Calpine in big bounce; Gardner Denver, Central European Media deals price

By Paul Deckelman and Paul A. Harris

New York, April 29 - Calpine Corp. bonds were once again the most notable component of the high-yield market Friday - but unlike previous sessions when the bonds, and the shares, of the troubled San Jose, Calif.-based power generating company were tumbling sharply, on Friday they were way up, relatively speaking, bouncing anywhere from six to eight points after the company issued preliminary first-quarter guidance in an effort to "assure" investors that the company remains financially sound, and to counter what it denounced as "false rumors" of impending default, bankruptcy - or worse - making the rounds of the equity and debt markets over the past week or so.

In the primary market, new issues were priced by Gardner Denver Inc. and Central European Media Enterprises Inc., the latter an upsized euro-denominated issue.

On the back of a rally in stock prices, the high-yield market ended the final - and dismal - week of April 2005 with a slightly better tone in late trading, a sell-side source said late Friday.

However, the source added, the improvement came quite late in the session, and he estimated that the broad high-yield market was off another quarter of a point or so on the day.

In the primary market meanwhile, four tranches from three issuers priced totaling $350 million and €370 million.

That brought the final week of April to a close with slightly more than $1.33 billion of issuance across nine dollar-denominated tranches, down in terms of the dollar amount from the previous week's $1.45 billion priced in seven dollar-denominated tranches.

Meanwhile the month of April came to a close having seen $5.457 billion price in the new issue market in 25 dollar-denominated tranches, the smallest volume since the $5.41 billion of November 2002, before the recent boom in new deal activity.

Year-to-date the U.S. high-yield market has seen $36.38 billion price in 143 tranches, as the 2005 market drops further and further back in year-over-year volume compared to that of 2004, which had seen $58.2 billion price in 230 tranches by the April 29 close.

Gardner Denver comes 12.5 bps wide

Only one U.S. based company completed a transaction during Friday's primary market session.

Gardner Denver Inc., a Quincy, Ill., compressor-maker, priced $125 million of eight-year senior subordinated notes (B2/B) at par to yield 8%, 12.5 basis points wide of the 7¾% area price talk.

Bear Stearns & Co. and JP Morgan ran the books for the acquisition financing.

One informed source told Prospect News that the deal played to a good-sized book and added that when the Gardner Denver 8% bonds due 2013 broke in the secondary market they traded above the new issue price.

Also issuing dollar-denominated bonds on Friday was Istanbul, Turkey-based television maker Vestel Electronics Finance Ltd., which priced $225 million of 8¾% seven-year bonds (Ba3/B+/BB-) at 99.231 to yield 8.9%. The deal came at a spread of 150 basis points to the Turkey treasury bond due 2012, bringing it at the wide end of the 125 to 150 basis points price talk.

Meanwhile, Friday's biggest issue came from Central European Media Enterprises Ltd. which completed an upsized €370 million senior notes transaction (B1/B+) in two tranches via JP Morgan, Lehman Brothers and ING.

The company priced €245 million of fixed-rate notes at par to yield 8¼%, on the wide end of the 8% to 8¼% price talk.

Central European Media also priced €125 million of floating-rate notes at par to yield six-month Euribor plus 550 basis points, at the wide end of the Euribor plus 525 to 550 basis points price talk.

The total issue size was increased from €350 million.

The week ahead

News of one roadshow start circulated during the session.

Assumption, Ill., agricultural equipment and production company GSI Group Inc. started a roadshow Friday for its $125 million offering of eight-year senior unsecured notes (B3/B-), which are expected to price late in the week of May 2.

Lehman Brothers has the books for the debt refinancing deal.

GSI joins The Greenbrier Cos., with $175 million of 10-year senior notes via Banc of America Securities LLC and Bear Stearns. The roadshow wraps up on Thursday.

Also on tap for the May 2 week is PetroQuest Energy Inc. with $150 million of eight-year senior notes (Caa1/CCC+), via Credit Suisse First Boston. Pricing is expected late in the week.

A late-week transaction is also anticipated for Premium Standard Farms Inc.'s $125 million offering of 10-year senior unsecured notes (B1/BB) via Morgan Stanley.

Elsewhere, sources told Prospect News on Friday that Germany's Kloeckner Investment SCA, a steel trading and distribution company, is expected to price its €350 million offering of 10-year senior notes on Tuesday or Wednesday.

Terms on the deal, which is being led by JP Morgan and Barclays Capital, had been previously been expected to emerge on Friday.

And two other non-U.S. issuers are believed to remain in the market with their high-yield bond deals. Timing on both is believed to be "day-to-day pending market conditions." However sources say that either or both might price during the May 2 week.

Mandra Forest Finance Ltd.'s downsized, restructured $200 million maximum offering of eight-year senior notes (B1/B), via Morgan Stanley, is said to be in this category.

Also, South Africa wireless operator CellC (Pty.) Ltd.'s €625 million two-tranches offering, via Citigroup, is thought to number among the day-to-day deals that could price this week.

Calpine surges

Back among the established issues, Calpine, a trader said, "was the big name this week," and Friday was no exception, especially after the company put out its statement before the market opened, looking to quell some of the panic selling in its bonds and, especially, its New York Stock Exchange shares (which swooned 18.5% on Thursday alone).

The company gambit appears to have worked; the trader said that the statement "seemed to do the job," with Calpine's benchmark 8½% notes due 2011 having zoomed up as high as 51 bid during the session from opening levels around 42 bid, 43.5 offered, although the bonds subsequently came off those highs to finish at 49.5 bid, 50 offered - still a gain of some 6½ points on the day.

He saw Calpine's 8¼% notes slated to come due later this year up even more - a full eight points on the day, to 89.5 bid, 90 offered - with all the Calpine issues "in very active trading."

Calpine, a trader at another desk said, "was movin' around, up and down, but mostly up on the day."

He saw Calpine's 10½% notes due 2006 ending at 74.5 bid, and its 8½% notes due 2010 closing at 69 bid 70 offered, both up "at least a couple on the day," while Calpine's 8¾% notes due 2007 traded most of the day at 54 bid, up from Thursday levels "in the high 40s or lower 50s," before climbing to 57.5 bid, 58 offered at the close.

Another market source had those '07 bonds going out at 55, a gain of about five points on the session.

Calpine's shares, meanwhile, bounced back from the terrible beating they took on Thursday, to power up to $1.79, up 34 cents (23.45%), on volume of 34.9 million, more than triple the usual turnover.

Calpine, in its morning statement, said it was releasing some preliminary first-quarter data in advance of the officially scheduled earnings release this coming Thursday "to assure investors that first quarter financial results were in line with our expectations and that we remain on track to achieve our 2005 earnings."

The statement quoted the company's chief financial officer, Bob Kelly, as saying that the update "is necessary given the recent equity and bond trading volatility triggered by false rumors in the market. It is regrettable that reckless and unfounded rumors continue to impact the trading in Calpine's securities."

Calpine said it ended the quarter with about $800 million of cash and cash equivalents on hand, and said that its current portion of restricted cash totaled around $500 million.

It said that EBITDA, adjusted for non-cash and other charges, is expected to be approximately $240 million for the quarter ended March 31, while for the 2005 year that will end Dec. 31 Calpine is confirming that the company expects EBITDA, adjusted for non-cash and other charges, to be in the range of $1.6 billion to $1.7 billion.

Although the company did not issue quarterly earnings guidance, pre-tax earnings for the first quarter were in line with Calpine's internal estimates. Calpine is anticipating a fully diluted loss per share of about 38 cents for the first quarter. The company expects to achieve its forecasted earnings for the year ending Dec. 31, with a GAAP loss per share remaining in the range of 80 cents to 90 cents, based on indications that market spark spreads are remaining in-line with its earlier expectations.

Calpine further declared that "the recent market activity in the capital markets has not impacted Calpine Energy Services' (CES) ability to manage its portfolio of assets. In addition, CES remains fully collateralized with most of its counterparties, and has not been forced to post any material margin over the past week directly with counterparties."

Calpine got a vote of confidence on Friday from analysts at Merrill Lynch & Co., where managing director of high yield utility research David Silverstein wrote in a research note that the market, among other things, "has incorrectly assumed that two major near-term liquidity transactions will not occur."

Silverstein said that Calpine's management has indicated to Merrill that they expect to announce a sale transaction for the company's British-based Saltend facility that would provide for closing by July. "We believe that gross proceeds will be in excess of management's prior forecast of $800 million, which would have generated approximately $200 million of net proceeds for the company." Additionally, the analyst wrote, Calpine believes that it is close to announcing a new contract monetization that would result in proceeds of $400-$500 million.

Silverstein also gave short shrift to the scuttlebutt making the rounds that has Calpine practically on the verge of filing for bankruptcy, declaring that "we do not believe that Calpine will file Chapter 11."

However, should that event come to pass, he said that "certain bonds would perform well in this event. These bonds include CPN's 1st and 2nd priority secured notes and CalGen 3rd priority secured notes. We believe there is a strong likelihood that all of these bonds would be re-instated in the event of a near-term filing and that the risk of 2nd priority secured notes at the parent being equitized creates even more upside potential for these bonds."

Overall, Merrill is reiterating its "overweight" rating on Calpine's 1st and 2nd priority secured notes, and senior unsecured bonds maturing through 2007, as well as Calgen's 3rd priority secured notes. It also reiterates its "speculative buy" recommendation for Calpine's senior unsecured bonds maturing in 2008 and beyond.

Market mostly quiet

Elsewhere, a trader characterized the market as "pretty quiet," and said that there had been little real reaction to the report late Thursday that $228 million more had left the high-yield mutual funds - a barometer of overall junk market liquidity trends - than had come into them in the most recent week, ended Wednesday.

It was the 11th consecutive week in which the funds had been bleeding money, but the trader said that "the interesting thing is that given the [recent] softness in the market, only $200 million-plus flowed out" - meaning that the liquidity loss "isn't coming from the mutual funds."

Another trader merely characterized pretty much the whole market as "pretty sloppy."

Telecom weak

One area is particular was telecommunications, with Level 3 Communications Inc.'s flagship 9 1/8% notes due 2008 down a point at 79.5 bid, 80 offered. The second trader also saw Rural Cellular Corp.'s 9¾% notes due 2010 having dropped back to 89.5 bid, 90.5 offered, from 92 bid, 93 offered on Thursday, while Dobson Communications' 10 7/8% notes due 2010 were two points lower at 89 bid, 90 offered.

News that Amkor Technology Inc. will pay $40 million to settle pending litigation with Japanese electronics manufacturer Fujitsu Ltd. Helped to push the West Chester, Pa.-based high-tech manufacturer's 7¾% notes due 2013 down three points to 77.5 bid.

There was little market response to the news that Saks Inc. will sell two of its department store chains, McRae's and Profitt's - but not its prestigious Saks Fifth Ave. - in a $622 million deal. The Birmingham, Ala.-based store chain operator's bonds "didn't seem to move," a trader said, quoting its 7½% notes due 2010 steady at 97.5 bid, 97.75 offered.

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