Tembec gains on U.S.-Canada trade deal; Calpine up despite wider quarterly loss;

By Paul Deckelman and Sara Rosenberg

New York, July 3 - Tembec Industries Inc.'s bonds were seen better Monday, apparently given a boost by the weekend news that the United States and Canada had finally ironed out all the details of a trade agreement that will bring to an end a long-running dispute over lumber tariffs - setting the stage for the Montreal-based forest products company to eventually collect a large refund.

Calpine Corp. was seen up about a point across the board in light pre-holiday trading - probably more a function of a generally firmer, albeit quiet, high-yield market, rather than because of any investor enthusiasm about the bankrupt San Jose, Calif.-based power generating company, which posted a wider quarterly loss versus a year ago, largely due to restructuring costs.

General Motors Corp. bonds, and those of its General Motors Acceptance Corp. financial arm, were seen better, as the giant carmaker's bonds extended Friday's gains in the wake of indications that French carmaker Renault SA and Japan's Nissan Motor Co. are open to the idea of a strategic alliance with GM - an idea being pushed by one of the latter's biggest shareholders, billionaire investor Kirk Kerkorian.

And bonds of Granite Broadcasting Corp. pushed higher on word that the New York-based television station ownership company had lined up financing that will allow it to pay the overdue interest on one of its series of notes - even though Granite also warned that it could wind up in the bankruptcy courts should that funding deal fall through.

Participants in the bank debt market meantime saw little or no dealings in the paper of distressed companies on Monday.

A trader saw Tembec's 8 5/8% notes due 2009 push higher to 56 bid, "up a couple of points, though really on no volume." It was the second straight session in which Tembec was up, with those bonds having firmed to 54 on Friday.

At another desk, the bonds were seen at 56.50, up from 55.25 bid, on Friday. However, Tembec's other bonds - its 8½% notes due 2011 and its 7¾% notes due 2012 - were seen unchanged on the day, at 52.25 bid and 51 bid, respectively. Another source saw the 81/2s steady at 54.

Tembec's Toronto Stock Exchange-traded shares meantime jumped C$0.20 (14.39%) to C$1.59. Volume of 1.3 million shares was almost triple the norm.

The 8 5/8% notes and the shares seemed to be reacting Monday to the weekend news that the United States and Canada had finally resolved a two decade-old trade dispute over softwood lumber. The agreement announced Saturday in Geneva - where officials from both countries were attending World Trade Organization talks - fills in the details of the broad agreement outline that the two nations had announced back on April 27 - an announcement which caused Tembec's bonds to firm smartly at that time, while giving a boost to other Canadian forest product names, such as Abitibi Consolidated Inc. and Domtar Inc. as well. Since that time, the bonds of those companies have been up and down, rising and falling as progress in the talks appeared to ebb and low. When it appeared as though the talks would fail to produce a finished agreement before the end of June summer recess of Canada's parliament, which must approve the deal, Tembec fell - but it came back on Friday on news reports that substantial progress toward a deal had been made, with negotiators hoping to complete their work on the trade pact before Thursday's scheduled meeting in Washington between President Bush and Canadian prime minister Stephen Harper.

The agreement brings to an end more than 20 years of wrangling over U.S. claims - denied by Ottawa - that Canadian provinces had been unfairly subsidizing its softwood producers by not charging market rates to harvest timber on government land, thus putting their American-based rivals at a disadvantage. Washington rejected Canada's protestations of innocence on the issue and for the past four years has imposed punitive tariffs on imports of Canadian lumber. In that time it has collected some $5 billion from Tembec and the other Canadian producers. Under the terms of the agreement finally worked out, Washington will refund 80% of that, or about $4 billion. Cash-hungry Tembec stands to be one of the larger refund recipients, in line to get back around C$317 million.

The Canadian government plans to have the legislation implementing the accord in force by Oct. 1, with duties expected to be returned to Tembec and the other lumber companies within six weeks of that.

Calpine firm

Elsewhere, the news that Calpine Corp.'s first-quarter loss more than tripled to $589.4 million ($1.23 per share) from $168.7 million (38 cents per share) a year earlier, didn't seem to have much impact on the company's bonds which were seen up half a point to a point pretty much across the board.

A market source pegged the company's 8¾% notes due 2007 up a point at 71 bid, while at another desk, those bonds were also seen up a point, though at 70 bid. The second source also saw Calpine's 7¾% notes due 2009 and its 10½% notes that were to have matured this past May 15 also up a point, at 70. Its 8½% notes due 2011 were half a point better at 46 bid, while the 8½% notes due 2008 of Calpine Canada Energy Finance II ULC were actually off ¼ point at 61.5

A bond trader at another desk said he "didn't even see a quote in the name," although he did see Calpine's second-lien term loan debt unchanged at 97.5 bid, 98.5 offered.

Session quiet

With no positive news to explain the modest rise in the company's bonds, traders fell back on the market's generally firmer overall tone on very light trading ahead of Tuesday's Independence Day holiday break. Monday's market officially closed at 2 p.m. ET, well before the usual closing time, but even that early close was essentially a paper time, with whatever small activity that was going to take place having already done so well before that, participants said.

"It's so dead, that I'm getting out of here," one trader said around noontime, several hours before the ostensible close.

"I didn't see a price on anything," another trader declared. He opined that "it felt like the market was a little bit firmer - but there's really no basis for it. Stocks were up a little bit, and they were expecting Treasuries to open lower, but they were only off a touch. But it's really hard to tell, because there were very few people in [in the junk market], and almost no activity." He added that "the couple of guys we spoke to were their first or only call they'd gotten."

A trader at yet another desk who termed the session "a complete waste of time" added "nothing's going on, is right. The market's probably a little bit better, up a quarter point, looking at these indexes - but I don't think there's enough trading to tell what's going on."

GM helped by Kerkorian

Auto sales, he noted, were weaker, causing "reverberations" in the stock of GM and its arch-rival Ford Motor Co., each of which were lower, while he "really hadn't seen any big changes in the bonds" of either company.

However, at another shop, a trader was quoting the GM benchmark issue, the 8 3/8% notes due 2033, about a point higher at 81 bid, 82 offered.

Another trader said that GM was "up a little, at 81 for those bonds, and at 96 for the GMAC 8% notes due 2031. He noted that the move in GM paper had started Friday" on the news that billionaire investor Kerkorian, whose Tracinda Corp. holds 9.9% of GM's stock, making him one of its largest single shareholders, had urged in a Securities and Exchange Commission filing that GM seek admittance to the current strategic alliance between Renault and Nissan, each of which owns a substantial stake in the other. Carlos Ghosn is the chief executive officer of both companies.

Kerkorian's filing said that partnership has created "tremendous engineering, manufacturing and marketing synergies, resulting in substantial benefits and cost savings" to both companies. Kerkorian also said that the two carmakers would be prepared to take a substantial minority ownership stake in GM.

Besides urging GM to reach out to the other two carmakers to inquire about being included in their deal, he also contacted Ghosn in a letter touting the benefits of bringing GM into their partnership. GM said that it would take Kerkorian's suggestion under advisement.

On Monday, the boards of both Renault and Nissan each said that they would be willing to open preliminary talks with GM on a possible link-up, if GM was of a mind to so.

Should such a combination materialize, the three-way deal would create a huge auto alliance with annual output exceeding 15 million vehicles and commanding nearly one-quarter of the global market share.

The news that Renault and Nissan might be willing to buy a big stake in GM and incorporate it into their alliance proved to be more potent than the June sales figures - which, as expected, showed a sharp drop-off from year-ago levels for GM, which at this time last year was for the first time offering ordinary customers the same kind of "employee discount" deals its own workers enjoy. That incentive shot GM's June 2005 sales figures up substantially from their year-earlier levels, although it didn't translate to much in the way of added profits since the vehicles were so heavily discounted. GM is not doing that promotion again this year - and with high gasoline prices discouraging potential buyers of its big SUVs, one of its most important product segments, total June vehicle sales plunged 25.7% from June 2005 levels, almost totally due to a 37% falloff from a year earlier in the SUV/light truck category. Conventional car sales were about flat. The numbers came as no real shock to the market, since GM had predicted some days earlier that June sales could fall as much as 30% from last-year's comparable levels.

Ford gains

Ford - which a year ago had not yet ramped up its incentives program to match GM's - on Monday reported a 6.8% sales decline from a year earlier, paced by a 14.6% drop-off in sales of SUVs and light trucks, partly offset by an 8.6% gain in regular car sales, the latter advance mostly due to good customer demand for the Number-Two domestic carmaker's new Ford Fusion, Mercury Milan and Lincoln Zephyr mid-sized sedans.

Ford's flagship bonds, the 7.45% notes due 2031, were seen having bounced around at levels as high as 74 bid on Monday, well up from their late Friday close around 71. However, by the end of the day, they had gradually come down from their peak levels to end up about ¾ point at 71.75.

Other automotive names were not much changed, though. A market source saw bankrupt former GM subsidiary Delphi Corp.'s 6½% notes due 209 unchanged at 83.5 bid. The Troy, Mich.-based parts maker's 61/2s due 2013 were at 78.25 bid, as were its 7 1/8% notes due 2029, while its 6.55% notes that were to have been redeemed on June 15, were at 84, all unchanged on the day.

Granite higher on financing

Elsewhere, Granite Broadcasting's bonds were seen by a market source to have moved a little higher on the news that the troubled TV company has lined up new financing and plans to use a portion of the proceeds to pay the overdue interest on its 9¾% notes due 2010. Those bonds were seen having firmed a point to 92 bid, while its 8 7/8% notes due 2008 were half a point better at 91.75.

Granite's nearly worthless OTC Bulletin Board-traded shares rose 1½ cents (8.82%) to 18.5 cents, although volume of 7,500 shares was only about one-sixth of the usual daily handle.

Granite announced that it had reached agreement in principle on a new senior credit facility totaling $70 million - a $40 million tranche A term loan and a $30 million tranche B convertible term loan. The facility is expected to close and fund this week, with about $19.9 million of the proceeds slated to pay the interest on the 9¾% notes that was originally due on June 1. Granite at that time invoked the standard 30-day grace period.

A trader was not much impressed with the company's coup. He said that "they're operating on borrowed time. This doesn't change anything. They've sold any asset worth anything" - primarily, their only two major-market stations, in Detroit and San Francisco, the sale of which has not closed yet.

"If they get this deal done," he said, "they get to live for another six months, till their next coupon payment" on those bonds, which is due Dec. 1. Before that, they have a coupon due on the 8 7/8s on Nov. 15. "After that," he said ominously, "who knows? Ultimately, the business doesn't make any money."

He also noted that the company included a warning in the announcement of the new funding that if for any reason the deal could not get done - and it is conditioned upon the execution of definitive documents and reaching agreement with the indenture trustee for the 9¾% notes - it might be forced to seek Chapter 11 protection "in the immediate future."

"This gives them a little bit of a boost," he said, "but I think at the end of the day - take your coupon payment and hit the bid - it's the last one you're going to get."

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