Calpine off on disclosure concerns; Tyco bounces on unit sale plans; Klöckner prices

By Paul Deckelman and Paul Harris

New York, Feb. 6 - Calpine Corp. became the latest company to fall under scrutiny for possible accounting issues - in this case related to disclosure of information - and its bonds retreated Wednesday, even as Tyco Corp., already being pummeled by investors alarmed at the possibility of Enron-like accounting problems, was on the rebound, helped by news that it plans to sell a key unit.

In primary market activity, Klöckner Pentaplast SA sold €180 million of new 10-year euro-denominated notes while price talk emerged on upcoming issues for Bluewater Energy Service BV and UCAR International, Inc.

Calpine, the San Jose, Calif.-based independent power producer, disclosed that the Securities and Exchange Commission is investigating whether the company improperly disclosed financial information to analysts.

That sent its shares plummeting 22.29% to a two-year low; the stock ended down $1.95, at $6.80 in New York Stock Exchange trading. Volume of 61.3 million shares was nearly five times the usual turnover.

On the debt side, a trader said, "bonds were down early" as rumors of impending trouble with the regulators circulated around the market and then were confirmed during the afternoon by the company.

He saw the company's 8½% notes due 2011 close at 74 bid/76 offered, "down a couple of points."

Another trader saw Calpine's debt "fluctuating," its 2008 bonds swinging wildly between highs in the 76-78 bid area and depths, later in the day, as low as 71 bid.

Another desk saw Calpine's debt down about a point-and-a-half to two points "across the board," around 74 bid.

Calpine's troubles stem from allegations - first reported by Dow Jones Newswires on Jan. 4 - that the company had tipped off analysts to spending cuts and lower earnings that it publicly announced several days later. A company spokesman denied that Calpine had made any inappropriate disclosures.

Calpine becomes the latest company bedeviled by claims, allegations or reports relating to its accounting or disclosure of results. The financial markets have reeled in the wake of the disclosures about secret partnerships which brought down Enron Corp., while other questions have been raised about such companies as Global Crossing, currently in bankruptcy proceedings, and Tyco Corp., which last week was reported by The Wall Street Journal to have not announced as much as $8 billion in acquisitions which took place over the previous three years.

But while the Bermuda-based diversified manufacturing holding company's shares have taken a pounding and its nominally investment-grade rated bonds (A2/BBB after a three-notch downgrade Monday by Standard & Poor's) have been driven down to junk bond-like levels, both were rebounding Wednesday, as the company delivered favorable news to investors.

Tyco's bonds were quoted "up four to five points" on the session, a market observer said, quoting its 6 3/8% notes due 2006 to 86 bid, up seven points. "The shorter paper was up even more than most of the other issues," he continued.

On the other hand, a trader did not see much movement in Tyco - he said it was "making a lot of noise, but not a whole lot of trading. There were lots of quotes, but nothing too substantial." Still, he saw no further deterioration in the bonds, which had been driven down to the high 70s from levels around par in a matter of a few short weeks, and which are now quoted in dollars, like junk bonds, rather than on a spread-versus-Treasuries basis like high-grade paper.

On the stock side, Tyco's shares - recently beaten down with double-digit percentage losses in NYSE activity - were up $2.82 (12.2%), to $25.92. Volume of 116 million shares was almost five times the usual activity level.

Tyco held a conference call with investors, at which it defended the integrity of its book keeping procedures, and reassured investors that it is not facing any kind of a cash crunch, since it would use bank reserves to pay off maturing commercial paper.

Tyco also canceled a pending IPO for the company's finance unit, instead saying that it planned to spin off or sell the business. It said interest has been received from several suitors, with General Electric mentioned in news reports as one potential buyer for the unit, and Tyco also indicated it would consider buyout offers for all its multitude of businesses - the company makes everything from clothes hangers to security systems to fire sprinklers. But its planned $3.2 billion purchase of medical products maker C.R. Bard fell through on Wednesday, after the latter company pulled out, citing the collapse of Tyco's stock, which was to have been the currency used in the acquisition.

A trader said that another nominally high-grade issuer whose bonds were taking their lumps Wednesday an "may be joining the high yield world soon" was long-distance giant WorldCom Corp. He quoted its bonds - which are still quoted on a spread-against Treasuries basis - as having widened out to bid levels of over 500 basis points over Treasuries.

A market source agreed that WorldCom's securities "have widened out, almost in wholesale panic, as traders widen their spreads." WorldCom's troubles are seen as springing from the overall weakness recently affecting the telecommunications industry.

But there was little movement Wednesday in a particularly troubled telecommer, Williams Communications Group Inc., quoted unchanged in the 25-27 bid range after having stabilized there on Tuesday. The Tulsa, Okla.-based long-distance operator's bonds are still down about 10 points from where they had been a week ago.

Outside the telecom sphere, AES Corp. bonds were on the slide, partly in sector sympathy with the troubles of fellow independent power producer Calpine, and partly due to its own disappointing fourth-quarter results. Arlington, Va.-based AES posted fourth-quarter earnings of $44 million (8 cents a share), down 80% from $224 million (43 cents a share) a year ago. Excluding charges for discontinued operations, and foreign exchange gains, AES had fourth-quarter operating earnings of $149 million (28 cents a share), in line with expectations.

Still, its bonds swooned; a trader said they were "down eight to 10 points early before recovering some of the losses. The 9 3/8% notes and 8 3/8% notes ended down four points on the session to 79 bid and 72 bid, respectively, and its 10¼% paper closed off five points at 85.

AES shares meanwhile lost $1.62 (14.06%) in NYSE dealings to close at $9.90. Volume of 6.6 million shares was double the usual handle.

In the primary, aside from the emergence of terms on Klöckner Pentaplast's new euro deal and talk on two of three deals expected Friday, much of the conversation centered on TSI Telecommunications, Inc.'s recent offering. The company sold $245 million of senior subordinated notes Tuesday via Lehman Brothers.

Word had it that the deal, which was delayed from a scheduled Thursday pricing and came to market much wider than early talk, had not seen much enthusiasm from potential buyers. Several sell-side observers said they had had opportunities to take reasonably close looks at the credit and had come away with reservations regarding the company's business model, its assets and its cash flow in light of its new seven-year notes.

Meanwhile, terms were heard early in Wednesday's session on Klöckner Pentaplast's €180 million of 10-year senior notes (B2/B), which priced to yield 9 3/8% via joint bookrunners Deutsche Banc Alex. Brown and Credit Suisse First Boston.

Like TSI, Klöckner was an LBO deal (the second in as many days, and the second of 2002), with proceeds to finance Cinven's acquisition of Klöckner Pentaplast of America, Inc. and Klöckner Pentaplast GmbH of Montabaur, Germany from German-based Klockner-Werke AG.

The only calendar addition heard Wednesday was a private placement of McMillin Co., LLC $60 million senior secured notes due 2009 (B2), which figures to price by the end of the month. An informed source told Prospect News that Credit Suisse First Boston is the placement agent.

One sell-side official commented Wednesday that even though the forward calendar is building slowly, potential issuers are bound to recognize that the current high yield primary market represents a favorable financing opportunity.

"I think as you see short-term rates come up and the 10-year stay low, some of the big issuers who are still healthy and able to issue will come to market here," this sell-sider commented.

"People are attracted to these rates. They do know that technically the market is very strong right now. And it really is strong when you look at some secondary trading levels: any business where there's decent cash flow, and there's asset value underlying, you're seeing the bonds trade very tight - probably tighter than they even should in this part of the cycle.

"To me that indicates that people are looking for anywhere to put their cash. And they're buying stuff that maybe they wouldn't buy on an investment basis. They're buying it more to park the cash."

Another high yield syndicate official, however, told Prospect News that there was not likely to be a dramatic increase in the volume of new issuance, in the near- or intermediate-terms.

"I don't see a lot of new issuance volume," this official commented. "There are going to be a couple of chunky deals, and that's it.

"2002 is probably going to be better than 2001, but not significantly better. We saw about $80 billion in 2001. And we'll beat that in 2002. I don't think we'll beat $100 billion, though."

Finally, price talk of 9¾% to 10% was heard Wednesday on Bluewater Energy's planned $200 million of 10-year notes via ING Barings.

Price talk also surfaced on UCAR International's offering through its UCAR Finance, Inc. unit of $250 million of 10-year notes joint bookrunners Credit Suisse First Boston, and J.P. Morgan. The deal is expected to yield between 10¼% and 10½%.

Both Bluewater and UCAR are expected to price Friday.

Price talk is expected to come out Thursday on Hanger Orthopedic Group, Inc.'s offering of $200 million of seven-year senior notes. That deal is being run by joint bookrunners Lehman Brothers, J.P. Morgan and Salomon Smith Barney. That deal is also expected to price Friday.

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