Calpine bonds collapse, bank debt down as well; Delta short bonds keep rising

By Paul Deckelman and Sara Rosenberg

New York, May 5 - Calpine Corp.'s bonds were seen having fallen to sharply lower levels Thursday, despite a conference call on which company executives continued to deny recent negative market rumors and indicated that the San Jose, Calif.-based power generating company should have no trouble refinancing or otherwise meeting its debt obligations.

One trader cited reports that Calpine might have some legal troubles in the form of a lawsuit filed by a dissident bondholder upset by the company's planned sale of its Saltend power plant in the United Kingdom.

The company's second-lien bank debt meantime also took a step back on Thursday - although the bank debt retreat was considerably smaller, down by about two points.

Elsewhere, Delta Air Lines Inc.'s 2005 bonds continued to wing their way upward, on talk that the Atlanta-based air carrier will likely mount an exchange offer to take out the bonds ahead of their scheduled maturity later this year.

A trader saw Calpine's 8½% notes due 2008 retreat to 53 bid, 55 offered from 61 bid, 63 offered on Wednesday.

Another trader quoted Calpine's 8½% notes due 2011 as having fallen to 53 bid, 55 offered, from Wednesday levels at 60 bid, 62 offered.

The first trader was of the opinion that the bonds retreated because market participants weren't much impressed by the company's first-quarter conference call, during which company executives declared that recent market buzz that Calpine would go bankrupt was "all false" and said they would be able to refinance or repurchase maturing debt (see related story elsewhere in this issue).

However, the other trader said that the call was not the problem - he said that he had heard that after the call that a hedge fund - likely the same fund whose objections to Calpine's sale of Saltend had sparked the recent negative market rumors about Calpine's ability to take care of its obligations, Harbert Distressed Investment Master Fund Ltd. - had filed a lawsuit in Canada against the company.

"It was the lawsuit that pushed the bonds down by seven points," he said.

A spokesman for Harbert declined comment on the lawsuit story - but did acknowledge that something was up, providing a court case number and referring all questions to a lawyer in the Canadian province of Nova Scotia.

Due to the lateness of the hour, neither the attorney nor officials of the courts in Halifax returned phone calls seeking confirmation.

Harbert Distressed last month released a letter criticizing Calpine for the planned sale of the Saltend plant, claiming that Calpine would not be able to meet its obligations to holders of two series of bonds issued by Calpine's Canadian financing subsidiary. Even though Calpine asserted it was in full compliance with its financial and legal obligations, the dispute sparked market rumors of a possible default or even bankruptcy - also denied by Calpine.

Calpine's president and it chief financial officer took pains on the conference court to label as "all false" the market rumors that had the company either about to default on an obligation - or even on the verge of bankruptcy.

On that call, Calpine officially announced its first quarter results, including revenue of $2.2 billion, representing an increase of 9% over the same period in the prior year, and net loss of $168.7 million (38 cents a share), versus a net loss of $71.2 million (17 cents per share), for the same quarter last year.

After the conference call - but before the end of the day when the headline about the Canadian lawsuit came out - a market source saw Calpine's 81/2s due 2011, 7 7/8% notes due 2008 and 7 ¾% notes due 2009 at 58 bid, down from 60.5; its 8 ¾% notes due 2007 was down two points, at 68 bid, and its 8 ¾% notes due 2013 were 1 ½ points lower, at 72.

Calpine's second-lien bank debt was meantime seen trading around 79 early in the day, but falling off to 77 bid, 78 offered by close. On Wednesday, the paper had closed around 79, 80 bid or 80 bid, 81 offered, traders said.

From Monday through Wednesday's close, that bank debt had been skyrocketing, gaining about six or seven points over the course of the week, along with the company's junk bonds and its shares, reversing the negative trend that was seen for most of last week because of the bankruptcy rumors.

To counter that bankruptcy buzz, Calpine had pre-announced some first quarter results last Friday, which included cash and cash equivalents on hand of approximately $800 million, EBITDA, as adjusted for non-cash and other charges, of approximately $240 million and fully-diluted loss per share of approximately 38 cents.

Delta '05s up

Elsewhere, a trader in distressed securities saw Delta Air Lines' 7.70% notes due 2005 - but only that particular issue - having firmed smartly for a second straight day on Thursday, propelled upward by speculation that Delta will take out the notes via an exchange offer before the 7.70s' maturity. He saw those notes at 82 bid, 84 offered, up from 79 bid, 81 offered on Wednesday.

However, he said, "the rest did not go up like that," with Delta's 10% notes due 2008 up a point at 37 bid, 39 offered, and the other issues unchanged.

Another market source also saw the 7.70s well up, at 83.5 bid from 79 previously. He saw the 7.90% notes due 2009 up nearly two points at 35.75, but saw the carrier's 8.30% notes due 2029 actually down half a point at 26.

Tembec climbs

The source also saw Tembec Industries' recently lower bonds back on the upside, with the Canadian forest products company's 8½% notes due 2011 having pushed all the way up to 90.5 bid from recent levels in the upper 70s, while its 7¾% notes due 2012 firmed to 79.5 bid from 77.

The twin downgrades to junk bond status of General Motors Corp. and Ford Motor Co. sent some of the distressed auto supplier sector names skidding as well.

Bankrupt Tower Automotive Inc.'s 12% notes due 2013 dropped two points to 53 bid, 55 offered, while Collins & Aikman Products Co.'s 10¾% notes due 2011 fell to 71 bid, 72 offered from 75 bid, 76 offered previously, and its 12 7/8% subordinated notes due 2012 fell a full five points to 26 bid, 28 offered.

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