Calpine bonds rise but trade flat after bankruptcy; Comstock Homebuilding shelves deal

By Paul Deckelman and Paul A. Harris

New York, Dec. 21 - Calpine Corp.'s bonds were quoted better Wednesday following the troubled San Jose, Calif.-based power-generating company's long-awaited Chapter 11 filing, although traders said those notes are now trading flat, or without their accrued interest, the loss of which effectively offsets the nominal rise in the bonds' price.

In the primary arena, the forward calendar - already greatly thinned out by a flurry of new-deal activity over the previous several sessions, got even leaner still, as word reached the market that would-be issuer Comstock Homebuilding Companies Inc. had postponed its planned offering of five-year notes. However, Loews Cineplex Entertainment Corp. joined the queue of prospective borrowers, in order to raise funds to finance its just-announced tender offer for its existing 9% notes. And Downtown Resorts is expected to take an offering of eight-year notes on the road to start the coming new year.

No new issues priced Wednesday.

The one deal announced was from Downtown Resorts LLC and Downtown Capital Corp., which are expected to begin a roadshow during the first week in January for a $140 million offering of eight-year senior secured notes (B3/B-) via Lehman Brothers.

Proceeds will be used to fund development and construction of The Downtown Casino, formerly the Lady Luck Casino, in Las Vegas.

Also one potential deal was disclosed in a tender offer from Loews Cineplex Entertainment Corp.

The company is contemplating the sale of new senior subordinated notes to help fund the tender for $315 million of its 9% senior subordinated notes due 2014.

The tender, via dealer managers Credit Suisse First Boston, Citigroup and JP Morgan, is set to expire on Jan. 25.

Loews Cineplex, a New York City-based movie theater chain, is merging with Kansas City, Mo.-based moviehouse chain AMC Entertainment Inc.

2005 primary business still possible

Although the primary ranks have notably thinned, sources say that it is possible that the 2005 new issue show is not yet over.

One deal still expected to price before Friday's close is a €250 million equivalent offering of nine-year blended-rate senior secured notes (implied ratings B1/B+) from Art Five BV, Inc., a special purpose vehicle for Italy's Wind Telecommunications.

Pricing, according to one source, is expected Thursday.

The blended rate is anticipated to be three-month Euribor plus 300 basis points until 2013 and three-month Euribor plus 325 basis points until 2014.

ABN Amro and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used to support the acquisition of Wind by Weather Investment.

In November Rome-based Wind priced €1.25 billion of 10-year senior notes (B3/B-) in two tranches. It included an €825 million issue at par to yield 9¾% and $500 million at par to yield 10¾%.

Proceeds from that transaction were also used to support the acquisition.

Also listed as possible Thursday business is National Coal Corp.'s $80 million offering of seven-year senior secured notes via Jefferies & Co. That deal is talked at 10½% with warrants for common stock.

Finally, Wednesday saw one postponement as Comstock Building Cos., Inc. pulled its $150 million offering of five-year senior subordinated notes (B3/B-) due to market conditions.

Price talk had been revised to 12% from 11% to 11¼%, and covenant changes had been pending.

Friedman Billings Ramsey was the bookrunner.

Mirant dips

In recently priced new issues, Mirant North America LLC's new 7 3/8% senior notes due 2013, which priced Tuesday at par and then moved up on the break to 101 bid, 101.25 offered, eased slightly in Wednesday's dealings, a trader said, to 100.75 bid, 101.25 offered.

Meantime, Omega Healthcare Investors Inc.'s new 7% senior notes due 2016, which had priced Tuesday at 99.109 and then firmed later to 99.375 bid, were unseen Wednesday.

However, another trader saw the new Omegas slightly easier Wednesday at 99 bid, 99.5 offered, while the new Mirant bonds were hanging in at 101 bid, 101.5 offered.

Calpine most active

Back among the established issues, Calpine was definitely the "bond du jour," a trader said, in the wake of the almost universally anticipated Chapter 11 filing.

A trader saw the company's bonds up 2 to 2½ points in nominal terms - even as they were trading flat - quoting its unsecured 8½% notes due 2008 at 30 bid, 31 offered, and saw its secured 9 7/8% notes due 2011 at 78.25 bid, 79.25 offered.

At another desk, a market source pegged the Calpine unsecured 8¾% notes due 2007 at 37 bid, up as much as four points on the session.

A trader, noting the apparent rise of the bonds, explained that "if you look at the accrueds [interest] for each of them, they pretty much just traded up to cover that - so they were pretty much unchanged on the day, if you back out the accrued."

The trader saw the Calpine unsecured 8½% notes due 2011 up three points in nominal price terms, at 25.5 bid, 27.5 offered, "which is really what people were paying yesterday [Tuesday, when the bonds were in a 22ish context] with the accrued in them. Net-net," taking into account the lost accrued interest "they were unchanged." Similarly, Calpine's secured second-lien 8¾% notes due 2013 nominally rose four points on the day - the same amount as the lost accrued interest - to finish at 79.5 bid, 80.5 offered.

Yet another trader pegged the secured 9 7/8% bonds up 1¼ points on the day at 78 bid, 79 offered, while the 8½% 2008s were up an estimated 2¾ points to 30.25 bid, 31.25 offered. The activity level "was pretty busy today, without a doubt." He suggested that people covering shorts might be a possible explanation for the activity, as well as the compensation for the lost accrued interest.

One of the other traders said that while dealings in Calpine were quite busy, with "a ton trading, and a bunch of every issue," overall, "it wasn't any more than in the past few days, kind of right in line with that. I wouldn't say there was more of a flurry today because of the news," noting the elevated activity level late Tuesday, when the rumor began making the rounds of the market - true, as it turned out - that Calpine was going to file on Tuesday evening.

Late in the evening, Calpine announced that it had sought protection from its bondholders and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York, in Manhattan. It simultaneously sought protection for its Canadian subsidiaries under the Companies' Creditors Arrangement Act, the Canadian equivalent of the U.S. Bankruptcy Code.

The bankruptcy filing followed Calpine's unsuccessful effort last week to appeal a Delaware Court of Chancery ruling ordering the company to repay $312 million of improperly spent asset-sale proceeds by no later than Jan. 22. Calpine - which had spent the money to buy natural gas with which to fuel its approximately 90 power plants, raising the ire of secured bondholders who contended that this violated their bonds' indentures - appealed the lower court ruling to the state Supreme Court, but the judges there declined to overturn the Chancery Court ruling.

Calpine's nearly worthless Pink Sheet traded shares meantime dropped about three cents (13.91%) to just under 20 cents on very heavy volume of 159 million.

Nextel Partners steady

Elsewhere, the news that telecommunications giant Sprint Nextel Corp. will acquire Nextel Partners Inc. in a deal valued at $6.5 billion, or $28.50 per share, was seen having little impact on the Kirkland, Wash.-based affiliate's 8 1/8% notes due 2011. They were described as steady at 106.5 bid, 107.5 offered, with the impact of the widely expected deal "already priced in," a trader said.

Nextel Partners - which prior to the merger earlier this year of Nextel Communications Inc. and Sprint Corp. had been the exclusive seller of Nextel's walkie-talkie-like wireless phone service in small markets and rural areas throughout the United States - had been at odds with its new combined corporate parent over the issue of whether its exclusive rights had been breached, since Sprint pre-merger had a number of its own affiliates also selling its service in small towns and rural areas.

Nextel Partners shareholders had approved a provision in October that required Sprint Nextel to buy out the two-thirds of the company that Nextel, and later, successor entity Sprint Nextel, didn't already own. Including the one-third of Nextel Partners' shares that Sprint Nextel already owned, that would put a total valuation on Nextel Partners at about $10 billion.

Nextel Partners was by far the largest remaining affiliate which had not yet been bought out by Sprint Nextel. In recent months, the company has been rolling up such former Sprint affiliates as Alamosa Holdings one by one in order to defuse legal challenges to the $35 billion Sprint Nextel merger from the from the shareholders of the various affiliates.

Young lower on Moody's downgrade

Elsewhere, Young Broadcasting Inc.'s subordinated bonds were seen down slightly after Moody's Investors Service lowered the ratings of the New York-based television broadcasting company late Tuesday.

A trader quoted Young's 10% notes due 2011 at 93.5 bid, 94.5 offered, and its 8¾% notes due 2014 at 87.5 bid, 88.5 offered, each down half a point.

Moody's lowered Young's corporate family rating one notch, and likewise cut the subordinated bonds a notch, to Caa2, while retaining a negative outlook all around.

The ratings agency said that its action "reflects the company's operating performance, which has lagged Moody's expectations (evidenced by EBITDA margins below the TV broadcast peer group - about 10% for the nine months ended Sept. 30, 2005), and our belief that the company cannot meaningfully delever absent asset sales."

Moody's went on to say that while it believes that Young's television portfolio has "significant value," particularly its KRON-TV property in San Francisco, the sixth-largest U.S. marketing area, "the cushion between aggregate asset value and the company's debt securities has deteriorated. In particular, it is Moody's view that Young's KRON asset would garner far less than its current $400 million book value in a sale scenario, given its lack of [major network] programming affiliation and continued underperformance." KRON, at one time an NBC affiliate, now operates as an independent. While Young's other nine stations are major network-affiliated - five with ABC, three with CBS and one with NBC - Moody's noted that these are located in smaller and thus less-desirable TV markets, ranked anywhere from 30th largest to 123rd largest. It also warned about the company's relatively high leverage and rapid cash burn.

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