Calpine bonds lower on court case stalemate; Delta DIP trades upward

By Paul Deckelman and Sara Rosenberg

New York, Nov. 14 - Calpine Corp. bonds were seen down several points in Monday's trading, with investors apparently anxious about the outcome of the company's current court battle over its use of asset-sale proceeds - a legal fight that potentially could throw a damper over its future efforts to sell non-core assets.

Elsewhere, Delta Air Lines Inc.'s debtor-in-possession financing facility was seen trading at slightly firmer levels.

And automotive names were mostly lower, dragged down by the latest bankruptcy talk circulating around ailing automaker General Motors Corp.

Calpine "opened out of the chute very low," a trader said, quoting its 8½% notes due 2011 as having started off at 38 bid, a full five points below its closing levels Thursday (the junk market was closed Friday for the Veteran's Day holiday). The bonds came up a little from those lows, but still finished off four points on the session at 39 bid, 40 offered.

The trader also saw Calpine's 10½% notes due 2006 "getting crushed," tumbling to 69 bid, 71 offered from prior levels around 80 bid, 82 offered.

Another trader saw those 101/2s at 65 bid, 69 offered, although he saw them down only 10 points on the session, from prior levels in the mid-70s. He saw other Calpine bonds, such as the 8½% notes due 2008 and the 81/2s of 2010 both down about five points on the session, at 47 bid, 48 offered, and 71 bid, 72 offered, respectively.

A market source at another desk saw the 81/2s of '10 and the 9 7/8% notes due 2011 both down nearly four points on the day at 70.5, while its 7¾% notes due 2009 were down a full four points at 40 bid. He saw the 7 5/8% notes due 2006 as the big loser on the day, plummeting to 68 bid from 79.25 previously, while the 7 7/8% notes due 2008 and 8¾% notes due 2007 each lost five points, to end at 45.5 and at 48, respectively.

"I think there must have been a little color going around that [the court case] wasn't going well," the first trader said, "because people were a little panicked this morning." As the day wore on, he continued "the bids kinda filled in - but there was no strength."

Calpine's court hearing

Calpine squared off in court Friday against a bank that has been blocking the company's access to the proceeds from its recent sale of natural gas reserves - but that particular skirmish between the two sides essentially ended in a draw.

The judge in the Delaware Chancery Court in Wilmington heard testimony from witnesses called by the San Jose, Calif.-based power generating company and from the Bank of New York, the collateral trustee for Calpine's senior secured noteholders - but after a day-long session, court vice chancellor Leo Strine adjourned the proceedings until Tuesday, when the two sides are to file briefs, with more oral arguments set for Thursday.

At issue is whether Bank of New York and another trustee bank, the Wilmington Trust Co., acted properly in blocking Calpine's access to the remainder of the $1.05 billion in proceeds it garnered from the sale in September of its natural gas assets after Calpine spent $313 million of the money to buy gas for its plants. Several disgruntled bondholders requested that the banks freeze the remaining proceeds and force Calpine to repay money it had already drawn from the proceeds, contending that such expenditures were an improper use of asset-sale proceeds under the terms to the notes' indentures. Calpine on the other hand, argues that such spending is technically permitted.

The dispute could cast a shadow over the company's efforts to sell more assets as part of its push to eliminate $3 billion of debt - a goal it has now pushed back, timewise, to next year from its earlier target of the end of this year.

Delta DIP trades higher

Elsewhere, Delta's DIP traded up by about a quarter to a half a point during Monday's session, according to a trader.

The term loan A and the term loan B were quoted at 103.875 bid, 104.875 offered, and the term loan C was quoted at 103 bid, 104 offered, the trader said.

"It was off last Thursday and Friday. Now it's just rebounding a little bit," the trader added.

The company's bonds were meantime seen still tethered around the 19-19.5 bid level.

On Monday, the bankrupt Atlanta-based Number-Three U.S. airline carrier did announce that it has reached a comprehensive agreement with its Flight Superintendents, represented by the Professional Airline Flight Control Association, which includes a 9% to 10% wage reduction and benefits changes similar to those being implemented across Delta's non-pilot work groups.

The new agreement becomes effective on Dec. 1.

"We appreciate Pafca's good faith efforts to quickly deliver their portion of the labor savings the company needs,"' said Jerry Grinstein, Delta's chief executive officer, in a company news release. "Like all Delta stakeholders, we realize that these employees are once again making the tough sacrifices necessary to help save the company."

But Delta had harsh words for another airline employee group, characterizing its pilots' threat to strike the carrier if the U.S. Bankruptcy Court for the Southern District of New York voids its collective-bargaining contract as "hollow" and warning that a strike against the weakened Delta would be tantamount to a "murder suicide" that would put the company out of business - and along with it, kill off the jobs of the 6,000 captains.

The court is scheduled to hold a hearing on Wednesday on Delta's request that the court reject the contract, which had been arrived at via collective bargaining before the line went bankrupt. Voiding the contract would clear the way for Delta to unilaterally impose $325 million of annual cost cuts on the pilots.

The pilots union was sticking to its guns on Monday, contending that it will "keep all legal options open" in the event the contract is voided. The union said that no firm course of action had been decided upon.

Auto names weak

Back on the ground, a trader said that the whole automotive supplier sector "felt ugly," quoting Dura Operating Corp.'s 9% notes due 2009 down a point at 55 bid, 56 offered, and the Rochester Hills, Mich.-based components supplier's 8 5/8% notes at 80 bid, down half a point. He also saw bankrupt Troy, Mich.-based automotive electronics manufacturer Delphi Corp.'s bonds at 53.5 bid, 54.5 offered, down more than a point from Thursday's close.

At another desk, an observer pegged Delco Remy International's 9 3/8% notes due 2012 go from 35.5 bid to 30, while the former GM unit's 8 5/8% notes due 2007 dipped to 78 bid from 83.75, and its 11% notes due 2009 tumbled to 30 bid, from 39.

All of those bonds were being towed lower in the wake of the continued slide in GM's bonds, which was worsened on Monday by renewed bankruptcy talk about the staggering automotive giant. Those bonds moved lower, despite Friday's news that the company's unionized workers had voted to give it some relief from burdensome healthcare benefit costs. A sharp widening of credit default swaps and a Wall Street Journal article suggesting that GM bite the bullet and declare bankruptcy now rather than later caused the carmaker's already skidding bonds to veer that much further off the road.

A trader said GM was "ugly," with the carmaker's 8 3/8% notes due 2033 ending down 3½ points on the session at 67 bid, 68 offered. Even financing unit General Motors Acceptance Corp.'s flagship 8% notes due 2031, which as recently as the past two weeks had been trading in the 109 bid, 110 offered area, on the possibility GM would sell a controlling stake in the unit, were "trading below par for the first time in a long time," dropping as low as 97.5 bid, 98.5 offered intra-day, before coming off that low to end at 99 bid, par offered.

He blamed bankruptcy jitters spurred by a Bloomberg news report indicating that "credit derivatives - CDS protection - rocketed higher, and were inferring that a near-term bankruptcy was coming. So I think that got everyone unnerved, as they watched Bloomberg TV or listened to the radio.

"That was un-nerving - and then, GM came out and said 'we're going to have to do more incentives to sell our models,' which is also a bit un-nerving," as both a signal that sales are in trouble and a potential cut in revenues, "and net-net [on the day], there were really no buyers, just sellers."

GM announced late Friday that it was instituting a new "red-tag sale" incentive program aimed at spurring the lagging sales of its vehicles, particularly its SUVs - formerly the big-selling reliable cash cows of GM's vehicle lineup, which have recently fallen out of favor with buyers due to higher gas prices. The program runs through Jan. 3, and covers most Chevrolet, Buick, Pontiac and GMC vehicles.

But even as GM was moving to put more cash in the till by spurring sales with its latest incentive plan, a trader at another desk also cited renewed bankruptcy buzz about the carmaker.

The concerns moving the credit derivatives market - where participants last week were demanding up-front payments in addition to annual premiums for CDS contracts that protect owners of GM's debt should it miss a payment or declare bankruptcy - were further exacerbated by a Wall Street Journal article that declared that with GM "suffering death by a thousand cuts under [CEO] Rick Wagoner's so-called recovery program . . . [i]t would be far better if GM bit the bullet, filed for protection under federal bankruptcy law and got a new boss. That would give the world's largest car maker its best chance for the future."

The Journal article said that although GM claims a book value of $22 billion, "that is based on optimistic accounting assumptions, some of which are being investigated by the Securities and Exchange Commission." GM meanwhile has heavy pension liabilities, with at least one estimate showing a $31 billion pension plan deficit, and it could be on the hook for as much as $12 billion more in pension and healthcare obligations related to the recent bankruptcy filing for former subsidiary Delphi Corp.

"Mr. Wagoner's salami-slicing of benefits won't solve the problem," the article concluded. "It will just delay the inevitable. By contrast, a Chapter 11 filing would focus workers, pensioners, lenders, shareholders and the government on the need for sacrifice."

The latest bankruptcy jitters completely overshadowed Friday's news from the United Auto Workers union, which announced that 61% of its roughly 110,000 GM hourly employee members had agreed to a tentative company proposal to make retirees and hourly workers pay more for their health care. The changes in the automaker's contract with the union must still be approved by the U.S. District Court for the Eastern District of Michigan.

Soaring healthcare costs have been a large factor in the carmaker's slide deep into the red, and the accompanying slide in its debt ratings deep into junk territory this year. In the recently concluded third quarter, GM posted a net loss of $1.6 billion - a sharp deterioration from its year-earlier profit of $315 million. It has recorded more than $3 billion of red ink over the first nine months of the year. GM - which expects to spend some $5.6 billion this year to provide healthcare for 750,000 hourly employees, retirees and their dependents - said the new agreement would cut its annual health care expenses by $1 billion after taxes and over the long run would shave $15 billion, or 25%, off its $60 billion in long-term retiree health care liabilities. The retirees - who currently pay no monthly premiums and just a small fraction of their other health care costs - will now be paying up to $752 annually for families and $370 for individuals for their health care, although they will have some help, with current hourly workers kicking $1 per hour in future scheduled pay increases through 2007 to a new fund to help pay for retirees' coverage, and the company itself contributing $3 billion to that fund over the next six years.

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