Calpine bank debt, bonds up on asset-sale plan; Exide bonds seen better

By Paul Deckelman and Sara Rosenberg

New York, June 29 - Calpine Corp.'s bonds initially shot up and its second-lien bank debt also saw a rush of activity in the morning hours at higher levels after the company announced plans to sell its domestic oil and gas exploration and production assets for $1.05 billion to Rosetta Resources Inc.

Elsewhere, Exide Technologies bonds - which had dropped sharply on Tuesday on the news that the Lawrenceville, N.J.-based automotive storage battery maker's auditor will attach a "going concern" advisory to its 10-K annual report - bounced off their lows and pushed a little higher on the session.

Calpine's bank debt closed out the session up around two points at 85.5 bid, 86.5 offered, according to a trader, who said that the paper was active earlier in the day but went "dead" during the afternoon.

The trader explained that the news sent the bank paper higher because, first, it's good for the company, and second, there's the potential that some of the second-lien debt may get paid down with a portion of the proceeds from the sale, the trader explained.

Over on the bond side of the distressed market, meanwhile, a trader said that the announcement that Rosetta Resources will buy the oil and gas E&P assets caused Calpine's 8½% notes due 2008 to push up to 73.5 bid, 74.5 offered from prior levels around 71 bid, 72 offered - but by the end of the day, "the rally faded," and the bonds gained perhaps half a point to 71.5 bid, 72.5 offered.

"Right out of the gate, the bonds shot up 2½ points the first hour," he said, "but then the stock faded, as well as the bonds." Calpine shares, which got as good as $3.75 in New York Stock Exchange dealings, actually ended at $3.48, down 12 cents (3.33%).

The trader saw the company's 8¾% notes due 2007 up perhaps a point from prior levels at 77.5 bid, 78.5 offered, while its 8½% notes due 2011 were half a point better at 68 bid, 69 offered.

A market source who had seen the 83/4s get as good as 80.5 bid, up three points on the session, saw those bonds going home with only half that gain, at 79.

Yet another trader saw the 8½% notes opening at 73 bid, 75 offered, getting as good as 75 bid, but then falling back to 71 bid, 73 offered "when they [investors] realized they weren't going to get all the money they sold the plants for," an apparent reference to earlier Calpine sales of several generating plants.

Rosetta Resources, a newly formed indirect, wholly owned subsidiary of San Jose, Calif.-based energy producer Calpine, has agreed to issue 45,312,500 of its common shares in a private placement for $725 million, which in addition to borrowing $325 million under a new credit facility, will fund the purchase price.

The sale is scheduled to close on July 7 and, following this transaction, Calpine will no longer own any interest in Rosetta.

The sale of the oil and gas properties - while criticized by some as a foolish squandering of the company's gas reserves, leaving it at the mercy of the open markets in trying to obtain natural gas to run its more than 90 plants - is the latest step in Calpine's plan to monetize its assets and use the proceeds to pay down debt.

Calpine said earlier this month that it would accelerate its planned paydown of $3 million of its nearly $18 billion of debt, pushing up the date that debt retirement will be concluded to the end of this year, from the end of 2006 as previously envisioned.

Exide higher

Elsewhere, Exide's 10½% notes due 2013 were quoted by a market source as having risen two points to 78.

Those bonds had fallen sharply Tuesday to around 76 from prior levels at 81 after Exide disclosed that that its independent auditor, PricewaterhouseCoopers LLC, will include a "going-concern" opinion in Exide's 10-K report for the 2005 fiscal year that ended on March 31, centering on Exide's ability to meet financial covenants in fiscal 2006 under its credit agreement. Issuance of such an advisory will constitute a default.

Exide said in its statement that it is working with the agent for its bank group to obtain a waiver of the default, but could give no assurances that it will be able to obtain such a waiver. It added that it will any will not be able to make further borrowings under its credit agreement until such a waiver is obtained.

But while the first source saw a rise in those bonds, another was less charitable, seeing the bonds remaining at 76-78, which he called down a point.

Collins & Aikman better

Also in distressed automotive names, the second source saw Collins & Aikman Products Co.'s 10¾% senior notes due 2011 having tightened a bit to 27 bid, 28 offered from 27 bid, 29 offered previously, while its 12 7/8% subordinated notes were at 4 bid, 5 offered.

Yet another trader saw the Troy, Mich.-based automotive components maker's 103/4s at 26.5 bid, 27.5 offered, down a point.

However, most automotive names were seen better, helped by the sector's momentum over the past couple of days, as well as by the steep fall in crude oil prices over the past two sessions, which totals more than $3 per barrel.

Visteon gains no sector firmness, upgrade

Visteon's 8¼% notes due 2010 gained a point to 92 bid, 93 offered, helped by sector firmness as well as its upgrade by Moody's Investors Service, which raised its rating to B2 from B3 previously. Moody's cited the better liquidity and other benefits deriving from its recent agreement with former corporate parent Ford, which will take over the running of two dozen unprofitable Visteon plants, allowing the Van Buren Township, Mich.-based parts maker to cut its labor part of it.

United, ATA up, other airlines unchanged

A trader said he saw United Airlines bonds "up a little" to 13 bid, 14 offered, from prior levels in the 11-12 area.

He also saw bankrupt Indianapolis-based carrier ATA Airlines's 12 1/8% and 13% notes both up to 20 bid from 18.5 previously.

But he saw little response in the bonds of non-bankrupt - for now - traditional large carriers like Delta Air Lines Inc. and Northwest Airlines Corp., to the news of declining energy costs.

Delta's bonds, he said, were unseen Wednesday, while Northwest's 7 7/8% notes due 2008 were down a point, and its 8 7/8% notes due 2006 likewise off a point at 66 bid, 68 offered.

Although oil prices have tumbled in the past two sessions from historic high peaks, analysts said there will still be plenty of pressure from other problems on the nation's largest airlines (see related story elsewhere in this issue).

Mirant convertibles trade

Back on terra firma, Mirant's convertibles traded robustly following conclusion of the bankrupt Atlanta based energy company's valuation hearing and a shareholder group's backing of expert testimony during the hearing on Tuesday. The developments boosted trading volume of the two convertibles Wednesday, but left their prices essentially unchanged.

Expert testimony presented by Anders Maxwell, the equity committee's witness, held that inaccuracies in the Blackstone Group valuation report prepared for Mirant masked at least $1.74 billion of value in its business plan forecasts and used improper methodologies to undervalue its domestic and foreign cash flows.

The shareholder rights group stated in its press release that using Blackstone's own valuation method with accurate and current figures showed that a valuation in the range of $12 billion to $13.7 billion was more accurate for Mirant.

Mirant announced plans earlier this month to sue its former corporate parent, Southern Co., for $2 billion in a case relating to transfers of funds made from Mirant to Southern prior to its being spun off in 2001. The suit is filed in the U.S. Bankruptcy Court for the Northern District of Texas where its Chapter 11 reorganization case is being heard.

Mirant's 5.75% convertibles traded Wednesday at 78.50 bid, 79 offered, a Connecticut-based trader said. Its 2.5% convertible traded at 77.50 bid, 78.50.

Rebecca Melvin contributed to this report

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