Calpine bankruptcy noise sends bonds, bank debt reeling; Mirant lifted; Collins & Aikman steady

By Ronda Fears and Sara Rosenberg

Nashville, April 22 - Calpine Corp. dominated activity in the distressed market Friday as bankruptcy rumors flying through the market caused the company to halt trading in the stock, which further intensified selling. Then the company addressed what it referred to as "false" rumors, which helped stem the selling tide and gave the paper some bounce off the day's lows.

For the nearly 20 minutes that Calpine shares were halted due to "news pending," from around 2:12 p.m. ET to 2:31 p.m. ET when the company statement hit the tape, traders said the uncertainty of the nature of the company's news sparked a sell-off on fears that it could be a bankruptcy filing announcement.

"They did stop trading on the stock. Things started to sell on that, and then bounced back" after the statement hit the wire, a distressed debt market trader said. At one point of the day losses in Calpine paper amounted to nearly 5 points, but the short-dated bonds closed out the day off about 1 point.

Mirant Corp., another power name, actually got a slight lift from Calpine's weakness, but there was not a lot of activity in that paper, one sellside onlooker speculated. The Mirant bank debt of 2003 was pegged at 75 bid, 76 offered, basically unchanged, and the 2½% convertible bonds at 76 bid, 77½ offered, were better by about a half point.

Elsewhere in trading activity, which was described as light, Salton Inc.'s 121/4s dropped to the mid-50s to high 50s, a distressed trader said, from the mid-60s to high 60s. He said it seemed the drop in the subordinated bonds was a general reflection of the broader markets, as the credit reacted to a 21% drop in the stock. Another distressed trader pegged the small appliance maker's secured bonds, the 103/4s, at around 70.

Calpine bank paper off 2

Calpine Corp.'s second-lien bank debt dropped to as low as 74 on Friday afternoon as rumors of a potential bankruptcy filing swirled around the equity, bond and loan markets, according to a bank debt trader.

However, by late day the San Jose, Calif.-based independent power producer's paper did manage to regain some ground as it headed to 78 bid, 80 offered - keeping total losses on the day down to about 2 points, the trader said.

In addition, Calpine's CalGen bank debt was off about ½ point on the deal as a result of this latest drama and didn't recoup before day's end, with the second lien quoted at 96 bid, 97 offered and the first lien quoted at 100½ bid, 101½ offered.

Around 2:30 p.m. ET, Calpine put out a response to the "false" bankruptcy filing rumors because of the pressure that the company's bonds and equity were feeling during afternoon trading hours.

This company response did help stabilize bank debt levels - especially for the Calpine Corp. second-lien tranche - "but nobody really trusts Calpine management so they don't care what they have to say," the trader said.

"We don't think they have to file. They have ample liquidity [and] no problems until 2007. But people hate management and they keep posting crumby numbers so the noise will continue," the bank loan trader added.

Calpine 8s of '08 as low as 55

Calpine's shorter paper was the most obvious target of selling interest, a market source said. A trader at one shop quoted the 81/2s of 2008 down 1 point to 59½ bid, 60½ offered in the late afternoon. That same issue was pegged by another shop at 57½ bid, down 3 points since Friday morning.

"They are not out of the woods by any means but they addressed this, the rumor was dismissed," said a distressed bond trader. "Bankruptcy has been in the back of investors' minds, because this is a credit that has been built on continued refinancing; it is heavily leveraged."

Calpine responded to the rumors, and traders said that did cause some reversal in the paper before the closing bell rang.

"While it is not Calpine's policy to respond to market rumors, we feel compelled to comment today to assure the marketplace that these rumors are false. Calpine remains in compliance with its corporate and project indentures. Further, the company assures the market that it has no plans to file for bankruptcy," the company said in a prepared statement.

"The company continues to move forward on its 2005 financial program focused on reducing corporate debt, enhancing liquidity, and strengthening its long-term contract portfolio."

On Thursday, amid widespread ebullience in the markets, Calpine paper had seen a nice bounce, but only after restatements and rumors of coupons being in jeopardy had pressured the bonds by at least 8 points over the last week.

"You would think that people might start finding value here, sometime soon. At these levels there are probably a lot of technicals pushing these things around."

Auto suppliers shift to neutral

Despite some negative news among auto parts and component makers, such as Moody's Investors Service cutting Visteon Corp. deeper into junk territory, distressed traders said bonds of Ford Motor Co. and General Motors Corp. continued to tighten despite the sharp decline in the broad markets, and that helped the group maintain the status quo for the most part.

On Friday, Moody's cut Visteon debt and is keeping the credit on review for further possible downgrade, citing delays in efforts to reach a restructuring agreement with Ford as well as a decrease in business volume.

Collins & Aikman Products Co., a Troy, Mich.-based maker of components such as convertible tops, saw bids for its 10¾% notes due 2011 remain steady at 77 bid, but the offer dropped to 78 from 79 on Thursday.

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