Calpine bank debt continues rise; Winn-Dixie sinks as Florida awaits Jeanne

By Paul Deckelman and Sara Rosenberg

New York, Sept. 24 - Calpine Corp.'s second-lien loan traded up on Friday, bank-debt traders said, rising for a second consecutive session on what appeared to be follow-through from Thursday's news that the San Jose, Calif.-based power producer has lined up over $1 billion in new financing.

In bond trading, Winn-Dixie Stores Inc. bonds were heard down as much as four points on the session, despite a lack of fresh negative news on the struggling Jacksonville, Fla.-based supermarket operator, although one source suggested that hurricane jitters might have something to do with it, with Mean Jeanne roaring down on the peninsula after killing over 1,000 people in Haiti and packing 105 mile per hour winds.

If Jeanne hits land rather than veering away, it would be the fourth big storm to lash the not-so-Sunshine State over the last several weeks, on the heels of Hurricanes Charley, Frances and Ivan, which collectively caused billions of dollars there.

He noted that while pictures of people thronging local supermarkets to stock up on canned goods, flashlight batteries and other emergency supplies are a staple of pre-hurricane TV news coverage, "it cuts both ways - the stores are affected if they lose power - and then have to throw out thousands of dollars of meat, dairy products and other perishables."

There's also damage to store locations and on top of that, the drop in sales and lost business caused when the storm is about to hit town and when it's in a store's territory - more than offsetting the pre-storm emergency buying rush. For Winn-Dixie, whose stores are mostly concentrated in Florida and other parts of the hurricane-prone Southeastern United States, such big storms are particularly problematic. Hurricane Charley, for instance, cost the company something like $10 million, which the company absorbed as its insurance deductible.

The trader quoted Winn-Dixie's 8 7/8% notes due 2008 at 82 bid, 84 offered - down several points on the session from morning levels in the 85 bid, 87 offered area, and well down from levels around 87 bid, 89 offered at the start of the week.

Another trader saw the bonds even lower at 80 bid, 83 offered, down from a wide 85 bid, 88 offered on Thursday.

"What's the news?" he puzzled, noting the lack of any firm negative developments other than hurricane angst. "A couple of days ago, these bonds were 87 bid, 89 offered - and now they're 80 bid, 83 offered."

A&P, Pathmark lower

He also noted weakness in other sector names, such as Great Atlantic & Pacific Tea Co.'s 7¾% notes due 2007, which he saw down a point at 87 bid, 89 offered, while A&P's 9 7/8% notes due 2011 were likewise a point lower from recent levels, now at 78 bid, 80 offered.

"The whole supermarket sector just stinks," he said, "like the airlines. They are problem children."

The first trader, echoing that theme, spoke of "more supermarket carnage" and quoted Pathmark Stores' 8¾% notes due 2012 at 93 bid, 94 offered, down about two points on the day and "down quote a lot from before they released their earnings, maybe seven or eight points in the past week and a half or two weeks."

Airlines down again

The second trader - who drew the analogy between the struggling supermarkets and the ailing airlines - said that the latter sector continued to hit turbulence.

He said that Delta Air Lines Inc. "just sucks," its 8.30% bonds due 2029 "dying on the vine." He quoted the Atlanta-based air carrier's long dated issue at 24.125 bid, 24.5 offered, well down from recent levels around 25.75 bid, 26.5 offered.

He noted that the company's other long-dated bonds were starting to "totally compress," a phenomenon usually seen when the market anticipates a bankruptcy filing, since all of a company's bonds would have the same recovery in that situation, regardless of coupon or maturity. He quoted Delta's 9% notes due 2016 as having fallen to bid levels in the 23-24.5 area from 25.5 previously.

However, he said, the capital structure was "not completely compressed" yet, with the shorter paper, such as the benchmark 7.70% notes due 2005, still managing to "hang in there" at levels considerably above the longer notes. But even this issue, he said, had come in to levels around 46.5 bid, 48.5 offered, down notably from around 50 bid, 51 offered after Delta originally proposed restructuring part of its secured debt.

The trader further saw even the much more financially stable Continental Airlines Inc.'s 8% notes due 2005 weaker, at 92.5 bid, 93.5 offered, while AMR Corp.'s notes were two points lower at 65 bid, 66 offered. Earlier in the week, the Fort Worth, Tex.-based parent of the leading U.S.-flag carrier, American Airlines, said that the airline's August revenue was weaker than expected after hurricanes and high fuel prices cut into results, and further said that it expected its mainline unit revenue to drop in the third quarter by 2.5% to 3.5% versus year-ago levels.

AMR also warned that it might not be able to remain in compliance with one of its bank credit facility covenants, and said it was in active discussions with its lenders on refinancing the facility.

Intermet steady to better

Back on the ground, troubled auto parts maker Intermet Corp. closed out a hellacious week that saw its 9 ¾% notes due 2009 lose some 40 points, tumbling into the mid 30s from levels they held above 76 bid, after the Troy, Mich.-based maker of steering and suspension assemblies warned that it would post a quarterly loss of $19 million to $24 million due to rapidly escalating raw materials costs and a slowdown in sales linked to production cutbacks at the Big Three carmakers, and said that this would put it in violation of its credit facility financial covenants. The bonds plummeted some 30 points in one day, and then continued to erode more gradually the rest of the week, but on Friday, they were seen to have stabilized and even firmed slightly, to about 35 bid, 37 offered from prior lows around 34 bid, 35 offered.

Calpine second-lien loan trades

Back among bank debt traders, Calpine paper was quoted better on Friday, with some trades on its second-lien loan occurring as high as near the 87.5 area, before the paper settled back down to 86.5 bid, 87.5 offered, according to a trader.

The slight rally was still continuing Thursday's positive momentum, which was sparked by news of the company's planned offering of convertible notes and first-priority senior secured notes.

"They're taking care of a lot of maturities out there," the trader said about the offerings.

On the heels of the announcements Thursday, Calpine's second-lien saw quite a bit of activity and headed all the way up to 87 bid, 87.5 offered before the session was over, up about a point from previous levels.

Calpine plans to price about $600 million of new unsecured convertible notes due 2014 via sole bookrunner Deutsche Bank Securities Inc. and about $785 million of first-priority senior secured notes due 2014 via Merrill Lynch on Monday.

These offerings will not only help liquidity and take care of some upcoming maturities but have also managed to give investors more confidence in the company's ability to access the capital markets and execute what it previously said it would attempt to do.

Proceeds from the convertibles will be used to redeem the company's High Tides I and High Tides II securities and to redeem or repurchase other existing debt through open-market purchases.

Net proceeds from the bond offering are also expected to be used to redeem or repurchase existing debt through open-market purchases.

Concurrent with the offerings, Calpine will use cash on hand to repurchase about $266 million principal amount of its existing 4.75 % unsecured convertible notes due 2023 from Deutsche Bank.

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