Calpine heads up to 96 region on heels of new Canadian trust announcement

By Sara Rosenberg

New York, Aug. 28 - Calpine Corp.'s second lien bank debt moved higher by about a point and a half on Thursday in an otherwise quiet pre-holiday market. The paper was quoted at 95½ bid, 96½ offered, according to a trader, who speculated that the movement may be attributed to the company's establishment of a new Canadian trust.

The San Jose, Calif. energy company announced that it intends to establish a Canadian trust called Calpine Natural Gas Trust to acquire select Calpine-owned natural gas and crude oil properties in several major natural gas and oil fields throughout Alberta, Canada, including interests in the Markerville, Sylvan Lake and Innisfail areas.

Calpine intends to hold 25% of the outstanding trust units of CNG Trust and will participate, by way of investment, in the business strategy of the CNG Trust. Calpine will also have the option to purchase up to 100% of the CNG Trust's ongoing production at market prices for use in its North America power generation assets.

Participation in the CNG Trust will allow Calpine to increase its competitiveness in the acquisition and development of additional natural gas reserves in Canada to fuel its power generation portfolio in North America, according to a news release.

Proceeds generated by Calpine from the establishment of the CNG Trust will be used for general corporate purposes.

Scotia Capital Inc. is lead underwriter for the initial public offering of the CNG Trust. Marketing is expected to take place in late September, with closing anticipated for early October.

Other recent positive news regarding Calpine includes the announcement early in the week that the company is receiving $230 million of non-recourse financing from a group of banks, including Credit Lyonnais, Co-Bank, Bayerische Landesbank, HypoVereinsbank and NordLB for its 600-megawatt Riverside Energy Center. This financing will eventually turn into a term loan once the energy center is operational.

The non-recourse financing carries an interest rate of Libor plus 250 basis points.

Upon commercial operation of the Riverside Energy Center, the banks will provide Calpine with a three-year term-loan facility, which will initially be priced at Libor plus 275 basis points.

Meanwhile, activity on Associated Materials Inc.'s term loan B slowed considerably on its second day of trading, following a robust Wednesday, with only a trickle of trades reported to have taken place during market hours, according to a trader. The paper was quoted at par 5/8 bid, 101 1/8 offered, stable from where it closed on Wednesday, the trader added.

The $260 million senior secured credit facility (Ba3/B+) allocated and broke for trading on Wednesday, with the term loan B initially quoted at par ½ bid. The tranche then moved to par ¾ bid and one fund manager even managed to "squeeze out a par 7/8 bid out of someone yesterday."

The facility consists of a $70 million revolver and a $190 million term loan facility. Pricing on the revolver remained in line with existing pricing, while the term loan is priced at Libor plus 275 basis points, following a reverse flex by 25 basis points during syndication, 75 basis points lower than pricing on the company's existing deal.

UBS Securities and CSFB are the joint lead arrangers and CIBC is documentation agent on the deal.

Proceeds will be used to support the acquisition of Gentek Holdings Inc. and to repay all indebtedness of Gentek Holdings and its subsidiaries for an aggregate purchase price of approximately $118 million in cash, which includes an estimated working capital adjustment. Pro forma senior leverage for the acquisition will be 2.3 times and pro forma total leverage will be 4.2 times.

The proposed acquisition is expected to close by the end of this month and is subject to customary conditions including receipt of regulatory approvals and receipt of financing.

Associated Materials is a Cuyahoga Falls, Ohio manufacturer and nationwide distributor of exterior residential building products.

Jarden Corp., very much like Associated Materials, saw a slow down in trading on Thursday following a rush of activity as the deal allocated and broke on Wednesday, according to a trader. The institutional tranche was quoted at par 3/8 bid, par ¼ offered, unchanged on the day.

"It was very active in that range yesterday and then kind of settled there," the trader added.

The tranche, which was initially offered to investors at par, traded up immediately after hitting the secondary on Wednesday with the term loan B quoted at par ½ bid right off the bat and then moving to par 5/8 bid, par ¾ offered by the end of the day, according to a fund manager.

The $150 million term loan B (Ba3/B+) due 2008 is priced with an interest rate of Libor plus 275 basis points. During the syndication process the tranche was reverse flexed by 25 basis points and downsized by $65 million.

However, the change in size did not reflect a lack of desire for the paper by investors. Rather, the company opted to borrow less since a proposed second acquisition has been delayed and the extra funds are not needed at this time. The acquisition of Lehigh Consumer Products Corp., which is what the proceeds from the term loan will be used for, is scheduled to go through as planned, according to a fund manager.

CIBC and Bank of America are the lead banks on the deal.

Jarden is a Rye, N.Y. producer of plastics for commercial and consumer markets, metals for home canning products and zinc strips and fabricated products.

Both of these names may have traded so actively upon their entrance into the secondary market on Wednesday due to strong market demand for the deals during syndication. Both term loan B's were oversubscribed leaving investors with small chunks of the paper and creating the desire to either attempt to increase positions or get rid of the paper altogether, a fund manager explained.

Following up, Insight Communications Co. Inc. closed on the $225 million add-on to its term loan B with an interest rate of Libor plus 275 basis points (Ba3/BB+), increasing the size of the New York cable television system operator' senior credit facilities $1.975 billion.

JPMorgan and Bank of America acted as co-lead arrangers and bookrunners, Bank of New York acted as administrative agent, and TD and Fleet acted as documentation agents.

Originally, the company was looking to not only add to its term loan B, but also reprice the tranche at a lower spread of Libor plus 250 basis points. However, the repricing was pulled and the add-on was bumped up to match the existing pricing of Libor plus 275 basis points due to a lack of investor support.

Proceeds from the additional borrowings are being used to refinance all of the indebtedness of the company's Ohio operating subsidiary, comprised of $140 million of 10% senior notes due 2006, $55.9 million of 12 7/8% senior discount notes due 2008 and a $22.5 million senior credit facility. The Ohio debt repurchases are subject to the completion of definitive documents and customary closing conditions. Closing is expected to occur during the current quarter.

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