Calpine bonds add 2-4 points; Levitz crashes; Solutia softens; Delphi, Tower rise

By Ronda Fears

Nashville, Oct. 4 - Amid a considerable amount of wrangling and general confusion, Calpine Corp. got its preferred debt offering off deck - although it was downsized - and that gave its bonds and shares a nice bounce.

Credit Suisse First Boston and Goldman Sachs, among unnamed other big investment banks, were reportedly jockeying to take the lead on a $400 million preferred stock offering for Calpine away from Morgan Stanley. The deal was expected last week, but it was delayed on weak demand for the paper.

Heavy volume was noted in all the Calpine securities as it priced a downsized $300 million preferred at Libor plus 950 basis points. Morgan Stanley held on as bookrunner, but market sources told Prospect News that it was quite a runaround.

Calpine's straights were active on short covering, junk bond traders said, with the 8½% due 2008 heard at 67 bid at Tuesday's close, up from 64.5 in the morning. Distressed bond traders described Calpine issues up by 2 to 4 points in general. Its convertible bonds were also said to be very active on the news, and the stock gained 8.4% on the day.

Airline paper was finding some interest, too, according to one market source.

Moreover, distressed bond traders said it was an unexpectedly busy day, what with the Jewish holiday.

"We came in expecting it would be really quiet because of the holiday, but we were surprisingly active today," said one sellside trader. "There was a fair bit of volatility."

Levitz bonds move lower

Levitz Furniture Inc. bonds took a big hit Tuesday, diving 15 to 16 points on the day, and traders were at a loss to explain the sell-off as there was no news was on the tape from the company.

But the 12% bonds due 2011 settled the day at 42 bid, 45 offered, down from Monday's close of 57 bid, 59 offered, and the 15% bonds due 2011 dropped to 15 bid, 18 offered from 31 bid, 33 offered, a sellside trader remarked.

Delphi, Tower bonds rise

Automotive parts suppliers Delphi Corp. and Tower Automotive Inc., as well as R.J. Tower Corp., were both up about ½ to 1 point, traders said. Meanwhile, Ford Motor Co. and General Motors Corp. both came under pressure as Standard & Poor's said it was considering further credit cuts to the automakers.

Delphi has managed thus far to skid around bankruptcy court but also has warned that it may make a filing before the Oct. 17 date when bankruptcy laws become less friendly to filers, and speculation is still rampant as to whether that will happen or not. Tower was one of the first casualties from the demise facing the big automakers that has rippled through the industry.

The debate over Delphi's fate and the best mix of inputs for valuation rages on, onlookers said.

Troy, Mich.-based Delphi, a former GM unit, saw its benchmark 6.55% notes due 2006 hold steady at around 73 bid, and its 6½% notes due 2013 up about ½ point at 68 bid, 70 offered. Delphi has warned that it may have to file bankruptcy this month if GM and the United Auto Workers union do not help Delphi defray high labor costs.

Tower bonds were described as 1 point higher in the 89 neighborhood.

Emmis creeps up

Emmis Communications Inc.'s bonds edged higher Tuesday although credit analysts were warning about the company's habit of negative surprises for bondholders and the television station operator's $100 million bid last week for the Washington Nationals baseball team.

Still, the Emmis 6 7/8% bonds gained 7/8 point to 100 3/8, a trader said, and saw "decent" activity. He said fans of Emmis are still picking up the paper because they're happy with its selling four television stations to The Blackstone Group for $259 million. That same day last week Emmis announced its offer for the Nationals.

GimmeCredit analyst Shelly Lombard, however, in a report Tuesday cautioned bondholders.

"The big question is how much cash will be used to pay down debt. The baseball team purchase could consume $100 million," Lombard said. "Emmis has always said it will continue to pursue acquisitions that make sense, and it is very interested in Disney's radio stations which are for sale. But Emmis maintains it wants to do deals that don't dilute its equity and right now Disney wants more than it's willing to pay. We like Emmis' stable operations and declining leverage but we believe upside is limited because of uncertainty surrounding its acquisition plans.

"The company has been selling its television station assets in an effort to become a 'pure play' radio station story and delever its balance sheet. Although this sports team bid is a long shot that probably won't happen, it muddies the water and leaves both stockholders and bondholders confused about the company's direction."

Mirant bank paper higher

Mirant Corp. bonds, the 2.5% convertibles, traded as high as 112 on Tuesday but snapped back to end the day unchanged, traders said. The bank debt, though, extended gains from Monday.

"All that gyrating was for nothing," said the sellside distress bond trader at the end of the day.

The company's 2½% convertible notes due 2021 closed Tuesday at 110 bid, 111 offered, after having been pushed up 6 points on Monday.

"It went kind of crazy Monday, and it's still moving up today," a source in the bank loan market told Prospect News.

The bank loan source saw three different revolvers trading - one that was supposed to mature in 2003, one in 2005 and the one that was supposed to mature in 2005. The 2003 revolver was 117.5 bid, the 2004 revolver was 116.25 bid and the 2005 revolver was 112 bid.

"People have a lot of money and prices are way high," the source added.

Solutia softens on price hike

Solutia Inc. bonds pulled back about 1 point to the 83 area on Tuesday, a sellside trader said, in reaction to a price hike for its goods that players thought fell short of what the company should have done.

The company said Monday that effective Oct. 15 it will implement up to a 10% price increase on all industrial and airbag grade fiber, as well as air jet textured products.

"Sustained increases in both raw material and energy costs have required us to implement this price increase," said Michael Colella, commercial director in Solutia's nylon industrial fibers unit.

The market has expected a much larger price hike, another sellside trader said.

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