds were up a half to a quarter on the session while the existing bonds of Tower Automotive were 73.50 bid, 74.50 offered, "up a touch."

However Dura Automotive's 9% bonds due 2009 were at 57 bid, 58 offered, down a point.

Meanwhile a trader, speaking shortly after the close, spotted the Delphi paper in the low 80s, in an 80.50 bid, 81.50 offered context, off about a point.

This source spotted Visteon Corp.'s 7% bonds due 2014 at 82.25 bid, 83 offered, up a quarter of a point, which the Visteon 8¼% notes were 92 bid, 93 offered, unchanged.

The trader said that there was "not a lot of volume anywhere."

Well after the close, a distressed debt trader saw Delphi's 6.55% bonds and 6½% bonds at 85 bid, 86 offered, up a point.

The trader marked the Dana Corp. paper unchanged, however.

The recent issues

Two issues were priced on Thursday - both coming in upsized transactions.

Beazer Homes USA Inc. priced an upsized $275 million issue of senior notes due 2016 (Ba1/BB) at par to yield 8 1/8%, upsized from $250 million.

On Friday a source saw the new Beazer 8 1/8% due 2016 at 99.50 bid, 100 offered.

Another trader saw the new Beazers closing 99.75 bid, 100 offered, after having traded as high as 100 bid, 100.25 offered earlier in the session.

Pogo Producing Co. also priced an upsized $450 million issue of senior subordinated notes due 2013 (B2/B+) at par to yield 7 7/8%, in a Thursday drive by, upsized from $400 million.

On Friday a trader saw the new Pogo paper due 2013 at higher levels of 100.75 bid, 101.75.

Another trader spotted the new par-pricing Pogos at 100.875 bid, 101.25 offered.

Beazer and Pogo, the week's only deals

As it turns out, with no issues pricing Friday, the Beazer and Pogo transactions were the only tranches seen to price during the entire four-day post-Memorial Day week for a combined total of $725 million in two tranches.

That left year-to-date dollar-denominated issuance through Friday's close at just over $55 billion in 160 tranches, as 2006 issuance remains well ahead of 2005, in year-over-year totals.

At the June 2, 2005 close the market had seen just under $40 billion price in 164 dollar-denominated tranches.

Windstream to bring $2.5 billion

During Friday's dormant primary market session Windstream Corp. was heard to be coming with an approximately $2.5 billion two-tranche senior notes transaction (Ba3) in mid-to-late June.

Merrill Lynch & Co. and JP Morgan will be joint bookrunners for the deal, proceeds from which will be used to help fund the acquisition by Valor Communications of Alltel's fixed line wireless business. The merger of Valor and Alltel (which will change its name to Windstream) will create what the companies are calling the leading rural-focused wireline telecommunications company.

And Interline Brands Inc. will conduct a Monday-to-Friday investor roadshow for its $175 million offering of 10-year senior subordinated notes (B3/B), a debt refinancing and acquisition funding deal via Lehman Brothers and JP Morgan.

Interline takes its place on a calendar of deals for the June 5 week that figures to be highlighted by Healthsouth Corp.'s $1 billion of senior notes (B3/CCC+) in two tranches via Merrill Lynch & Co., JP Morgan Securities and Citigroup.

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