Xerium falls on downgrade; Blockbuster heads up on bullish report; Calpine rise continues on valuations

By Sara Rosenberg

New York, Dec. 2 - Xerium Technologies Inc.'s term loan dropped in trading on Friday as investors soaked up a ratings downgrade. Also, in trading, Blockbuster Inc. saw a small spike in levels as one shop gave the company's stock a metaphoric thumbs up. And, gains on Calpine Corp.'s second-lien term loan persisted still on valuation expectancies.

Xerium's term loan began the session quoted lower by about three eighths of a point as the market reacted to a rating downgrade that was announced by Standard & Poor's late in the day Thursday, according to a trader.

The term loan was quoted at par ¼ bid, par ¾ offered throughout the day, down from the previous day's market of par 5/8 bid, 101 1/8 offered, the trader said.

On Thursday, S&P said it lowered Xerium's bank loan rating to B+ from BB- and placed the rating on CreditWatch with negative implications.

"The downgrade reflects the company's weaker-than-expected operating performance and deterioration in credit protection measures, as well as concerns that manufacturing issues will further delay improvement in the company's financial profile," said S&P credit analyst James Siahaan, in the rating release.

The company's operating performance has been hurt by difficult end markets and by manufacturing inefficiencies, and problems related to the transfer of production capacity have resulted in Xerium's inability to satisfy some customer orders, S&P explained.

The rating agency went on to say that it will meet with Xerium management to review operating performance and examine business and financial prospects, focusing on manufacturing issues, ability to obtain price increases in a difficult operating environment, business prospects for 2006, and expectations for financial performance and liquidity.

Xerium is a Westborough, Mass., supplier of consumables used in the manufacture of paper.

Blockbuster rises

Blockbuster term loan B was quoted stronger by about an eighth to a quarter of a point, with levels moving to 97 1/8 bid, 97 5/8 offered, as the company's stock got a boost from a new JPMorgan rating, according to a trader.

On Friday, JPMorgan initiated coverage on the company's stock with an "Overweight" rating, saying that potential for a sales bounce back outweighs the fears that a sudden consumer shift from DVD rentals could potentially send the company into a bankruptcy situation.

Blockbuster is a Dallas-based provider of in-home movie and game entertainment.

Calpine grinds higher again

Calpine Corp.'s second-lien bank debt moved up by another point during market hours Friday as recovery estimates in a potential Chapter 11 scenario continue to drive the momentum.

The San Jose, Calif., power company's second-lien debt was quoted at 79 bid, 81 offered, up from Thursday's levels of 78 bid, 80 offered, according to a trader.

With Friday's positive performance, the paper has now managed to post gains every single day this past week, moving up about a point on Monday, about half a point on Tuesday, about a point and a half on Wednesday and about a point on Thursday.

Bankruptcy talk began to circulate around the market early in the week after the company announced a complete management shakeup as Peter Cartwright, chairman, president and chief executive officer, and Robert D. Kelly, executive vice president and chief financial officer, left the company.

And, as the days pass, there seem to be more and more signs pointing to a bankruptcy filing in the company's near future.

On Friday, Calpine announced that it has been given until Jan. 22 to restore to the Bank of New York collateral account approximately $313 million, plus accrued interest at 3.5% per annum, to make up for the violation of the second-lien notes indenture through the use of about $313 million of proceeds from the sale of domestic gas assets to purchase gas storage inventory.

The company had stated on Thursday that there is a substantial risk that it will not have sufficient cash to satisfy the court ruling and its ongoing debt service obligations and operating expenses - leading to a current evaluation of options, including the possibility of filing for bankruptcy.

In addition to the payment deadline news, Calpine was faced with a ratings downgrade by Moody's Investors Service on Friday, which dropped the company's senior unsecured debt to Ca from Caa3, and dropped Calpine Generating Co. LLC's first-lien bank debt to B3 from B2, second-lien bank debt to Caa1 from B3 and third-lien notes to Caa2 from Caa1.

Moody's said that the downgrade reflects deterioration in Calpine's liquidity position, expectations that poor results will continue in the near term due to difficult market conditions for the company's natural gas fired generating fleet, and the opinion that a default is likely.

The rating agency believes that holders of Calpine Generating Co.'s secured debt will likely see full recovery, but the $4.6 billion of unsecured debt will likely see a substantial loss.

Calpine's outlook remained negative reflecting weak near term prospects for the company due to its tight liquidity position, high natural gas prices, limitations on its ability to raise cash through additional asset sales and ongoing litigation with debtholders, Moody's added.

S&P had already downgraded Calpine's ratings this past Tuesday, lowering the corporate credit rating on the company and its subsidiaries to CCC from B-, with negative implications.

SFX flexes up

SFX Entertainment Inc. (Clear Channel Entertainment) increased pricing on its $325 million 71/2-year term loan B to Libor plus 200 basis points from original price talk at launch of Libor plus 175 basis points, according to a market source.

JPMorgan and Bank of America are the lead banks on the deal, with JPMorgan the left lead.

The $575 million senior secured credit facility (B1/B+) also contains a $250 million 61/2-year revolver.

Proceeds will be used to help back the 100% spinoff of Clear Channel Entertainment from Clear Channel Communications Inc.

Clear Channel Entertainment is a Houston-based producer and promoter of live entertainment.

Patheon readying allocations

Patheon Inc. is hoping to allocate its $290 million credit facility sometime during the Dec. 5 week now that pricing on the deal has been finalized, according to a market source.

Pricing on the $150 million six-year term loan B firmed up at Libor plus 225 basis points - the tight end of the original Libor plus 225 to 250 basis points price talk - and a step down was added to the tranche under which pricing can drop to Libor plus 200 basis points, based on a leverage test, the source said.

Pricing on the $75 million revolver and the $65 million five-year term loan A also ended up at Libor plus 225 basis points - in line with where the tranches were originally talked, the source added.

RBC Capital Markets is the lead arranger on the deal that went out to Canadian and U.S. investors.

Proceeds will be used to refinance the company's existing bank debt, including the debt associated with the MOVA Pharmaceutical Corp. acquisition that was completed in late-2004.

Patheon is a Mississauga, Ont., provider of drug development and manufacturing services to the pharmaceutical industry.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.