Calpine second lien heads lower as investors expect more first-lien debt; Denny's meeting goes well

By Sara Rosenberg

New York, Aug. 17 - Lots of sellers surfaced on Calpine Corp.'s second-lien bank debt Tuesday as investors reacted negatively to the company's announcement that it would repay its first-lien debt only to replace it with a larger portion of first-lien debt. Meanwhile, Denny's Corp. launched its new deal in a bank meeting uncharacteristically strongly attended for mid-August.

Calpine's second-lien bank debt was quoted at 82½ bid, 83½ offered, according to a trader. On Monday, the paper was quoted at 83½ bid, 84½ offered "on no trades," the trader said.

"It's definitely technical. [There are] a lot of sellers out there; no one's buying," the trader added.

After close Monday, the San Jose, Calif., power company announced that it plans to repay the amount outstanding under its existing $500 million of first-lien debt using proceeds from the sale of its Canadian natural gas reserves and petroleum assets to PrimeWest Energy Trust for C$825 million, or about $625 million.

Following the repayment, Calpine expects to issue up to approximately $700 million of new first-lien debt, a company news release said.

This $200 million of additional first-lien debt ahead of the second-lien debt may be what's making investors skittish, sources concluded.

Denny's well attended

Denny's bank meeting on Tuesday was said to be well attended. In fact the turnout was "surprising especially for August," a market source said, adding that the morning launch "went well."

The $375 million credit facility consists of a $200 million five-year senior secured first-lien term loan (B2/B) talked at Libor plus 350 basis points, a $75 million senior secured four-year revolver (B2/B) talked at Libor plus 350 basis points and a $100 million second-lien term loan (B3/CCC+) talked at Libor plus 550 basis points, according to the source.

Although upfront fees weren't mentioned at the meeting, the anticipation is that both the first- and the second-lien term loans will be offered at par, the source said.

Commitments are due from investors on Aug. 27.

Banc of America Securities LLC and UBS Securities LLC are joint lead arrangers on the deal, with Bank of America listed on the left.

Proceeds will be used to refinance the existing credit facility, refinance a portion of existing senior notes and be available for working capital, capital expenditures and other general corporate purposes.

Closing on the loan is expected to occur around mid-September.

It is also speculated that Denny's will issue $220 million of high-yield bonds to refinance senior notes. However, the credit facility is not contingent on this contemplated bond deal, the market source added.

Denny's is a Spartanburg, S.C., full-service family restaurant chain.

R.H. Donnelley shifts funds

R.H. Donnelley Corp. was said to have moved $250 million to its term loan A from its term loan B on Tuesday, according to market sources, although syndicate confirmation was unavailable prior to press time.

With this change the term loan A would now be sized at $749.5 million, of which $650 million is new debt, and the term loan B would now be sized at $1.718 billion, of which $800 million is new debt.

The term loan A is priced with an interest rate of Libor plus 200 basis points, and the term loan B is priced with an interest rate of Libor plus 225 basis points.

No changes were said to have taken place to the $175 million revolver, of which $50 million is new debt, which carries an interest rate of Libor plus 200 basis points and an undrawn fee of 37.5 basis points. The revolver is expected to be undrawn at closing.

JPMorgan and Bear Stearns are the lead banks on the equally underwritten deal, with JPMorgan listed on the left. Deutsche Bank is also a lead on the deal. Citigroup and Goldman Sachs are co-documentation agents.

Proceeds from the term loans will be used to fund the acquisition of SBC Communications Inc.'s directory publishing business in Illinois and Northwest Indiana for $1.42 billion in cash. The transaction is expected to close in the third quarter subject to regulatory approval and certain closing conditions.

Basically, through this transaction, the company is gaining $1.45 billion in incremental bank debt, extending the maturity of the term loan A and the term loan B by one year each, decreasing pricing on the term loan A to Libor plus 200 basis points from Libor plus 225 basis points and removing the fixed charges covenant that is found in the existing credit agreement.

Following the acquisition, R.H. Donnelley expects to have pro forma 2004 consolidated adjusted revenue of about $1 billion and EBITDA of about $586 million, assuming a Jan. 1, 2004 close.

Total leverage immediately following the transaction will be about 5.8 times pro forma adjusted 2004 EBITDA.

R.H. Donnelley is a Cary, N.C., yellow pages publisher and directional media company.

Collins & Aikman Products ups pricing

Collins & Aikman Products Co. increased pricing on its $400 million seven-year term loan B to Libor plus 400 basis points from Libor plus 325 basis points in a move that was somewhat expected by market participants since the company's bonds priced wide last week, although by just how many basis points the flex up was going to be was anyone's guess until now.

Pricing on the $125 million supplemental revolver for institutional investors was said to have remained at Libor plus 325 basis points and pricing on the $150 million five-year revolver was said to have remained at Libor plus 300 basis points, according to a market source.

The Troy, Mich., automotive interior components company sold $415 million of 12 7/8% eight-year senior subordinated notes at 96.416 to yield 13 5/8% late last week. The price talk of a 12 7/8% coupon at a discount to yield 13 5/8% had been revised upward from a 12¾% coupon to yield 13%.

JPMorgan and Deutsche are the lead banks on the credit facility (B1/B+), with JPMorgan listed on the left.

Collins & Aikman is just one of a few deals recently that have either increased pricing or are considering increasing pricing because of bond offerings.

For example, Blockbuster Inc. flexed up its $550 million seven-year term loan B to Libor plus 250 basis points from Libor plus 200 basis points and added soft call protection of 101. Also, the tenor of the term loan A and revolver was reduced to five years from seven years and the amortization schedules of both tranches were modified. The loan modifications had been under consideration since late last week when wider-than-expected price talk of 8¾% to 9% surfaced on its $300 million eight-year senior subordinated notes offering. And, the changes were posted to IntraLinks on Friday as the bonds priced at 9%.

Another example is PanAmSat Corp., whose syndicate took pricing on its term loan B up to Libor plus 275 basis points from Libor plus 250 basis points after its $1.01 billion bond deal priced wide.

As a side note, Blockbuster's credit facility is expected to break for trading on Thursday, and PanAmSat is expected to break for trading on Wednesday.

Crompton closes

Crompton Corp. closed on its $220 million credit facility (Ba2/BB-) consisting of a $120 million revolver and a $100 million pre-funded letter-of-credit facility, according to a company news release. Deutsche and Credit Suisse First Boston were the lead banks on the deal, with Deutsche as left lead.

The company got the new loan in connection with a multipart refinancing program that also included selling $600 million senior notes and a three-year extension to its domestic accounts receivable program.

About $462 million of the note sale proceeds were used to repay revolver debt and fund a tender offer for the company's 8.5% senior notes due 2005 and 6.125% senior notes due 2006. About $100 million of proceeds are being used to redeem the balance of the outstanding 8.5% notes.

"This is a major step in securing Crompton's financial future," said Robert L. Wood, chairman, president and chief executive officer, in the release. "We accomplished our key objective, which was to push out maturities in order to give management the opportunity to reinvigorate some very good businesses. We are continuing to focus intensely on pricing discipline and are attacking the cost side of the equation in numerous ways, including our previously announced $50 million restructuring initiative, which is designed to streamline the organization and its work processes."

Crompton is a Middlebury, Conn., producer and marketer of specialty chemicals and polymer products and equipment.

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