Calpine free-fall continues, Xerox up on upgrade; primary quiet; funds see $228 million outflow

By Paul Deckelman and Paul A. Harris

New York, April 28 - Calpine Corp. bonds continued to lose power for yet another day Thursday, even as the troubled San Jose, Calif.-based power generating company's New York Stock Exchange-traded shares took a nosedive on what the company denounced as ""persistent false rumors in the market."

Most of junk bondland had a heavy tone, traders said, but here and there were a few issues trying to push to the upside, including Xerox Corp., whose bonds were seen basking in the warm afterglow of Wednesday's ratings upgrade by Standard & Poor's.

Primaryside activity, meantime, was almost nil, as market players waited with a sense of dread, a trader said, for the high-yield mutual fund flow number that makes the rounds after the close on Thursday afternoon.

And when the flow number finally did hit the tape - relatively early, even - it wasn't as bad as many people were expecting.

"The way things have been going down, it felt like we were going to see $750 [million]," the trader said. But market participants familiar with the fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that actually $228.4 million more left the junk funds in the week ended Wednesday than came into them.

Still, it was the 11th consecutive week which the funds hemorrhaged money, including the $679 million outflow seen in the previous week, ended April 20.

In those 11 weeks, net outflows have totaled about $5.293 billion, according to a Prospect News analysis of the AMG figures.

That comprises most of the $6.219 billion cumulative outflow that the funds have seen since the start of the year, an increase from $5.991 billion seen the week before, according to the Prospect News analysis. Outflows have now been seen in 14 weeks out of the 17 so far this year, the analysis further reveals.

The figures exclude distributions and count only those funds that report on a weekly basis.

The fund flow numbers are considered a measure of junk market liquidity trends.

While the figure was the 20th negative flow in the past 22 weeks, more significant, according to one source, is that the consecutive weeks of net outflows now numbers 11. Hence, according to the source, if high-yield mutual funds undergo outflows in each of the coming two weeks, ending May 4 and May 11, the string of negative flows will tie the record of 13 consecutive negative weeks that took place from Sept. 22, 2000 to Dec. 15, 2000.

A lot of overhang

One investment banker who mulled the news of the 11th consecutive weekly outflow characterized the junk market as presently "very weak."

"With the high-yield mutual funds having 11 consecutive outflows now, the mutual funds are just not going to sustain the primary market at anything respectable, like a $2 billion per week pace," the source said.

"Also I think the hedge funds are pulling the plug, which is something that appears to have started during the first two weeks in April.

"This week so far we have seen just four deals price, and we're hearing that at least three of them struggled mightily."

The source recounted that on Monday Movie Gallery, Inc. priced a restructured $325 million of seven-year non-call-three 11% fixed-rate senior notes (B2/B-) at 98.806 to yield 11¼%, 37.5 basis points wide of price talk.

Two days later, on Wednesday, Hawaiian Telcom Communications Inc. priced a downsized $500 million transaction involving three tranches.

The company sold $200 million of eight-year senior fixed rate notes (B3/B-) at par to yield 9¾%, on top of revised price talk.

Hawaiian Telcom also sold $150 million of eight-year senior floating-rate notes (B3/B-) at par to yield six-month Libor plus 550 basis points, again on top of revised talk.

The company also sold $150 million of 10-year senior subordinated fixed-rate notes (Caa1/B-) at par to yield 12½%, at the wide end of revised talk.

Also on Wednesday Triad Acquisition Corp. (Triad Financial Corp.) priced a downsized, restructured $150 million 11 1/8% eight-year senior notes (B3/B-) at 99.35 to yield 11¼%, at the wide end of the revised talk. The deal was said to have been pro forma-ed on April 19 at 9%.

The only bright spot thus far into the final week of April 2005, according to the sell-sider, is North American Energy Partners Inc.'s $60.48 million issue of five-year senior secured notes (B3/B+).

Although the notes priced at par on Tuesday to yield 9%, on top of price talk, news of the Jefferies-led transaction did not circulate until Thursday.

"Right now there is a huge overhang in this market," the sell-sider said. "People are just not going to put money to work in this environment without seeing some very attractive terms. It's too risky.

"And you have to wonder right now whether the tone will materially improve in May.

"There is just a lot of bad news out there."

No deals price

In the primary market no new issues priced during the session. And the news that did surface, much of it from Europe, was a mixed bag.

Kloeckner Investment SCA, the financing subsidiary of Duisburg, Germany, metals trader Kloeckner & Co. GmbH, talked its €350 million offering of 10-year senior notes (B3/B-) at 9¾% to 10%.

The LBO deal, which notably retains its original size and structure, according to the information the circulated Thursday, is expected to price Friday via JP Morgan and Barclays Capital.

Meanwhile in another sector, German cable operator Iesy Repository GmbH postponed its €525 million two-tranche offering of 10-year senior notes (Caa1/CCC+) due to unfavorable market conditions.

Citigroup, Deutsche Bank Securities and JP Morgan were joint bookrunners for the acquisition financing.

Mandra Forestry downsizes, restructures

The ravages of the turbulent high-yield market also took a toll Thursday on a deal that, according to sources, is being marketed to both high-yield and emerging markets investors.

Mandra Forestry Finance Ltd. has downsized its pending offer of senior notes (B1/B) to $200 million maximum from $235 million.

Meanwhile the Hong Kong-based forestry company has reduced the tenor of the bond to eight-years from 10-years.

Morgan Stanley has the books for the deal, the status of which is "day-to-day," pending market conditions, according to an informed source.

Day-to-day

Other deals now in the market are also thought to be "day-to-day pending market conditions," sources say.

There are four deals waiting with price talk and indications of when the issuers and underwriters intend to price them.

Central European Media Enterprises Ltd. is expected to price its €350 million two-part deal (B1/B+) on Friday, via JP Morgan, Lehman Brothers and ING. A €200 million tranche of seven-year senior fixed-rate notes is talked at 8% to 8¼%, and a €150 million tranche of seven-year senior floating-rate notes is talked six-month Euribor plus 525-550.

Also expected to price Friday is Kloeckner's above-mentioned €350 million offering, via JP Morgan and Barclays Capital.

One sell-side source noted on Thursday that at present the high-yield forward calendar features a novel distribution of prospective issuers that finds expected euro-denominated issues outpacing dollar-denominated issues.

The Prospect News High Yield Daily forward calendar has €1.175 billion of deals thought to be in the market, while dollar denominated offerings though to be in the market total only $985 million.

"There is quite a bit of stuff in Europe, whereas we're left with a few mostly small transactions pending," the source said.

"But I believe that it's mostly the same story in Europe right now as it is in the U.S.," the source added, pointing to Thursday's news about the postponed Iesy deal.

Some sources also expressed the belief that Turkish TV-maker Vestel Electronics Finance Ltd. might price its $225 million offering of seven-year bonds (Ba3/B/BB-) via Credit Suisse First Boston and ABN Amro on Friday.

That Rule 144A/Regulation S deal is also said to have been roadshowed to both high-yield and emerging markets accounts. Price talk is 125 to 150 basis points over the Turkish sovereign due 2012.

Elsewhere, Quincy, Ill., compressor maker Gardner Denver Inc. is in the market with $125 million of eight-year senior subordinated (B2/B) via Bear Stearns & Co. and JP Morgan. The notes, which were talked Wednesday at 7¾% area, were expected by some observers to price on Thursday. However as Prospect News went to press no terms were available, and one source suggested that the deal might price on Friday.

Finally, South African wireless operator CellC (Pty) Ltd.'s €625 million two-tranche deal, via Citigroup, is thought to possibly be this week's business. No price talk had been heard by Thursday's close. And CellC, too, is though to be day-to-day pending market conditions.

Triad edges up, Hawaiian edges down

Back in the secondary market, the new Triad Acquisition Corp. 11 1/8% senior notes due 2013, which priced at 99.35 on Wednesday, were seen being offered Thursday at 99.75, a trader said, although he had seen no bid levels on the new notes.

The trader also saw Hawaiian Telecom Communications Inc. notes, which priced as a three-part offering on Wednesday, continuing to trade slightly below their par issue price for all three tranches, with the 9¾% senior notes due 2013 and the floating-rate senior notes due 2013 were both at 99.25 bid, 99.75 offered, while the 12½% senior subordinated notes due 2015 were at 99.25 bid, par offered.

Another trader saw the new notes "offered at par" this morning, and quoted them lower across the board by day's end, with both fixed-rate tranches at 99.25 bid, 99.75 offered.

Market down

Back among the established issues, "everybody was heavy today," a trader said, "by a couple of points across the board. It doesn't really matter what you're looking at, but everything was down one to two [points], easily down one to two - telecom, retail, casinos, healthcare."

The mutual fund outflows, he said, "were very limited, the $200 million or so was nothing" - so in his view, "it's more the Street, whether it's traders or hedge funds, putting pressure" on bond prices.

Even though some people had been looking for another big outflow number to match the nearly $680 million the week before and it did not materialize, he doubted the joking suggestion that there might be a relief rally on Friday, "not the way it feels going out, I can tell you that."

Calpine plunges again

And on top of everything else, "Calpine got mowed."

He quoted the company's 8½% notes due 2011 as having fallen as low as 40 bid, 42 offered, from their opening levels around 48 bid, 50 offered. By the end of the day, he said, the bonds had crept back up a little to finish at 42 bid, 44 offered.

Meanwhile, the short end "also got murdered," with Calpine's 8¼% notes coming due later this year down several points to 83 bid, 85 offered.

Calpine's notes have been on a one-way escalator heading toward the basement since last Friday, except for a small breather on Tuesday which had fooled some players into thinking the worst was over. They resumed sliding Wednesday and kept right on doing so on Thursday, in tandem with a swoon in its shares of 33 cents (18.54%) to $1.45. NYSE volume was 46 million shares, more than five times the usual turnover.

Calpine continued to be bedeviled by market rumors that the debt-laden company is headed for the bankruptcy courts - rumors that the company has consistently and vehemently denied since Friday. Calpine has also said that it is in compliance with all of its bond indentures.

Dura drops late in session

Calpine was only the worst performer in a market full of names off a point or two or three, traders said.

Another name on the downside was Dura Operating Corp., whose corporate parent, Dura Automotive Systems Inc., was out with first-quarter numbers.

Not surprisingly, the Rochester Hills, Mich.-based automotive systems maker, faced with the twin obstacles of sagging demand for its products from Detroit's struggling Big Three and other carmakers, and higher materials costs, posted a net loss of $4.8 million (26 cents per diluted share), on revenues of $620 million, versus a year-ago net profit of $9.2 million (48 cents per share), on revenues of $634.6 million. The latest results include a pretax facility consolidation charge of $1.7 million, relating to facility closures in Europe and North America. Dura's adjusted loss from continuing operations for the quarter, which excludes facility consolidation charges, totaled $3.7 million (20 cents per share), versus adjusted income of $10.9 million (57 cents per share) a year earlier.

Dura's bonds, a trader said, "got a little better after their numbers and after their conference call," on which the company also announced an upsizing of its pending two-part secured bank financing deal amid strong response to the offering (see related story elsewhere in this issue). However, he said, "late in the day," the bonds came off those peak levels, to end lower on the day. He quoted Dura's 8 5/8% senior notes due 2012 as having gotten as good as 87.5 bid, 88 offered, before dropping back to end at 85.5 bid, 86.5 offered. He also saw Dura's 9% subordinated notes due 2009 end at 69 bid, 71 offered, well down from their peak at 73 earlier on.

Xerox gains

One of the few names seen trending higher was Xerox, whose 6 7/8% notes due 2011 were being quoted up nearly two points, around the 104 level. The Stamford, Conn.-based copier and office machines giant's 7 5/8% notes due 2013 were seen clinging to the 106.5 bid, 107.5 offered level to which they had firmed by a point on Wednesday, following the news of the company's rating upgrade.

Standard & Poor's affirmed the company's BB- corporate credit rating, revised its outlook to positive from stable, and also raised its senior unsecured debt rating on Xerox to BB- from B+ previously, reflecting the agency's expectation that Xerox's secured debt levels "will decline significantly over the next year and over the near-to-intermediate term will not comprise a material portion of the company's capital structure." S&P further said the outlook revision reflects improvements in Xerox's non-financing operating performance and operating cash flow, despite revenue weakness.

Wynn lower

Back on the downside, in Thursday's mostly down market, even the news out of Las Vegas that legendary gaming entrepreneur Steve Wynn's eponymous Wynn Resorts Ltd had finally opened its spectacular new gaming palace, more than four years and a cool $2.7 billion in the making, failed to do much for the company's 6 5/8% notes due 2014. The new Wynn Las Vegas is the most expensive mega-resort ever built in the Nevada gambling capital and is said to be in a class by itself, even by what some might call the excessively glitzy standards of the fabled Las Vegas Strip.

While even hardened veteran gamblers were awestruck by the sheer scale and luxury of what they saw when Wynn dramatically threw open the doors of his new pleasuredome at exactly the stroke of midnight, bond investors back on Wall Street mostly yawned, and took the issue down a point to 92.5 bid, 93.5 offered.

Wynn was off, a trader said, "just like everything else."

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