Stressed names in the bank loan market were softer this week following the high-yield market. Names that were particularly under fire were those with some type of corresponding bond. "They're basically bonds with a credit agreement," said a trader of these names, which include Qwest Corp. and Calpine Corp. These names also have more non-traditional institutional loan investors such as hedge funds, noted one dealer.
The recently completed Qwest Corp. "B" piece traded into the 93 1/2 - 94 1/2 range, slipping about five points last Friday, before recovering slightly. The new loan has a $500 million fixed-rate counterpart. Similarly, Calpine's new second-lien term loan, which is a part of the company's $3.3 billion debt package, slumped into the high 80s from the low 90s context. Market players said the name slipped because of its weakening bond prices and because Calpine is coming to the market with a $750 million all-bank debt deal to refinance its CCFC1 facility. "Anything that's got a pari [passu] is getting smoked," said one trader.
Meanwhile, the market for NorthWestern Corp.'s "B" loan has fallen from its premium [above par] level as the market anticipates a restructuring for the company. The paper had been trading solidly in the 102 range but slumped to the 99 - 100 context this week following the company's bonds. "The preferreds and the subordinate bonds have really [fallen] off the table," noted one high-yield market player. The bank debt was able to sustain its close-to-par levels because the market believes the debt is well secured.
On Aug. 26, the company will hold its annual shareholders meeting and NorthWestern is expected to ask shareholders to approve an amendment to the company's Restated Certificate of Incorporation. The amendment would increase the authorized number of shares of common stock from 50 million shares to 250 million shares and reduce the par value of the common stock from $1.75 per share to $.001 per share. Fitch Ratings refers to this move as a "prelude to a potential debt for equity exchange offer." Calls to William Austin, chief restructuring officer, were referred to Roger Schrum, v.p. of investor relations. Schrum noted that the company has told its shareholders that the increase in stock could be used for a potential debt swap or additional share issuance.