Wild ride for Refco, Calpine eases on bankruptcy jitters; downsized Targa comes at talk

By Paul A. Harris

St. Louis, Oct. 18 - The high-yield market was generally higher Tuesday, sources said, although they said it was to varying degrees.

A trader said junk was "sneakily higher," and reported seeing decent but very selective buying interest.

Another trader spotted high-yield ¼ to ½ point stronger, with better bids and "more buyers than there have been in the past few days."

"One money manager said he had some cash coming in but said he planned to think real long and hard about where he's going to put it," the trader added.

Elsewhere a source from a hedge fund said the CDX 100 index rose by three-eighths of a point to close the day 99.0 bid, 99.625 offered

Meanwhile the primary market passed another slow day as Targa Resources priced its downsized $250 million junk deal on top of talk at 8½%.

Wild ride for Refco

Refco, Inc.'s debt saw a volatile day after news emerged late Monday that the scandal-ridden company had filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York after agreeing to sell its commodities trading subsidiary to a group of investors led by J.C. Flowers & Co. LLC for $768 million.

Secondary market sources told Prospect News that players spent the day parsing the implications for Refco's debt, which translated into volatility for the company's bonds.

One trader said Refco's 9% bonds due 2012 opened the day at 45 bid, 46 offered, traded as high as 61 bid and closed at 51 bid, 52 offered.

"When you discount it for being in bankruptcy for a couple of years you come up with a number like 75," the trader commented.

"But you don't know how they are going to be penalized by the SEC," the source said, adding that a $100 million penalty seemed to be a reasonable guess.

"Factoring everything in we eventually got to a number like 55," the trader added.

"They traded right through 55 and got up to 60-ish, and then came right back off.

"People have sharpened the pencil and tried to figure out what the real value of this company is. Until we get some more information it's going to be a wild swing."

Another trader saw the Refco paper close out 54.0 bid, 56.0 offered, a little stronger on the day but off its earlier highs of 60.0 bid.

The trader marked the Refco 9s up eight points on the bid-side from where they opened to where they closed.

Pedigree of Calpine counsel causes concerns

Troubled San Jose power producer Calpine Corp. saw a considerable amount of attention - and price gyration - after the New York Post reported Tuesday that Calpine has hired Richard Cieri of the bankruptcy and restructuring law firm Kirkland & Ellis.

Later in the day Calpine issued a press release confirming that it had indeed retained Kirkland & Ellis, "a long-time advisor for the company.

"Kirkland & Ellis, along with other law firms, continues to advise the company on a variety of issues, including ongoing matters and litigation with its secured note holders," the Tuesday Calpine press release added.

"While it is not Calpine's policy to respond to market rumors or discuss our outside counsel, we feel compelled to comment today to quell market rumors that may be placing unwarranted pressure on Calpine's equity and bond securities."

Where there's smoke

One trader told Prospect News on Tuesday afternoon that the news had Calpine's existing paper trading "all over the place, mostly down and trying to fight its way back."

The source said that Calpine's conspicuously liquid 8½% notes due 2008 opened the day with a 60 bid, traded all the way down to 55 bid ("but that was too low") and closed at 58 bid, 58.50 offered.

"Where there is smoke there is fire," the trader remarked. "They're making people nervous."

The trader said that a "back of the envelope" calculation as to where to spot the "break-even value" of the Calpine bond comes out at "50 cents on the dollar on the unsecured.

"At 58 it sounds like there are still some believers that they can make it," the trader added.

The above-quoted hedge fund source, meanwhile, spotted Calpine's 8½% notes due 2008 off three points on the day.

Meanwhile another trader, late in the afternoon, spotted Calpine's 10½% notes due 2006 at 88.0 bid, 90.0 offered, unchanged, while the 8½% notes due 2011 were at 49.0 bid, 51.0 offered after closing Monday at 53.0 bid, 54.0 offered.

The source had that the 11s due 2011 was down three or four points from Monday's close to Tuesday's close, but flat throughout most of the Tuesday session.

HealthSouth higher on rule hopes

Elsewhere in secondary market action, the paper of HealthSouth Corp. underwent a "big move," on the perception that relief from Medicare's so-called 75% rule, requiring three-quarters of patients at inpatient rehabilitation centers to have one of 13 medical conditions in order to qualify for Medicare payments, may be countermanded by legislation currently working its way through the U.S. Congress.

The 75% rule has been impacting patient volumes at HealthSouth as well as other providers, the trader said.

The trader said that HealthSouth's bonds were up about two points on the day.

The company's 10¾% notes opened at 96 bid, 97 offered, the source said, then traded as high as 100.0 bid, 101.0 offered, before closing at 98.0 bid, 99.0 offered.

Meanwhile the HealthSouth 7 5/8% notes due 2012 started Tuesday at 92.0 bid, 94.0 offered, traded as high as 95.0 bid, 96.0 offered, and closed at 94.0 bid, 95.0 offered.

The trader also saw some firmness in certain names in the retail sector.

"You're seeing buyers coming out to look at paper that is below par," the source remarked.

Also, the trader said, casino paper was "a touch stronger on the short end of the curve."

The source had MGM Mirage bonds maturing in 2007 closing at 101.75 bid, 102.50 offered, up around ½ to ¾ point from their 101.0 bid, 102.0 offered levels at the start of the day.

The longer paper has been languishing, the source added.

Targa prices, trades up

In Tuesday's only primary market action Targa Resources Inc. priced a downsized $250 million issue of eight-year senior notes (B2/B-) at par on Tuesday to yield 8 ½%, on top of the 8 ½% area price talk.

Credit Suisse First Boston, Merrill Lynch & Co. and Goldman Sachs & Co. were the bookrunners for the acquisition financing.

The company downsized the issue by $100 million from $350 million, shifting $100 million to its credit facility. Targa eliminated a proposed tranche of floating-rate notes from the bond offering.

The bank deal is oversubscribed and doing well, according to sources in the leveraged loan market.

One trader saw Targa's new bonds trading at 100.75 bid, 101.0 offered on the break. However, the source added, putting out a 100.75 market on the bonds failed to turn up any players.

The source added that Hilcorp Energy Co.'s new 7¾% notes due 2015, which priced at par late last week in an upsized $175 million issue, were seen offered at 102.0, however were not seen trading.

Among other recent issues The Neiman Marcus Group Inc.'s bonds continue to "lag pretty bad."

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