Calpine, Kmart heard improved; Granite up again on asset sale; Cott prices

By Paul Deckelman and Paul A. Harris

New York, Dec. 17 - Kmart Corp., whose bonds were on the slide Monday after the retailer was dropped back to pure junk bond status, was heard to have improved somewhat in Tuesday's dealings; also on the upside, market participants said, was the debt of embattled power producer Calpine Corp. and Granite Broadcasting, which firmed smartly for a second straight session on plans to sell one of its coveted major-market TV stations.

In primary market dealings, Cott Beverages, Inc. priced $275 million of ten-year notes via Lehman Brothers, one of just two deals on the calendar to price before the holidays.

Cott's deal priced Tuesday at just less than a 2.5% discount (97.501) to yield 8 3/8%, "a quarter point behind the talk," one syndicate official told Prospect News.

One sell side market watcher not connected to the Cott syndicate commented that the Canadian beverage company got a good deal.

"You're talking about a soda company getting $275 million of senior subs, B2/B+, at 8 3/8%," the sell-sider said. "That's still a damn good deal. I don't think they can complain too much.

"Last week things started to back up. They might have just been trying to challenge the market, based on the numbers going into Thursday. And all of the sudden they just got a little ahead of themselves.

"When I saw the pricing come across, I thought 8 3/8% was not a bad level for them."

The only announced business that remains on the 2001 forward calendar, according to the sell-siders who spoke to Prospect News on Tuesday, is the $700 million in senior notes from EchoStar, via joint books Deutsche Banc Alex Brown, and Credit Suisse First Boston. Price talk of 9%-9¼% came out Tuesday. The transaction is expected to price late Wednesday or early Thursday, according to a source.

Several sell-side sources told Prospect News, Tuesday, that they would not be surprised to see the deal, which had initially been expected to run to $1 billion or more, upsized.

One source close to the EchoStar deal, asked to comment on its possible upsizing, responded "There certainly is plenty of headroom in the deal, even with the new Vivendi investment of $1.5 billion."

Also on the sell-side of the high yield primary, conversation surfaced on possible new issuance of $400 million from SC Johnson Wax, coming in early January.

In a late November press release Unilever announced that it had agreed to sell its DiverseyLever institutional and industrial cleaning business to Johnson Wax Professional for $1 billion in cash, and a loan note of $279 million. Market sources commented, on Monday and Tuesday, that there will quite likely be a junk bond component to the financing.

"That will be one of the first deals of next year," one source said.

Another deal likely early in the new year is Solectron Corp. Announcing a $1 billion convertible offering via Goldman, Sachs & Co. Tuesday, the newly junk-rated contract electronics manufacturer said it also plans to sell at least $500 million of unsecured fixed-rate debt early in calendar 2002. Both Standard & Poor's and Moody's Investors Service downgraded Solectron to junk Tuesday.

Among the sell-siders who spoke Tuesday with Prospect News, all concurred that EchoStar will quite likely wrap things up on the primary market for 2001.

"If they're going to bring anything else," one commented, "they have to do it today or tomorrow."

Another official from an investment bank professed the belief that nothing new would emerge until the first week of January, which of course is less than two weeks into the future.

Yet another official from another investment bank said that when business does get underway in January, it figures to be robust.

"Right now we've just had too much supply bunched up in these last two weeks of the year," the official said. "The buy-side was trying to get its books closed, and I think there was just some overload. Come the new year we're right back to a steady trend because the fundamentals are still pretty favorable.

"I think the pension fund allocations you've been hearing about will first get started in the new year, and that's going to be a pretty good slug of demand," the official continued. "My buddies on the structured finance-side tell me there's some CDO-creation happening. And on the funds-side there's still money that needs to be put to work.

"Against that backdrop you have banks which still have tightened lending standards. Do you remember the October Fed survey, where 51% of the banks said they're still tightening lending standards? That hasn't changed.

"If you've still got cash that needs to be put to work in the high yield market, and you've got banks looking at tighter lending standards, then you've got the recipe for a lot of refinancing activity, at least in the near term."

In the secondary, a trader said the new Cott bonds "traded OK, not too badly," after having priced at 97.499. But activity was limited, as were most secondary market dealings.

"It was dead all around," he declared. "The store is closed," with many accounts having already done their end-of-year portfolio adjusting and now at this point just going through the motions.

"We're waiting on a couple of deals that could price Wednesday or Thursday, but other than that, not much is going on."

"It looks like the holidays are here," someone at another desk observed, noting the overall lack of activity.

In what little action there was, a trader saw Kmart bonds "stabilizing," after having dropped about five or six points across the board Monday in response to the late-Friday announcement by Moody's Investors Service dropping its bonds from their hard-won Baa3 rating back into junkbond land, at Ba2.

He quoted the Troy, Mich.-based discount retailing giant's 12.5% notes due 2005 at 93.5 bid, up around two points on the session, and its benchmark 9 3/8% notes due 2006 "up about a point-and-a-half or so" at 82.75 bid/83.75 offered. Its 8 3/8% notes finished around 86 bid.

"They've been sliding for a few weeks," he noted, in response to projections of weakened retail sales in the post-9/11 economy and the company's own economic weakness, manifested in a $224 million third-quarter loss reported two weeks ago. "But the real damage was done late last week and on Monday."

The trader also saw Calpine's bonds "doing better," with its 8½% notes due 2011 trading at 83 bid/84 offered, well up from Monday's closing levels around 76 bid/78 offered. The market apparently took some heart from Calpine's own statement - released after Moody's dropped its bonds back to Ba1 from Baa3 on Friday after only about two months in investment-grade territory, that the San Jose, Calif.-based power plant company intended to get its ratings back to investment grade. Calpine also said that its operations would be unaffected by the Moody's downgrade, which, it added, did not trigger any defaults under its financial agreements.

"That must have reassured somebody out there," the trader noted.

Also on the upside, for a second consecutive session, was Granite, which on Monday had zoomed after the New York-based television station group owner announced the sale of its San Francisco-area TV station KNTV, San Jose, Calif., to NBC for $230 million.

The company's 10 3/8% notes, which on Monday had jumped six points from Friday's close at 74 to 80 bid, were heard up another nearly eight points Tuesday at 87.5 bid. Its 9 3/8% notes and 8 7/8% notes, which on Monday had both closed at 75, up seven and four points on the day, respectively, tacked on another five points to end trading at 80 bid Tuesday.

Chiquita Brands International's several series of bonds were heard as having moved up to about the 83.5 bid level from 81 previously; the Cincinnati-based banana importing giant filed for Chapter 11 protection on Nov. 28, in order to implement a restructuring plan which would chop its more than $950 million of bond debt by some $700 million, leaving debtholders with about 88% of its stock.

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