Sea Containers levels baffle; profit-takers hurt Calpine; desperate times for auto suppliers

By Stephanie N. Rotondo

Portland, Ore., Jan 18 - Sea Containers Ltd.'s monthly operating report left some analysts dumbfounded about where its bonds are trading as the company reported operating income of $4.23 million for November 2006 - but the positive figures exclude some costs associated with its reorganization.

Others have more faith in the Bermuda-based maritime company, claiming the potential return on investment is solid, though activity in the bonds has been slight.

Elsewhere, Calpine Corp., and its subsidiary, Calpine Generating Co. LLC, or CalGen, experienced the financial equivalent of a hit-and-run as Wednesday's stock market surge generated heavy buy-ins, followed by profit taking. The bonds weathered the storm better than their stock counterparts, but did see slight declines Thursday.

Down, but not out, Northwest Airlines Corp. held around unchanged even though many stockholders are being seen converting to bonds. One trader indicated the stock would soon be "worthless," though bondholders will likely see a pre- and post-petition interest payout. In other bankrupt airline paper, Delta Air Lines Inc. was relatively stable, though bid prices were down, despite crude oil prices dipping below $50 a barrel.

The worst is not yet over for some in the automotive industry. Tower Automotive Inc. and Collins & Aikman Corp. continue to fare poorly, and many traders have given up hope. Some reports blame the loss of contracts to healthier companies for their demise. However, while Delphi Corp. experienced slight dips, the sentiment remained overall positive as a deal with General Motors Corp. edges ever closer.

Analyst baffled by Sea Containers

As Sea Containers released its monthly operating report for November 2006, reporting an income of $4.23 million, one analyst expressed concern that the figures are misleading.

"I was baffled how they could possibly do that," said Caesar Silvestro, an analyst with Samco Capital Markets.

Here is the kicker: a footnote in the report explained that the MOR did not include costs associated with reorganization, which Silvestro placed around $5 to $6 million. The placement of this information, he believed could easily be overlooked.

Silvestro also said he believed that Sea Containers' bonds, currently trading at pre-bankruptcy levels, are "grossly" overvalued, given the company's assets.

"I just can't get over how high these bonds are trading," he said.

Although GE SeaCo, a partnership with General Electric Capital Corp., has done good business - making up almost 80% of the figures shown in the company's monthly reports - there is very little asset value, according to Silvestro. Of the assets Sea Containers does have up for auction - several ferries sitting in dry dock - there has been little to no movement on the sales front, he said.

Also notable is the fact that the company has not filed a 10-Q or 10-K since the third quarter of 2005. This historical lack of reporting has contributed to Silvestro's wariness.

"I just think it's a mistake to take this [MOR] evaluation as fairly valued," he said.

But rumors have popped up regarding a potential buyer interested in Sea Containers. This, however, is surprising to Silvestro.

"Who would want to buy it?" he said.

GE has shown some interest, taking it as far as litigation to sever the partnership with Sea Containers and take full control. GE has claimed the business has been poorly run from the Sea Container side.

"It's not a great relationship," Silvestro said.

Traders, on the other hand, are more positive on the company. One trader indicated that he expected the bonds to show a 100% return. The bonds were mixed Thursday, with little trading activity. The 7 3/8% notes slid to 79.50, about ¾ point down from Wednesday's close, while the 10¾% notes rose over 2 points to 87.875.

Sea Containers filed for bankruptcy in October 2006.

Calpine notes, CalGen loans slide

In bank debt circles, CalGen's first-lien bank debt saw a lot of activity on Thursday, although levels remained basically sideways, according to a trader.

In the distressed bond market, parent Calpine paper was lower alongside a decline in the stock.

The CalGen first-lien debt closed out the day around 102 bid, 102.5 offered, the trader said.

"There's a lot of behind the scenes stuff going on there. A lot of private-side stuff," the trader remarked.

In addition, there are rumors of a possible refinancing of the CalGen debt, the trader added.

CalGen is a wholly owned subsidiary of Calpine, a San Jose, Calif.-based power company.

The parent company took hits in both stock and bonds, though the bonds fared slightly better.

Traders attributed the dip to profit-taking after the gains Wednesday on news that the company plans to start a search for equity partners to help it exit bankruptcy, as well as Harbinger Capital Partners' bid to buy certain assets of Calpine Power Income Fund Trust in Canada.

Calpine's 7¾% notes due 2015 took the biggest hit in Thursday's trading, dropping 4 points to 87, while the 7¾% due 2009 slid just under 2 points to 102. Meanwhile, the 4¾% convertible slipped slightly to 89 from 90.

The stock, however, took a bigger plunge, as the Pink Sheets quoted issue dropped 8% to $1.23. One equity trader said the drop was due to Wednesday's climb to $1.45 on buy-ins, which triggered profit taking.

Northwest, Delta buck oil trend

As Northwest Air prepares to file its disclosure statement, traders are seeing a high amount of stockholders converting to bonds. The good news for bondholders is the likelihood of pre- and post-petition interest payouts. Couple that with the news that crude oil dipped below $50 barrel - though briefly - and the airline's paper had surprisingly little reaction.

One trader saw Northwest bonds unchanged, with the 9 7/8% notes due 2009 at 107 bid, 109 offered, the 10% notes due 2009 at 106 bid, 108 offered and the 7 7/8% notes due 2008 at 103 bid, 105 offered - this despite yet another decline in crude prices, which are seen as a barometer of the future direction of jet fuel costs.

He saw Delta bonds down 2 points on the session with the widely quoted 8.30% notes due 2029 at 68 bid, 70 offered. One trader commented on the difference between the two bankrupt airlines, noting that Northwest, as a smaller company, had less debt and therefore "more to go around." Delta, as the domestic No. 3 carrier, has three to four times as much debt.

But decreases in oil prices can signal good things to come for the airlines. Prices plunged amid a higher-than-anticipated inventory report. A drop below $50 - a psychologically potent threshold - lasted only briefly, but by market close oil futures settled at $50.34 a barrel, down $1.90, or 3.6%, from the day before.

Tower, Collins desperate cases

Automotive suppliers Tower and Collins & Aikman saw little to no activity Thursday, and one trader thinks that hope is gone as their bankruptcy plans both appear to be unraveling.

"The dip is so big now," he said.

"This is looking desperate. Everyone's given up. They are putting too much on top of them, its bankruptcy upon bankruptcy essentially."

Tower, he said, had no bids for the day and stayed in the 8 range, or 7 by another trader's account. Tower's equity rights offering sponsors pulled out of the deal suddenly last week, although the company has said it is pursuing other investors to sponsor a bankruptcy exit plan.

Collins & Aikman saw few trades in its 10¾% bond, and as another trader put it, closed at "3-4, shut the door," unchanged even as a brouhaha erupted in its bankruptcy case, with the Troy, Mich.-based supplier's court-appointed trustee urging the federal judge overseeing its restructuring to reject its disclosure statement.

The trustee claimed Collins & Aikman gave conflicting estimates of its value to creditors in its November balance sheet versus values listed in its disclosure statement so it shouldn't be allowed to solicit support for a plan to emerge from bankruptcy.

Some reports place the blame on a loss of contracts, the first trader suggested. Some auto parts suppliers in bankruptcy have had contracts taken away, while others have voluntarily given up contracts in an effort to refocus efforts on more profitable business.

Among other autos, Delphi saw slight a decrease as players waited for an update on the recent announcement by General Motors Corp. chief executive officer Rick Wagoner that the company and its union were closer to a deal with GM to cut benefits and wages.

And one trader saw Dura Automotive Systems Inc.'s 8 5/8% senior notes due 2012 half a point lower at 34.5 bid, 35.5 offered, while its 89% subordinated notes due 2009 also lost half a point to finish the day at 6.5 bid, 7.5 offered.

Sara Rosenberg and Paul Deckelman contributed to this article.

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