Dynegy's healthy earnings send energy companies into orbit; WorldCom dips even as profits improve

By Carlise Newman

Chicago, April 29 - A positive first-quarter report from Dynegy Inc. sent the company's bonds rocketing higher Tuesday and helped boost rival energy companies Calpine Corp. and Mirant Corp. Worldcom Inc.'s bonds dipped slightly, even as the company announced it posted a profit in March compared to a whopping loss in February.

Dynegy Inc., rebuilding itself after the collapse of the energy merchant business, on Tuesday reported a quarterly profit for the first time in more than a year as several one-time gains and higher power prices helped reverse a year-earlier loss.

Dynegy posted net income of $147 million versus a net loss of $247 million in the year-earlier period.

Dynegy's 8¾% notes due 2012 were seen bid at 87.5 and offered at 89, according to a trader, four points higher than Monday when they were seen at 83.5 bid/85 offered.

The Houston-based energy company also raised its 2003 earnings forecast to a range of 10 cents to 18 cents per share for its natural gas and electricity production and regulated energy delivery segments, excluding discontinued operations. Its previous view was 8 cents to 15 cents per share.

In its quarterly conference call Tuesday, Bruce Williamson, Dynegy's president and chief executive officer, said the company would reduce debt by over 50% (see story on page one of this issue).

Dynegy has cut its borrowings by $491 million compared to year-end 2002. Revolving credit facility exposure, including letters of credit and borrowings, was reduced by $350 million while its other debt was reduced by $141 million.

Williamson said the company's debt load, now at $7.7 billion, needs to be reduced by 50 % "and a bit below that."

Williamson was also asked about the outcome of meetings with ratings agencies held on Monday.

"We continue to work with ratings agencies to build a dialogue so they understand us, the company and our restructuring," he said in response.

As a result of Dynegy's success, the rest of the energy sector "was storming," said a trader.

"Dynegy was definitely the focus today. After yesterday today seemed like running a marathon," he added.

San Jose, Calif.-based energy company Calpine's bonds were "actively traded" at 70.5 bid Tuesday. Calpine's 8½% notes due 2011 were up 4 points at 70.5 and 72.5 offered from Monday's levels of at 66.5 bid/68.5 offered. Also active, Atlanta energy company Mirant's 9 1/8% bonds due 2013 were quoted at 64 bid/66 offered, "a couple of points higher" than Monday.

In the telecom sector, WorldCom's bonds slipped around a point to 28 7/8 bid/29 offered from levels last seen at 29¾ bid/30 offered.

"WorldCom fell on the numbers," a distressed debt trader said.

The March numbers were actually good news for the most part, but the trader speculated that it was the previous month's news - reported for the first time with the March figures late Monday - that had more weight. WorldCom posted $43 million in net income on revenue of $2.1 billion, reversing the $332 million net loss it posted in February.

The company, which plans to change its name to MCI from the sullied WorldCom moniker, said it ended March with $3.3 billion in cash on hand. It had a $332 million net loss in February on revenue of just over $2 billion.

"We are continuing to make steady and measured progress against our business plan," Michael Capellas, chairman and chief executive, said in a publicized statement. "While we are on a fast track to emerge from Chapter 11 later this fall, we know there is still much more work to do and there will be ups and downs along the way."

American Airlines parent AMR Corp.'s bonds declined on Tuesday as the company encountered more resistance from employee unions. AMR's 9% notes due 2012 fell a point to 42 bid/45 offered from Monday, but still far better than the teens they had seen a few weeks ago, and firmer than the levels of 35 bid/37 offered seen Friday, according to a trader.

Pilots at the company's American Eagle unit said they are unhappy with labor concessions designed to keep AMR from filing for bankruptcy protection. American Airlines' pilots are represented by the Allied Pilots Association while American Eagle pilots are represented by the Air Line Pilots Association International.

On Monday, the decision from the Association of Professional Flight Attendants to accept a revised proposal from AMR was well received in the airline sector, boosting the bonds of American as well as Delta Airlines and Continental Airlines.

The other two major unions at American - the Allied Pilots Association and Transport Workers Union, which represents ground workers and mechanics - said on Thursday they agreed to certify their votes on wage concessions after the company agreed to a new incentive plan, reduce the terms of the deal to five years from almost six years, and allow the contracts to be open for renegotiation after three years.

A report that the U.S. had expanded its probe in Hutchinson Whampoa Ltd.'s bid for Global Crossing Ltd. did not appear to have an impact on the company's battered bonds, which have been trading around 3 cents on the dollar for several weeks.

"Global Crossing never crosses the desks any more but it has traded not that far back. It's amazing how low it goes and still sees some action," said a market source.

A report from Bloomberg news said the U.S. government extended its investigation into whether Hutchison Whampoa Ltd.'s $250 million plan to take control of bankrupt network operator Global Crossing will jeopardize national security, citing people familiar with the matter.

The government told the companies it would take another 45 days to determine whether China would exert undue influence over Hong Kong-based Hutchison's ownership of a fiber-optic network. The panel will submit a recommendation to President Bush, who will have 15 days to make a decision.

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