Calpine bonds gyrate, bank debt steady as deal dies

By Paul Deckelman and Sara Rosenberg

New York, Feb. 24 - Calpine Corp.'s bonds gyrated around on Tuesday after its planned $2.35 billion bond and bank debt financing deal fell apart and was pulled, traders said. However, Calpine Construction Finance Co. II LLC's revolver steadied slightly in the mid-90 area, since market participants were now able to put their speculations and rumors to rest with the definitive company announcement that both the bank and the bond deals were pulled from the market.

Most bank debt market participants quoted the CCFC II paper in approximately the same context, with a difference depending on who was asked.

For instance, one trader said the paper was in the 95.5 bid, 96 offered area, which is "where it kind of bottomed out", while a second trader placed the revolver at 95.75 bid, 96.5 offered and a third trader quoted it at 95.5 bid, 96.5 offered.

Questions on the refinancing's ability to get done arose from the very start as was seen from the CCFC II revolver's trading levels. When the refinancing proposal was first announced, the revolver moved to 98.5 bid, 99 offered. The paper was unable to reach the usual par levels that a refinancing announcement tends to produce, as investors remained cautious on the San Jose, Calif.-based power generating company's ability to complete its proposed transaction.

Then on Monday, doubts grew even further as rumors were flying that the bond and the bank deal were struggling, with some even saying that the bond deal was restructured or pulled. The CCFC II revolver dropped to 95 bid, 97 offered from previous levels of 98.75 bid, 99.25 offered, according to one trader, while a second trader placed it at 96 bid, 97 offered. The paper was said to be heading back to the 95 context since that was where it was quoted before the refinancing proposal ever hit the market.

Furthermore, in sympathy to the negative news, Calpine Corp.'s second lien bank debt headed lower to 95 bid, 95 7/8 offered, according to one trader, 95.25 bid, 95.75 offered, according to a second trader, with trades taking place at 95 during market hours. On Monday the paper was quoted at 95.75 bid, 96.75 offered.

"The whole market's been off," the second trader said in explanation of why the second lien debt was lower. "[Plus, pulling the deal] demonstrates that they just don't have access to the market right now. It traded off in sympathy."

On the bond side of the ledger, meanwhile, a trader pegged the company's 8½% notes due 2011 as having traded down to bid levels in the 75.5-76.5 range, which he estimated were down around two points on the session, around four points in two sessions and about five points from week-ago levels.

Another trader, however, said that while there was "a lot of action" in Calpine, "a lot of bouncing around, net-net [from one day's close to the next] there wasn't much activity," since the withdrawal of the Calpine financing deal had been widely anticipated - the debt market was rife with rumors on Monday that the Calpine deal would be spiked or, at best, radically restructured.

He quoted Calpine's 8½% notes due 2011 as having fallen as low as 74 bid, 76 offered during the session before coming off those lows to end at 76 bid, 77 offered, which he called unchanged. He saw its 8½% notes due 2008 ending little changed at 77.5 bid. 78.5 offered, after having first fallen as low as 75.5 bid, 76.5 offered.

"They traded back up to yesterday's levels."

A market source agreed with that assessment, adding that "they were movin' all over the place - but eventually bounced back."

He saw Calpine's 8 5/8% notes due 2010 as having actually firmed half a point on the session, to 76.5 bid while its 8 ½% notes due 2010 were seen having improved to 92.5 bid, a three-quarter-point gain, possibly on investor relief that the other shoe had finally dropped and the terrible speculation about whether Calpine would be able to swing the deal was at least finally over.

He also saw Calpine's 10 ½% notes due 2006 steady at 95.5 bid.

In the convertibles market, Calpine's 4.25% converts lost about six points outright, or one on swap (for hedgies), and the preferred securities fell about 1 point each.

Calpine's New York Stock Exchange-traded shares meantime finished down 42 cents (7.33%) at $5.31 on volume of 45.6 million shares, about four times the norm.

Elsewhere, a distressed-debt trader said, things were pretty quiet.

He quoted Revlon Corp.'s 8 5/8% subordinated notes due 2008 at 90 bid, 93 offered and its 9% and 8 1/8% notes due 2006 at 106 bid, 108 offered, adding that "it doesn't look like there was very much excitement there." The New York based cosmetics company on Monday began offers to exchange new class A common shares for those outstanding notes.

He saw little movement in Adelphia Communications Corp, junk bonds, but did see Adelphia convertible notes down to the mid-40s, off several points from previous levels; he suggested that this may have been due to speculation that the bankrupt Denver-based cable operator's coming plan of reorganization "maybe doesn't give them [the holders] as much as they earlier thought," although he had no firm information.

On the upside, Kaiser Aluminum's 10 7/8% notes due 2006 firmed half a point to 90.5 bid.

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