Calpine convertibles dip, bonds gain; Technical Olympic stronger; James River Coal weaker

By Stephanie N. Rotondo

Portland, Ore., Aug. 8 - Wednesday's court approval of a settlement with its second-lien noteholders prompted Calpine Corp.'s convertible issues to fall, while boosting the bonds.

A trader said the convertibles lost as much as 5 points during the session, as it seemed the settlement would disallow certain options convertible holders were hoping for. The agreement also left less recovery for that class.

Still, the news helped the bonds gain at least 3 points. The debt was also pushed higher by better second-quarter results.

Meanwhile, Technical Olympic USA Inc.'s bonds were stronger ahead of the company's earnings call Thursday. Traders reported that the entire sector was stronger, but market players were eagerly waiting for the Hollywood, Fla.-based homebuilder's financials to come out.

James River Coal Co.'s second-quarter results caused its bonds to gyrate, with the bonds slipping to lows around 74. The debt attempted to rally but still closed down on the day.

An unnamed analyst is preparing for a battle between Dura Automotive Systems Inc.'s junior and senior bondholders, as holders of the junior notes are objecting to a recent rights offering agreement.

Under that agreement, senior noteholders will receive 60% of the equity, leaving none for the junior holders. According to the analyst, the junior noteholders might look to "enforce the subordination provision of its indenture and have, essentially, a land grab for the 60%."

Calpine convertibles dip, bonds up

Calpine's structure was mixed during Wednesday trading, as a trader saw the power company's convertibles "crushed" while the bonds "rallied."

The trader pegged the 6% convertibles at 102 bid, 104 offered, which he called down 4 to 5 points. Another trader saw the 4¾% convertibles at around 110.

The first trader attributed the losses to a settlement between second-lien noteholders represented by Wilmington Trust Co.

Under the settlement agreement, approved by a federal bankruptcy court Wednesday, the noteholders are allowed a $60 million secured claim and a $40 million unsecured claim. The claims cover "make whole premiums" and damages the noteholders say they are owed due to the company's early retirement of the second-lien debt.

While the settlement meant good things for the bondholders, the news was not so great for holders of the convertible paper.

"The convertible feature that they were hoping to have is not going to be allowed," the trader explained.

And, he added, that meant less recovery for convertible holders.

Still, the settlement proved helpful to the bonds. The trader said the 8½% notes due 2011 were up 3 points to 119 bid, 120 offered. The second trader quoted the bonds at 118 bid, 119 offered, up from the previous day's levels of 117 bid, 118 offered.

"Now they have a better chance of getting some form of the equity that may have [previously] been given to [the] other class," the first trader said.

The bonds were also helped by better second-quarter results.

Calpine posted a $211 million income on $1.975 billion in revenues, compared to an $89 million income on $1.208 billion in revenues for the same quarter the previous year.

The company also showed a narrower loss for the second quarter, at $500 million, compared with a loss of $818 million a year earlier.

Technical Olympic up

Technical Olympic's bonds gained 1 to 1.5 points across the board, a trader said, as the housing sector in general bounced back from its previous lows.

The trader pegged the 10 3/8% notes due 2012 at 53 bid, 54 offered earlier in the day, noting that the name was quieter than it had been toward the beginning of the week.

The trader also saw the 7½% notes due 2011 at 45 bid, 47 offered and the 7½% notes due 2015 at 40 bid, 42 offered.

"Everything is up about 1 to 1.5 points in that name," he said.

The trader was anxiously awaiting the homebuilder's quarterly report, expected to be posted after the market's close in time for Thursday's conference call.

"I am sure folks are going to be looking at the numbers to formulate some sort of model to see when, if, where and why you might want to start buying in that sector," he said. "It will definitely give people a place to start."

"Everybody has models," he continued. "They just don't know where to start them."

Elsewhere in the distressed housing realm, a trader said WCI Communities Inc.'s bonds were stronger.

He called the 9 1/8% notes due 2012 up at 80 bid, 80.5 offered, adding that the bonds hit a low of 75 just a few days ago.

The trader also saw the 6 5/8% notes due 2015 at 71 bid, 73 offered, up from a low of 66 bid, 67 offered.

Accounting for the rebound in the sector, the trader said, "They all got to be 15, 16, 17%. I don't think they are all going out of business, you know what I mean?"

Beazer Homes USA Inc.'s bonds were seen up 2 points, with the 8 5/8% notes due 2011 at 84.5 bid, 86.5 offered, the 8 3/8% notes due 2012 at 82.5 bid, 84.5 offered and the 6½% notes due 2013 up 1 point at 77.5 bid, 79.5 offered.

James River gyrates

James River Coal's notes gyrated throughout the day, as the company posted a wider second-quarter loss.

A trader said the 9 3/8% notes due 2012 opened trading around 82, then fell as far as 74 bid, 76 offered. At market close, the bonds had come up off their lows to 77 bid, 79 offered.

The steam and industrial-grade coal producer reported a net loss of $18.6 million for the second quarter of 2007, compared to a loss of $3.4 million in the same quarter of 2006.

The company attributed the loss to higher inventories and new safety regulations.

In a separate statement, the company said it would exit some of its mining operations on Sept. 1.

Analyst: Dura battle ahead

An analyst is forecasting a battle between holders of Dura Automotive Systems' junior and senior debt, as the company is going forward with a rights offering that will leave subordinated noteholders out in the cold.

Late last week, a group of subordinated bondholders objected to the backstop agreement with Pacificor LLC, stating that they would be wiped out, without even having the chance to vote on the plan.

"The juniors feel like the company should solicit votes [on the agreement]," the analyst said.

What is likely happening, however, is "the company is finding a friend in the seniors and partnering with them," the analyst said. In doing so, the company can "try to push through some sort of reorganization plan."

"Management has always been terrified of staying in bankruptcy for a long time," he said. And, as the senior noteholders typically have more weight, "it makes sense to make friends with the seniors."

Still, the result is that creditors are pitted against each other.

"This is a small skirmish before a real inter-creditor battle," he predicted.

"Ultimately, there is going to have to be some sort of consensual agreement," the analyst said.

A trader saw the 9% junior notes due 2009 at 4.5 bid, 5 offered, adding that only small pieces traded.

"It traded, but not where I would like," he said wryly.

Broad market mixed

Movie Gallery Inc.'s 11% notes due 2012 "started strong, then faded," a trader said, pegging the bonds wide at 24.5 bid, 27.5 offered. He added that the debt moved as high as over 30 in early trading.

The trader also saw the first-lien term loan unchanged at 84.5 bid, 85.5 offered.

Meanwhile, the trader saw Winn-Dixie Stores Inc.'s stubs at 10 bid, 12 offered.

"They have been non-existent lately," he said.

Swift Transportation Co., Inc.'s 12½% notes were seen up 1 to 1.5 points at 71 bid, 72 offered.

Spectrum Brands' 7 3/8% notes due 2015 were called up 2 points at 76 bid, 78 offered, while the 11¼% notes due 2013 were up 3.5 points at 87.5 bid, 89.5 offered.

Tembec Inc.'s debt was deemed up 1 to 1.5 points across the board, its 8 5/8% notes due 2009 at 48 bid, 50 offered, the 8½% notes due 2011 at 43 bid, 45 offered and the 7¾% notes due 2012 at 42 bid, 44 offered.

Paul Deckelman contributed to this article.

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