Calpine debt gyrates as financing deal heard struggling; Parmalat firmer

By Paul Deckelman and Sara Rosenberg

New York, Feb. 20 - Calpine Corp.'s Calpine Construction Finance Co. II LLC revolver traded around a bit in the distressed bank loan market Friday amid news reports and market speculation that the San Jose, Calif.-based independent power producer's massive $2.3 billion proposed financing - $1.3 billion of bank debt and another $1 billion of junk bonds - might be running up against some investor hesitation.

But by the end of the session, those bank debt levels had improved slightly, after the company upped the pricing the bank loan portion.

The paper traded as low as 98, moved up to trade at 98.125 and then moved even higher, to trade at 98.75, according to a trader. By late afternoon, the paper was being quoted at 98.75 bid, 99.25 offered.

"There was talk out there that the deal was struggling," the trader said, commenting on why the revolver had gone as low as of 98. However, why the paper dusted itself off and pulled itself up to its higher closing level remains open to question, although the increase in the yield is as good an explanation as any.

On Friday, Calpine Generating Co. LLC (previously Calpine Construction Finance Co. II LLC) increased pricing on its $1.3 billion non-recourse first priority secured institutional term loan (B+) to Libor plus 475 basis points from Libor plus 425 basis points previously, with the expectation being that this latest level will be enough to get the deal done.

The tranche also contains a 1.5% Libor floor, a 50 basis points original issue discount, call protection for two years and two years of call premiums.

Meanwhile, price talk on the bond deal portion of the financing emerged, with the $525 million floating-rate tranche talked at Libor plus 725 basis points, with a 1.5% Libor floor, 50 basis points original issue discount and seven years of call protection, while the $525 million fixed-rate tranche was talked at a coupon of 10 7/8%, priced at a discount to yield 11¼%, a market source said. Pricing on the bonds is expected to take place Tuesday via Deutsche Bank Securities. There had been expectations that the deal might be done on Friday, but they proved to be premature.

Proceeds from the term loans, combined with proceeds from the notes, will be used to refinance amounts outstanding under the $2.5 billion CCFC II credit facility that matures in November. Currently there is about $2.3 billion in outstanding debt under the CCFC II facility including letters of credit.

When the refinancing proposal was first announced, the CCFC II revolver moved to 98.5 bid, 99 offered. The paper was unable to reach the usual par levels that a refinancing announcement generally tends to produce, with investors said to have remained cautious on the company's ability to complete its proposed transaction.

Calpine has an estimated $17 billion of outstanding debt.

Calpine's outstanding bond issues were meantime seen lower on Friday, its 8½% notes due 2011 dipping to 79.25 bid from 80 previously and its 8 5/8% notes due 2010 down close to a point at 79.5.

At another desk, Calpine's 8½% notes due 2008 were quoted off a point-and-a-quarter at 79.5 bid.

Parmalat gains on swap talk

Elsewhere, a distressed-debt trader opined that the bonds of Parmalat Finanzaria SpA "moved up a couple of points," with the crippled Italian dairy products producer's dollar-denominated 8 5/8% notes due 2008 and its euro-denominated issues in the 14.5-15.5 area.

As investigators continued to follow the paper trail that would hopefully lead them to some answers as to what happened to as much as €10 billion which either vanished from the company's coffers - or was never even there in the first place - Italian government officials are working turnaround administrator Enrico Bondi to come up with a formula to get the insolvent company back on its feet.

News reports said that one of the options being considered is a debt-for-equity swap proposal to the company's international creditors.

An Italian financial newspaper reported Thursday that Bondi will ask creditors take a haircut of between 70% and 75%, in return for exchanging their bonds for shares in the revamped company.

Parmalat's debt would drop to €4.4 billion from €14.5 billion currently. Industry Minister Antonio Marzano declined to comment on the report.

The official said that a committee of Parmalat creditors will be set up by next week, to consist of four Italian banks, four foreign banks and a bondholders' representative. The banks will be chosen according to their exposure.

Also under discussion is what Parmalat will look like when it finally does emerge from the insolvency proceedings, whenever that may be. Marzano said that Parmalat will refocus on its core milk and fruit juice business, and will sell non-core assets in Italy and abroad.

The broad outline of the rescue plan are expected to be presented by the end of this month.

United Airlines gains

Among other distressed names, a trader said that he had seen United Airlines' bonds trading in a context of 15-16, probably finishing at 15.5, up perhaps a point, but he said that the movement was "no big deal."

However, he quickly corrected himself, noting that "if your bonds are trading around 14 or 15, than a one-point move IS a pretty big deal. "

The judge overseeing the Chicago-based air carrier's bankruptcy reorganization granted the airline's request for more time during which it alone has the exclusive right to propose a plan - but Judge Eugene Wedoff declined to give the airline the four additional months of exclusivity it sought, instead extending the period by just 30 days, although United will have the right to come back and ask for further extensions on a month-by-month basis. The airline said it needed the extra time to firm up its exit financing and otherwise get its planes parked in a row.

However, while the airline has its additional time, it faces a new headache, as the judge sided with the airline's flight attendants and machinists, who had asked that he name an independent examiner to look into whether UAL misled its employees about its plans to reduce retiree health care benefits.

The unions said that United had promised to leave retiree benefits fully intact for those who retired before last July 1 - but then pulled the rug out from under them by trying to reduce the benefits after thousands of employees took early retirement at the company's request.

The investigator will look into whether United had already decided to reduce the benefits by the July 1 deadline and whether it used trickery to encourage employees to retire, as the unions allege. The examiner would then decide whether affected employees were entitled to any relief.

United, for its part, says it never formally made such a commitment to leave the retiree health benefits alone.

Oxford Automotive down on earnings

The trader said that Oxford Automotive Inc.'s 12% notes had fallen into the lower 70s from levels around the mid 80s earlier in the week, citing the impact of the Troy Michigan-based auto parts maker's earnings for the fiscal third quarter ended Dec. 31.

The company said that it had a net loss for the quarter of $3.7 million, versus net income of $1.4 million for the same period during the prior fiscal year. Adjusted EBITDA for the latest period was $12.7 million, slightly more than half of the year-earlier $22.3 million adjusted EBITDA.

RCN Communications - whose bonds had firmed on Thursday by as much as four points, apparently on investor hopes that a planned pre-packaged bankruptcy will help the Princeton, N.J. -based broadband company get back on its feet - were down Friday; a market source said that the bonds "backed off a little. RCN's 11% notes due 2008 dipped to 53.5 bid from 56, its 11 1/8% notes due 2007 were better than a point lower at 55.5 bid.

WestPoint unchanged despite loss

And WestPoint Stevens reported that its net income for the fourth quarter of 2003 was a loss of $31.5 million (63 cents per diluted share) - a sharp deterioration from the year-earlier net loss of $100,000 (zero per share) in 2002.

The WestPoint, Ga.-based textile company's net sales for the fourth quarter of 2003 decreased 2% to $456.1 million, from $466.2 million a year earlier. Sales declined primarily from a reduction in the company's mill store sales, as a result of restructuring initiatives that have reduced the total number of retail stores to 38 from 57 in the year-ago period.

Loss before taxes for the fourth quarter of 2003 was $45.4 million.

Despite the sour numbers, WestPoint's 8 7/8% notes due 2008 and 2011 were unchanged, at 7.5 cents on the dollar.

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