Calpine bank debt firms; InSight Health solidly rebounds; GM lower

By Paul Deckelman and Sara Rosenberg

New York, Feb. 7 - Calpine Corp.'s second-lien bank debt headed higher by about half a point on Tuesday, although traders in the bank debt market really couldn't get a handle on why that paper did better.

Short covering, second thoughts about massive Medicare cutbacks and even the proverbial "dead-cat bounce" were meantime being mentioned as possible explanations for the solid rebound in the bonds of Lake Forest, Calif.-based medical diagnostic services provider InSight Health Services Holding Corp. Those notes got creamed on Friday, started edging back up Monday and were seen up several points Tuesday.

General Motors Corp. and its General Motors Acceptance Corp. financial arm's bonds gyrated around - up in the morning but lower in the afternoon, finally closing down several points on the day as late-afternoon concerns from Moody's Investors Service on the progress of GM's efforts to sell a controlling stake in GMAC more than offset the good vibes it initially garnered after announcing a package of measures - including a dividend cut and reductions in top executive salaries.

Calpine's second-lien paper closed out the session at 90.5 bid, 91.25 offered, according to a trader who said that there really wasn't any news out there to spur the upward momentum.

The most recent news to come out of the San Jose, Calif.-based power company was a late Monday afternoon announcement that it filed a notice to reject facility lease agreements related to the control of two combined-cycle power plants in New England.

Calpine said that the notice of rejection, filed with the U.S. Bankruptcy Court for the Southern District of New York, is part of its plan to stabilize, improve and strengthen its core power generation business and financial health.

The leasehold interest in the two power plants expired Monday and owner-lessor, a subsidiary of Philip Morris Capital Corp., will take control of the plants, subject to court approval.

In bond trading, one market participant observed that "it seemed like an active day for high yield - but not in distressed. He said that he was "trapped in GMAC all day."

However, another trader said that activity in the overall junk market was pretty restrained, with many portfolio managers and other buysiders off at a JP Morgan bond conference.

InSight gains

Among the participants who remained, InSight Medical was a popular name. InSight's 9 7/8% notes due 2011 had swooned to 45 bid, 47 offered on Friday, down sharply from levels earlier in the week around 67.5 bid, 68.5 offered. On Monday InSight was up a little - perhaps about two points or so, to the 47-48 area - and on Tuesday, that rise continued, with the bonds jumping to 52 bid, 54 offered.

"It continues to bounce," a trader said, noting that "everyone was concerned [Friday] with Medicare cuts, but right now it looks like the Bush administration is going to have trouble getting any kinds of cuts" in popular entitlement programs like Medicare through Congress - particularly in an election year where the full House and one-third of the Senate are up for re-election.

The trader saw Radiologix Inc.'s 2008 bonds up two points at 72 bid, 75 offered, "so that sector had a bounce."

Yet another trader, though, suggested that it might just be a dead-cat bounce, or perhaps just short covering on a massively oversold market sector.

While InSight's 9 7/8s had experienced the greatest part of the fall on Friday and the solid rise on Monday and Tuesday, a trader saw the company's floating-rate notes up a point at 90 bid, 91 offered.

Tembec rises

Elsewhere, Tembec Inc.'s recently battered bonds were seen better, with a trader seeing the Montreal-based forest products company's 8½% notes due 2011 two points better at 47 bid, 48 offered.

"Tembec moved up a bit," another trader said, seeing the 81/2s at 48 bid, the company's 8 5/8% notes at 49.5 bid and its 7¾% notes at 46, all up 1½ points.

"They had a good bid," he said, although neither trader saw any fresh news out on the company that would explain the rise.

Tembec - and such rivals as Abitibi-Consolidated, Domtar and Bowater - have been hard hit recently by a confluence of factors, including falling demand for newsprint, rising energy and timber costs, and the strong Canadian dollar, which blunts their exports, particularly to the United States. The companies have over the past few months announced mill closings in many Canadian provinces, and headcount reductions also. Domtar's 5 3/8% notes due 2013 were seen having fallen about two points to the 77 level this week.

GM up, then falls back

Much attention was paid to GM and GMAC, both of which rose initially after GM unveiled a multi-pronged program for cutting additional costs and making the struggling company more competitive, on top of the $6 billion of annual cuts it put into place last year. Among the new high-profile measures the world's largest carmaker announced was cutting its fat stock dividend in half to $1 per share per year from $2; lowering the salaries of chairman and chief executive officer G. Richard "Rick" Wagoner and several other top executives, making cuts in the executive pension plan, and making changes in the health plan for retired salaried workers (see related story elsewhere in this issue).

That news initially pushed the GM and GMAC notes up, said a trader, who quoted GM's benchmark 8 3/8% notes due 2033 as having pushed up a point to peak levels at 74.5 bid, 75.5 offered and GMAC's several series of bonds up a like amount.

However, he said, "they definitely weakened as the day progressed," giving up all of their early gains and then some to finish at 71.75 bid, 72.75 offered, down nearly two points from their 73.5 bid, 74.5 offered opening.

The trader noted that the damaging blow that stopped GM's upside momentum dead in its tracks and sent the carmaker's bonds skidding downward was Moody's assessment that "the passage of time [between October's announcement that GM wanted to sell a controlling stake in GMAC and the present] suggests the difficulty of successfully completing the transaction, and may indicate a declining probability that it can be structured in such a way as to lead to an upgrade of the current Ba1 rating."

Moody's said that while GMAC's best chance to return to an investment-grade rating outcome would be through the sale of a majority stake to a highly-rated strategic investor - but the agency cautioned that "the sale of a majority interest to a financial investor-led consortium would be unlikely to lead to an upgrade from the current Ba1 rating." Moody's in that regard echoed similar sentiments voiced by Standard & Poor's and by Fitch Ratings.

With GM clearly running into more trouble in selling the controlling GMAC stake than it originally envisioned, and "with GMAC such a net income provider," the trader said, "why not just keep it at this point?" since it is the only part of the company currently making money in North America, and if the ratings agencies are unlikely to upgrade GMAC if it is sold to either the Cerberus/Citigroup-led buyout group or the Blackstone /Wachovia - led group, the only two buyers that seem to have emerged so far.

Another trader agreed that "GM really moved around," quoting the 8 3/8s at 72 bid, 73 offered, "down a couple of points," while GMAC's flagship 8% notes due 2031 fell to 96.5 bid, 97.5 offered from its prior levels at 99.5. He also saw GMAC's 6¾% notes due 2014 likewise down two points, at 91.5 bid, 92 offered.

A market source pegged GMAC's 6 7/8% notes due 2012 and the parent company's 7 1/8% notes due 2013 each down 1½ points, at 92 bid and 76 bid, respectively.

While the GM benchmark bonds were down 1¼ points at 72.25 bid,73.25 offered, yet another trader said, "GMAC took it the worst of all," its 8s seen down 2½ points at 96.25 bid, 96.75 offered. He said the Moody's outlook piece was "why GMAC took a whacking." In cautioning against any deal led by an equity buyout shop, he said, "they want to see [GMAC] go into as strong hands as possible, that's why this is happening."

Auto sector lower

GM's slide helped lead the other automotive names lower, a trader said, "with all the auto guys kind of shedding points at the end of the day." He noted that Visteon Corp.'s 7% notes due 2014 dropped to 75.75 bid, 76.75 offered from Monday's closing levels around 77.

Another trader saw Visteon's former corporate parent, Ford Motor Co., lower in sympathy with GM. The Ford 7.45% notes due 2031 and its Ford Motor Credit Co 7% notes due 2013 each down ¼ point, at 72.75 bid, 73.25 offered and 90 bid, 90.5 offered, respectively.

Among the bankrupt automotive names, a trader saw former GM unit Delphi Corp.'s bonds start out at 55 bid, 57 offered, fall a point - probably as Wagoner told a conference call that he had nothing to report yet on GM's talks with Delphi and the auto workers' union on giving the Troy, Mich.-based components manufacturer a break on high labor costs - but then recover to end unchanged at 55 bid, 57 offered.

A trader saw Collins & Aikman Corp.'s 10¾% notes due 2011 unchanged at 29 bid, 30 offered.

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