Calpine deal finally prices; Bally's bounces on not-so-bad numbers

By Paul Deckelman and Paul A. Harris

New York, March 12 - Calpine Corp. finally completed its long-awaited refinancing Friday, successfully bringing some $2.4 billion of new bank debt and bonds to market just a few weeks after it was forced by investor reluctance and market conditions to scrub a similar financing effort. The Calpine deal was clearly the headliner during a session that also saw Team Health Inc. and Peabody Energy Corp. price offerings.

In the secondary arena, the market showed a firmer tone, stiffened in part, traders said, by the stock market's break-out rally after four consecutive sessions of losses, culminated by Thursday's terrorism-driven tumble.

Bally's Total Fitness Holding Corp.'s bonds - which had gotten slammed around like a 98-pound weakling at the beach the previous week on investor nervousness about the Chicago-based fitness club operator's failure up to that point to release its quarterly numbers - turned sharply higher after the company released the long-awaited results, which were certainly not the disaster which some bears had been expecting.

As with Thursday, Friday's big news in a comparatively quiet high yield primary market came from Calpine Corp. subsidiary Calpine Generating Co. LLC, (CalGen).

The San Jose, Calif. power producer, which faces a $2 billion-plus maturity in November, charged into the market with a $2.405 billion four-tranche refinancing package, just over a fortnight after having pulled the plug on a $2.3 billion bond and bank deal.

This time, with Morgan Stanley minding the meters, CalGen sold an upsized $835 million five-year first lien term loan/note at par, bearing an interest rate of Libor plus 375 basis points. Price talk was Libor plus 350-375 basis points.

The company also priced a downsized $740 million six-year second lien floating-rate loan/note at 98.50, bearing an interest rate of Libor plus 575 basis points for a discount margin of Libor plus 608 basis points. Price talk was Libor plus 550-575 basis points.

In addition, CalGen priced an upsized $680 million seven-year third lien floating-rate note at par, bearing an interest rate of six-month Libor plus 900 basis points. Price talk was Libor plus 875-900 basis points.

Finally, CalGen priced a downsized issue of $150 million of seven-year third lien fixed-rate notes at par to yield 11½%. Price talk was for a yield of 11¼%-11½%.

Late Friday afternoon, as terms on the deal began to circulate the market, a trader told Prospect News: "I heard the deal was totally done - totally committed.

"The term loans are really floating-rate notes. They're public securities so they will be more liquid, and will probably trade in both bank and high-yield markets because you have players from both."

The trader also reported hearing that two of the four tranches were oversubscribed.

Shortly thereafter an informed source told Prospect News that allocations would be made Friday night and that the bonds would be freed up for trading in the secondary on Monday.

Terms emerge on Peabody, Team Health

In addition to CalGen, two other issues priced during Friday's session.

Peabody Energy Corp., the St. Louis coal company, priced an upsized $250 million issue of 12-year senior notes (Ba3/BB-) at par to yield 5 7/8%.

With Morgan Stanley and Credit Suisse First Boston tending the boilers, the print on Peabody's acquisition financing deal came at the tight end of the 6% area price talk.

And Team Health Inc. sold $180 million of eight-year senior subordinated notes (B3/B-) at par to yield 9%, spot on the 9% area talk.

JP Morgan, Banc of America Securities and Merrill Lynch & Co. ran the books for the Knoxville, Tenn. provider of outsourced physician services, which will use the proceeds to refinance debt.

Talk on Omega, Rural Cellular

Price talk emerged Friday on Rural Cellular Corp.'s upcoming $510 million of senior notes that are being offered in fixed- and floating-rate tranches (B2/B-), with pricing expected on Monday morning.

Price talk is Libor plus 450-475 basis points on $150-$200 million of six-year non-call-two floating-rate notes.

Meanwhile price talk is 8¼%-8½% on $310-$360 million of eight-year non-call-four fixed-rate notes.

Lehman Brothers and Banc of America Securities are joint bookrunners

And price talk is 7%-7¼% on Omega Healthcare Investors, Inc.'s planned $200 million of 10-year senior notes (BB-), expected to price on Monday via Deutsche Bank Securities and UBS Investment Bank.

Inflow reflects "reasonable response"

On Friday market sources continued to mull Thursday's news, reported by AMG Data Services, that high-yield mutual funds took in just under $308 million for the week ending March 10.

A buy-side source, speaking on background, told Prospect News on Friday that it was a "reasonable inflow" which reflects a "reasonable reaction" on the part of investors.

"People had been worried about a Fed tightening," said the buy-sider. "I think the reality is that the Fed is not going to tighten, so sitting in money markets isn't going to earn you much income.

"And the risk in high yield seems to be reduced, at the present. So I think those factors bring money back in."

This source went on to say that in the present interest rate scenario the high-yield new issue pipeline should continue to be vigorous.

"There are people who want to borrow money or refinance," the buy-sider said.

"I don't think Treasuries are going up this year but people are definitely worried. So I think you'll continue to see a big calendar."

Finally, Prospect News asked this buy-sider to comment on recent color heard from sources in the investment banks, that recent high yield transactions reflect an increased amount of traction on the part of investors in how deals are structured.

"The better the deal, the more the market demand controls the terms," was the buy-sider's reaction.

"For those deals the terms are pretty rich," the source added. "The recent Standard Pacific Home and Corning deals were great examples."

Calpine existing bonds firm

Traders said that the new Calpine bonds priced way too late to be freed for secondary dealings.

They saw the San Jose, Calif.-based independent power producer's existing bonds firmer, in line with the market's generally solid tone and, perhaps, on investor relief had gotten over a very big hurdle with its massive financing deal.

A trader saw Calpine's 8½% notes due 2008 move up to 77 bid, 78 offered from late Thursday levels at 76 bid, 77 offered. He said the bonds actually got as good as 77.5 during Friday's session, "but they cooled off a bit" to their closing levels.

At another desk, a trader characterized Calpine's existing bonds as "up half a point across the board."

Apart from Calpine, traders saw the new Peabody Energy 5 7/8% notes due 2006 bid around the 100.25-100.5 level.

As for Team Health's 9% senior subordinated notes due 2012, a trader said "that definitely didn't trade," but added that the new bonds were "definitely below par, like 99 [bid], par [offered]. I saw one trade into a par bid. The manager made a par bid in the street and it got hit, and there was never another bid made."

He saw the new Standard Pacific Corp. notes, which had priced in two tranches late Thursday, "at either side of par."

Market quiet but firm

Back among the existing issues, he said the market was "dead quiet" - but firm.

"People on Thursday woke up with the terrorist event in Spain and were kind of thinking that the market would be under pressure and initially it was. But for the balance of [Thursday] and for [Friday], the market felt pretty firm

"There doesn't seem to be voracious buyers of paper at these levels - but it's definitely not trading off."

Another trader confided that "I expected when I came in [Friday] morning that it would be a complete [garbage] show - when I went to bed [Thursday], the news was abuzz with all of the al Qaeda stuff, how Madrid [the terrorist bombing] was al Qaeda, etc. - but while high yield didn't rally like stocks, it held its own.

"Level 3 [Communications Inc.] was pretty much unchanged, the tech names were unchanged - there wasn't a lot of movement on anything. There was a little activity - but it was pretty much at the same levels seen at the end of the day Thursday."

Bally gains on earnings

One major exception to that rule was Bally Total Fitness, which he said "really bounced" after the company finally released its fourth-quarter numbers.

The company's bonds had been severely beaten down over several sessions a week earlier in tandem with its stock as investors fretted because the quarterly results - which would normally have long since been released by the first week in March - still had not been, amid no word from the company when those results might be forthcoming. Internet bulletin boards buzzed with dire speculation about why management might be avoiding releasing the numbers, with some investors openly asking "what are they trying to hide?"

But when the numbers finally came out after the market close Thursday, it seemed in retrospect like a case of much ado about nothing. While Bally posted a loss for the quarter of $8 million (24 cents a share), it was less than the year-earlier loss of $9.9 million (30 cents). Bally additionally said that its membership numbers were up 6% in the quarter, although it predicted an "essentially flat" 2004 membership-wise. And it predicted a modest 2% to 3% gain in EBITDA.

On a conference call Friday morning, the company further revealed that it would delay filing its 10-K annual report with the Securities and Exchange commission, due to a change that it was making in its accounting; from now on, it said that it will record revenue from long-term memberships only as it is received, rather than booking it for as much as three years in advance and being forced to take write-offs if members defaulted on their payments.

The net effect of the change will be to give investors a clearer picture of the company's revenues. Because of the accounting change, Bally will take a $675 million non-cash charge.

But the delayed 10-K, the charge and the quarterly loss seemed not to matter to investors who apparently were relieved that there was no really negative surprise in the long-delayed quarterly results; Bally shares shot up 59 cents (11.37%) to $5.78 in busy New York Stock Exchange dealings Friday, on volume of 3.1 million shares, about nine times the norm.

On the bond side of the ledger, the trader saw Bally's 9 7/8% subordinated notes due 2007 having pushed as high as 85 bid, 86 offered, before easing slightly from that peak to close at 84.5 bid, 85.5 offered - still well up from its levels in the mid 70s just a few days before.

Another trader saw the 9 7/8s having jumped to that same level from prior levels as low as 72 bid, 75 offered previously, and saw its 10½% senior notes due 2011 having firmed to 95 bid, 98 offered from 89.5 bid, 91.5 offered previously.

"It doesn't really take much to get these positions down," he said of the precipitous fall the Bally bonds had taken on sheer speculation about what might - or might not - be in the earnings report.

"They talk them down pretty easily - then, there's a short-covering rally after the fact. A couple of bids come in and I don't think much really trades, then they're up and running four or five points. It's amazing.

"I guess [investors] thought they were shoving some of the weights under the rug," he quipped. "I don't know what they were thinking."

Elsewhere, many names were essentially little changed, with Lucent Technologies Inc.'s 7¼% notes due 2006 steady around 103.75 bid, 104.25 offered, and Nortel Networks Inc.'s 6 1/8% notes due 2006 unchanged at 102 bid, 103 offered, the lower levels to which the Brampton, Ont.-based telecommunications equipment maker's bonds fell Thursday on news that it would delay its 10-K filing.

El Paso Corp., which earlier in the week announced a delay in releasing its fourth-quarter numbers, due to the need to restate revenues in the wake of its downward revision in its oil and gas reserve estimates, was also "pretty much unchanged," a trader said, even as The Financial Times reported that regulators are poised to consider a formal inquiry as a result. El Paso's 7 7/8% notes due 2012 were steady at 89.5 bid, 90.5 offered.

Overall, a trader said, "I don't think the market really moved that much, from the numbers that I saw. The market really hasn't done anything for a few weeks."

He noted that looking at the movement of most of the bonds he tracks on a Friday-to-Friday basis, "really, nothing much has happened. A couple of issues move around, but for the most part, the stuff is right where it has been, which is indicative looking at the high yield indexes."

However, he allowed that "certainly, the market did feel better [Friday] than it did [Thursday], buoyed by the pricing of the Calpine deal, a modest widening out of government paper - which caused spreads on corporate bonds, including junkers, to come in correspondingly - and the rebound in the stock market.

"One was up, the other was down, and stocks held their gain, so everyone's feeling a lot better. If we don't have a terrorist attack over the weekend, everybody will be happy."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.