Calpine bonds power up; Technical Olympic drops; Remy slightly better

By Stephanie N. Rotondo

Portland, Ore., March 9 - Calpine Corp. continued to gain power in its bonds Friday, electrified by news out earlier this week.

The bankruptcy court overseeing the company's case approved not one, but two deals, resulting in new debtor-in-possession financing and an asset sale.

Meanwhile, Technical Olympic USA Inc.'s bonds fell by almost a point as market participants expect to hear not-so-good news soon.

In distressed auto parts supplier paper, Remy International Inc. lost some of its zip. Traders said the company's notes hardly moved, despite a week of major play in its bonds.

"After Remy moving all over the place yesterday, today it was just nothing," a trader said.

Though lacking in activity, Remy's notes were seen a little better than the previous day's levels.

Calpine up

Integrated power company Calpine firmed during trading, as investors continued to react to recent news on company.

At midday, a market insider said the 7¾% notes due 2015 were trading at 99. At another desk, a trader called the 8½% bonds due 2008 up half a point at 108 bid, 108.75 offered.

The San Jose, Calif., power producer announced Tuesday that a bankruptcy court had approved the company's motion to arrange for replacement DIP financing. Calpine said the $5 billion replacement credit facility would be used to refinance existing DIP financing and to repay about $2.5 billion of secured debt at its Calpine Generating Co. operating unit.

The following day, the court approved the sale of most of the company's assets in Power Systems Mfg. LLC to Alstom Power Inc. for $242 million in cash.

Both deals are expected to close in the next 30 days.

Technical Olympic down

Traders said Hollywood, Fla.-based homebuilder Technical Olympic dropped as much as three-quarters of a point upon speculation that bad news was imminent.

A trader said the company has delayed releasing its quarterly earnings, which the company had said it would do if refinancing talks had not been resolved.

"With no news, I guess it's bad news," he said.

He pegged the 9% notes due 2010 at 98.5, down half a point from the previous day. The 10 3/8% notes due 2012 came in at 91.5, which he called down three-quarters of a point.

Remy better, lacks volume

Remy's bonds, after having fallen for several straight sessions on market fears that the Anderson, Ill.-based automotive electrical systems maker might be headed for bankruptcy, were seen on the upside on Friday.

A trader quoted its 8 5/8% senior notes due 2007 unchanged at 73 bid, 75 offered, and saw upside movement in its two other issues - the subordinated 11% notes due 2009 were up 2 points at 17 bid, 19 offered, and its 9 3/8% subordinated notes due 2012 jumped 3 points to 17 bid, 18 offered.

He said the gains were "probably due to short-covering - but who knows?"

Another trader saw the company's bonds up 2 points across the board, pegging the 11s at 17 bid, 18 offered and the 8 5/8s at 73.5 bid, 74.5 offered. And at another desk, a trader saw the 8 5/8% notes due 2007 at 73 bid, 74 offered and "that didn't even print."

Rumors of a DIP financing search and potentially poor quarterly results prompted the company's bonds to fall over the course of the week. The 8 5/8s lost as much as 6 points, the trader said.

But one market player does not believe the hype.

In fact, he said he thinks the rumors are a tactic used to help cover short positions.

"Throw out rumor and innuendo and hopefully you can scare some people out," he said. "And it worked."

The trader agreed that their was a significant short position in the company's subordinated bonds, but bad news still seems likely.

"There's a huge short in the subs," he said. "The Street has made a lot of money out of that."

But, "the anticipation of negative news isn't a surprise," he added.

The trader also noted that the subordinated bonds have fallen 10 points in the last few weeks.

The company has not returned calls over the last week seeking to confirm any of the rumors on the company.

Also in the automotive realm, a trader said that he had seen a big spike in Autocam Corp.'s 10 7/8% notes due 2014, to levels as high as 70 from 30 previously. He said that had taken place on Thursday, and that his desk had the bonds going home Friday quoted at around 64 bid.

The bonds had begun the year languishing in the mid 20s and had then moved up to around the 40 level in mid-January after a recapitalization was announced.

"It's tough to say what's going on with them," another trader said, quoting the bonds at 70 bid. "They only have $1 million left" outstanding, after completion of recent financing transactions.

The Kentwood, Mich.-based maker of precision-machined, extremely close tolerance, specialty metal alloy components and assemblies for the transportation and medical device industries announced March 1 that it had completed a recapitalization, which saw the company eliminate more than $200 million of secured and subordinated debt, including the conversion of about $139 million of senior subordinated notes - virtually the entire outstanding float - into new common equity. Also as part of the deal, it issued $85 million of preferred stock and entered into an agreement for a $150 million secured debt financing, with some of the proceeds used to refinance its existing first-lien debt.

The new funding also includes a $30 million undrawn revolver that will be available to fund Autocam's liquidity requirements.

Fedders steady

Traders saw Fedders Corp.'s 9 7/8% notes due 2014 unchanged around 55 bid after a volatile week that saw them gyrate from lows in the lower 50s after it became apparent that the company had not made its March 1 coupon interest payment but had instead invoked the grace period provision, to highs in the lower 60s on the news that it had lined up new financing from a Goldman Sachs affiliate.

Broad market mixed

The only other real movement in distressed land, a trader said, was Tembec Inc., whose bonds were down about a point across the board. The Canadian forest product company's 8 5/8% notes due 2009 were a point lower at 81 bid, 82 offered, while its 8½% notes due 2011 were off more than 2 points on the day to 71 bid.

Another trader saw the 8 5/8s off 2 points at 80 bid, 81 offered.

Among other distressed issues, Northwest Airlines Corp.'s 10% notes due 2009 lost a point to 86 bid, 87 offered. At midday, a market insider called Delta Air Lines Inc.'s 8.30% notes due 2029 weaker at 56.5 bid, 57 offered. He said the notes traded at 57 bid, 57.5 offered earlier in the day.

Movie Gallery Inc.'s 11% notes due 2012 were unchanged at around the 91 level.

MagnaChip Semiconductor "regained its composure," a trader said, with its 8% notes due 2014 up 1.5 points at 68.5 bid, 69.5 offered.

Movie Gallery closes on credit facility

Movie Gallery closed on its $900 million five-year credit facility consisting of a $100 million revolver (B1/B-) priced at Libor plus 250 bps, a $600 million first-lien term loan B (B2/B-) priced at Libor plus 350 bps, a $25 million synthetic letter-of-credit facility (B2/B-) priced at Libor plus 350 bps and a $175 million second-lien PIK toggle term loan (Caa1/CCC) priced at Libor plus 650 bps, according to a company news release.

During syndication, the first-lien term loan B was upsized from $525 million and pricing was flexed down from original talk of Libor plus 400 bps, the second-lien term loan was downsized from $250 million and pricing was flexed down from original talk of Libor plus 700 bps, and pricing on the synthetic letter-of-credit facility was flexed down from original talk of Libor plus 400 bps.

Goldman Sachs acted as the lead arranger on the deal that was used to refinance the company's existing bank debt and for general corporate purposes.

The company expects the new credit facility to result in more than $6 million of annual cash interest savings.

"We are pleased to complete this refinancing transaction, which further strengthens Movie Gallery's capital structure," said Joe Malugen, chairman, president and chief executive officer, in the release. "The strong response to this transaction by our lenders allowed an improved structure from our previous announcement and is a testament to the strong cash flow characteristics of our business.

"We expect that the favorable terms of this refinancing will provide Movie Gallery with greater liquidity while reducing annual interest expense, thereby advancing our efforts to drive profitable growth and create value for our shareholders."

Movie Gallery is a Dothan, Ala., video rental company.

Sara Rosenberg and Paul Deckelman contributed to this article.

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