Calpine bonds power up; Rumor boosts WCI paper; Quebecor plan causes concern

By Stephanie N. Rotondo

Portland, Ore., Jan. 14 - Now that Countrywide Financial Corp. exited distressed territory - almost as quickly as it entered it - the junk sector reverted to its typical behavior Monday - that is, it was quiet.

"With Countrywide out of the way, there's very little going on," a trader remarked.

"It's just a Monday," he added. "A few things go up, a few things go down. It's like pulling teeth."

"A lot of stuff that has been busy of late was on the quiet side today," a trader said.

Even a rally in the stock market did not encourage distressed players to make a move.

"I don't know how many people were buying into the rally," one trader speculated, especially after the events of the last week. Instead, the trader opined that investors are "pausing" to see if there really is a "shift in momentum."

"If the market is strong again tomorrow, I think you will see some activity pick up," he said.

But focusing on the day at hand, Calpine Corp.'s bonds were one of the day's big movers, gaining as much as 6 points. The increase in the debt was considered by most to be attributed to a rise in the company's when-issued stock, which started trading last week.

Meanwhile, rumors are circulating that WCI Communities Inc. acquired yet another extension on a waiver agreement with its banks. While unconfirmed, bond traders agreed that it made sense, given the equity's upward move. The bonds were likewise better.

With just one day to go to refinance its debt, Quebecor World Inc. may or may not have a plan. A so-called "rescue plan" developed in part by the company's parent organization did not have investors celebrating in the streets - instead, the plan encouraged even more caution, as many do not believe the plan will come to fruition.

However, traders gave mixed reports about the company's debt, with some deeming the bonds better, while others called it lower.

Coming into the middle of the first month of the year, traders are still hoping for some catalyst to propel the distressed arena into the stratosphere.

"Everybody knows there is a major correction coming in the distressed and high-yield markets," a trader said. "Guys are just waiting. I mean, why buy homebuilders now?"

"It's wait and see," he added.

Calpine powers up

Calpine, which is scheduled to emerge from bankruptcy soon, saw its debt rise in tandem with its new when-issued stock.

According to one trader, the power producer's bonds gained 4 to 5 points during the session, its 8½% notes due 2011 at 116 bid, 117 offered and its 8½% notes due 2008 around 120.

Another trader pegged the 2011 paper at 116.5 bid, 117.5 offered and the 2008 issue at 120 bid, 121 offered.

Calpine, a trader said, was "the name of the day, as far as movement," although he did not know if there was a lot of activity in the bonds. He saw the 2008 piece up 6 points at 119 bid, 121 offered, while its 2011 paper was better at 116 bid, 118 offered.

He also saw Calpine's convertible notes up, its 7¾% notes due 2015 better by 2 points at 98 bid, par offered, its 6% notes due 2014 were 3 points better at 87 bid, 89 offered, and its 4¾% convertibles due 2023 were 5 points better at 103 bid, 105 offered.

At market close, the when-issued stock, which started to trade over-the-counter on Thursday, ended higher by $1.25, or 7.35%, at $18.25.

The San Jose, Calif.-based company is scheduled to attend a hearing on Tuesday, at which the bankruptcy judge overseeing its case will hear shareholders' arguments as to why the reorganization plan should be reconsidered. Calpine has objected to the motion, stating that the shareholders had sufficient time to file objections before the plan was confirmed. If Calpine loses, and the plan is delayed, the company's exit financing could be in jeopardy. Under the terms of the financing agreement, Calpine must exit Chapter 11 by Feb. 7.

Rumor boosts WCI debt, equity

The bond market can at times be a little like high school: Rumors and innuendo fly around constantly and can alter a company's course in the blink of an eye.

Such was the case for WCI Communities. The homebuilder, which has seen its value - both debt and equity wise - slowly, but surely declining in recent weeks, saw things reverse Monday. The buzz was that the company had received yet another extension on a waiver agreement with its bank lenders.

"That makes sense," a trader said, citing the rebound in the company's stock.

If true, then this is the third time the homebuilder has extended its waiver agreement. The second extension is slated to expire on Wednesday. Market players have speculated that talks with the company's banks to amend its credit agreements have not gone well, thus the recent dips in the debt.

"I guess if they are having trouble, that could be what has been pushing the bonds lower," a trader said.

Regardless, the bonds were at least slightly better on the day, with one trader quoting the 9 1/8% notes due 2012 around 49 and the 4% convertibles notes due 2023 in the low-60s.

At another desk, a trader placed the 9 1/8% notes at 47.5 bid, 48.5 offered, the 4% convertibles around 51.5 "up toward the offer side," the 7 7/8% notes due 2013 at 47 bid, 48 offered and the 6 5/8% notes due 2015 at 48 bid, 49 offered.

However, another trader said the 9 1/8% notes dipped 2 points to 47 bid, 49 offered.

On the equity side, the company's stock closed 62 cents, or 32.63%, better at $2.52.

Elsewhere in the troubled housing sector, Tousa Inc.'s 9% notes due 2010 were called unchanged to slightly weaker at 43 bid, 44 offered.

A trader said Standard Pacific Corp.'s bonds were "off quite a bit...again," following last week's announcement that the company had hired restructuring specialist Miller Buckfire.

The trader said the 6½% notes due 2008 slipped 3 to 4 points to 77.5 bid, 79.5 offered from Friday's closing levels of 81 bid, 83 offered. The 9¼% subordinated notes due 2012 were also softer at 34 bid, 36 offered.

The Irvine, Calif.-based company's term loan B also continued to inch lower, a trader said.

The term loan B was quoted at 65½ bid, 67½ offered, down a point from Friday's levels of 66½ bid, 68½ offered, the trader said.

"There are rumors that there was a bondholder call this afternoon, but I don't know if it's true or not," the trader added.

Quebecor rescue plan causes concern

A so-called "rescue plan" proposed to save Quebecor World from the throes of bankruptcy has not yet propelled investors to storm the streets in celebration.

Instead, the market continues to express concern that the deal will fall through - and a Tuesday deadline to raise $125 million in new financing will not be met.

Concern over the plan has also caused some confusion in the bonds. Some traders reported that the debt was better, while others saw the debt slipping yet again.

One trader called the bonds 2 points higher on the proposal, its 9¾% notes due 2015 at 59 bid, 61 offered. Another, however, called the bonds down a couple points, its 4 7/8% notes due 2008 at around 76.

Another trader quoted the 9¾% notes at 58 bid, 62 offered and the 6 1/8% notes due 2013 at 67.5 bid, 69.5 offered.

The C$400 million plan put together by Quebecor parent Quebecor Inc. and private equity fund Tricap Partners, released late Friday, still has to earn bank approval. According to an analyst at UBS, there is "substantial risk" that the banks will reject the plan.

To Shelley Lombard, an analyst at Gimme Credit LLC, the plan brings up even more questions than what it answers. First of all, the rescue-financing plan did not specify how the funds would be issued - whether in the form of debt or equity. Second, the plan would require banks to essentially back away from their current demands to be paid in part by February and in full by June. A third question deals with the 2008 paper, which could trigger another liquidity crisis.

Still, Lombard wrote in an afternoon report, "The banks have some incentive to go along with the deal. Rather than pushing the company into bankruptcy now, when they aren't fully secured, it might make more sense for the banks to wait to see if the industry and Quebecor's EBITDA stabilize. If they do and the credit markets recover, the banks can be refinanced out next year. If not, and the company ends up in bankruptcy, the banks are not any worse off than they are if Quebecor files now."

Broad market tidbits

Delphi Corp.'s debt was called "weaker, but not all that active," by one trader, who pegged the 6.55% notes that were to have matured in 2006 and the 6½% notes due 2009 around 45.

Tembec Inc.'s bonds have also been quiet recently. The trader said there was "some activity" in the name during Monday's session, its 8½% notes due 2011 and the 8 5/8% notes due 2009 at 43 bid, 44 offered.

Another trader called the forest products company's bonds "basically unchanged," the 8 5/8% notes at 43 bid, 44.5 offered versus 42 bid, 44 offered on Friday, its 8½% notes at 42.5 bid, 43.5 offered and its 7¾% notes due 2012 also at 42.5 bid, 43.5 offered.

Swift Transportation Co. Inc.'s 12½% notes due 2017 were up a point at 41 bid, 43 offered.

Claire's Stores Inc.'s 9¼% notes due 2015 also rose a point to 65 bid, 67 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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