Calpine bank debt, bonds continue to firm; asbestos bonds better

By Paul Deckelman and Sara Rosenberg

New York, July 12 - Calpine Corp.'s second-lien bank debt continued to trade up during Wednesday's session, as did the San Jose, Calif.-based power company's junk bonds. However, players in neither market were clear as to why the debt and the bonds have spent the past two sessions on the rise.

Bonds of asbestos-impacted manufacturers continued to gyrate, this time moving higher after having been lower earlier in the week.

A trader in the bank debt market said that Calpine's paper closed out the day quoted at 98.5 bid, 99 offered, up from Tuesday's levels of 97.75 bid, 98.5 offered. Tuesday's closing levels were ½ to ¾ point better than Monday's closing levels.

Over on the bond side of the ledger, a trader in distressed issues saw Calpine's bonds up "at least a point or two across the board. He quoted the company's 7¾% notes due 2009 up 2 points at 73 bid, 75 offered and its 8½% notes due 2011 as having moved up to 48.5 bid, 49.5 offered from 46 bid, 48 offered at Tuesday's close and well up from 45 bid, 47 offered late Monday.

The trader also saw the 8½% notes due 2008 of Calpine Canada Energy Finance II ULC get as good as 64 bid, 66 offered from prior levels at 61.5 bid, 63.5 offered.

Another trader saw the company's bonds up a point, with the 8½% 2011 notes at 48.5 bid, 49 offered, and its 10½% notes coming due this year at 72 bid, 73 offered, all a point higher.

Another trader who saw similar levels said that he had seen no news either to explain the rise, other than a story that the company - which has fleet of over 90 plants - has completed construction and start-up testing for the $180 million Mankato Energy Center located in Mankato, Minn.

Calpine's 8¾% notes due 2007 were a point on the upside at 74 bid,

Asbestos issuers gain

Elsewhere, asbestos-challenged names like Owens Corning and Armstrong World Industries Inc.'s bonds - which were pushed lower earlier in the week - were back pretty much on the upside, traders said.

One saw the 7½% notes due 2018 of the bankrupt Toledo, Ohio-based insulation maker at 82 bid, 83 offered, up from 80 bid, 80.75 offered.

Another market source saw the Owens Corning bonds mixed, with its 7½% notes that were to have matured last year up a point at 82, and its 7½% 2018 bonds ½ point better at 81.5, while its 9 3/8% notes due 2012 dipped to 89.625 from 91.625 previously.

The first trader also saw Armstrong's bonds at 72 bid, 74 offered, well up from 69 bid, 71 offered earlier. The bonds of the bankrupt Lancaster, Pa.-based floorcovering maker frequently rise and fall in tandem with Owens Corning's since the two companies are affected by many of the same market dynamics.

Earlier this week, the two companies' bonds moved lower even as the federal judge overseeing Owens Corning's Chapter 11 reorganization okayed its disclosure statement, a key step in the company's plans to emerge from bankruptcy later this year. The Armstrong bonds were also lower on apparent sector sympathy.

At a Pittsburgh hearing on Monday, U.S. Bankruptcy Judge Judith Fitzgerald rejected any remaining objections to the company's disclosure statement that were still extant. That ruling was followed by a written order Tuesday accepting the statement.

Owens Corning's proposal is being sent to the company's creditors for a vote before a scheduled Sept. 18 confirmation hearing.

As part of its plan, Owens Corning will pay more than $5 billion to asbestos claimants and as much as $2.27 billion to holders of bank debt. The company envisions coming out of bankruptcy as of the end of October - fully six years after it was driven to seek bankruptcy protection under a veritable deluge of asbestos medical-claim lawsuits, one of dozens of companies, also including Armstrong, that were forced to take such a step.

Owens Corning's bonds have been bouncing dizzily around over the past five or six weeks, pushing as high as 122-123 in late May on word that the asbestos claimants and other creditor groups had approved the outlines of its plan in principal - but then plunging back down into the lower low 70s in the weeks that followed on profit-taking, fears that objections might delay the plan and investor frustration over the Washington stalemate that has bottled up Senate consideration of a national federally administered asbestos claims mechanism that would supersede the individual plans of companies such as Owens Corning if enacted.

After touching its lows in the 70s, the Owens Corning bonds had moved back up into the 80s in recent days on market speculation that the company's plan would receive court approval. One trader chalked this week's downturn up to the classic market adage "buy [on] the rumor, sell [on] the news."

Movie Gallery firm at higher levels

Apart from the asbestos names, Movie Gallery Inc.'s 11% notes due 2012 were seen holding steady around 81 bid, 82 offered, unchanged. The Dothan, Ala.-based video rental chain operator's bonds had risen in each of the three previous sessions on apparent investor belief that another entity may see Movie Gallery as an attractive acquisition target.

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