Calpine second-lien tranche bid falls to below 95 area on the heels of Moody's downgrade

By Sara Rosenberg

New York, Oct. 21 - Calpine Corp.'s second lien bank debt fell approximately one and a half to three points, depending on the trader, following a rating downgrade by Moody's Investors Service. According to one trader the paper was quoted 93½ bid, 95½ offered, down from 96 bid, 97 offered, while a second trader placed the loan at 94½ bid, 95½ offered.

Late in the day Monday, Moody's cut Calpine's senior unsecured notes and convertible senior unsecured notes to Caa1 from B1 and Calpine Canada Energy Finance's senior unsecured notes to Caa1 from B1.

Moody's said the action reflects weak operating cash flow relative to Calpine's substantial debt leverage, Moody's belief that financial performance will continue to be weak in the near term, the company's growing reliance upon non-contracted merchant energy revenues and cash flows to meet future obligations, the expected continuation of unfavorable spark spreads for non-contracted wholesale energy sales due to over-capacity in the wholesale power market and high natural gas prices, and reduced financial flexibility as the company has pledged or securitized a number of assets, reducing the assets and cash flow that are available to support its corporate debt, while facing refinancing that totals approximately $3.3 billion in late 2004.

In response to the downgrade, Calpine put out its own press release reaffirming that its operations would not be materially impacted by the rating change and that there would be no impact on its credit agreements.

"Our commitment to strengthening and enhancing our financial position continues to be one of our highest priorities. To date we have completed over $2.1 billion of our previously announced $2.3 billion liquidity program," said Bob Kelly, chief financial officer, in the release. "In addition, we continue to advance on our program of reducing debt. Following our recent offering of senior secured notes and term loans, we have reduced the amount of outstanding senior unsecured debt, senior unsecured convertible debt and convertible preferred securities by approximately $390 million."

Calpine is a San Jose, Calif. power company.

Metaldyne Corp.'s bank debt was stronger with quotes of 99½ bid, 99¾ offered, compared to quotes of 98¾ bid, 99 offered last week, according to a trader.

"It's been up since they upsized the bond deal. They're using it to pay down a little bit of their term debt," the trader explained.

On Monday, the company priced $150 million of senior notes due Nov. 1, 2013, upsized from an initial size of $100 million. Credit Suisse First Boston, Deutsche Bank Securities and JP Morgan were bookrunners on the Rule 144A offering.

Besides repaying some term debt, the company also plans to use proceeds, along with cash on hand, to repay the $98.5 million balance of its 4½% subordinated debentures due 2003.

Metaldyne is a Plymouth, Mich. supplier of components and assemblies for transportation-related powertrain and chassis applications.

O'Charley's Inc.'s term loan was quoted at par bid on Tuesday, unchanged from recent levels, as the company announced plans to repay its outstanding term loan and a portion of the outstanding borrowings under its revolver with proceeds from a proposed $125 million senior subordinated notes offering and an already completed $50 million sale and leaseback transaction.

The company expects an estimated pre-tax charge of $1.9 million for debt extinguishment costs related to the anticipated repayment of the outstanding term loan and a portion of the currently outstanding revolver. Excluding this charge, guidance for the fourth quarter includes earnings in the range of $0.15 to $0.18 per diluted share.

The Nashville restaurant chain also plans on entering into additional sale and leaseback transactions under which the company may sell and lease back up to 20 O'Charley's restaurants, which is expected to generate gross proceeds of up to approximately $35 million, according to a news release.

"It's traded above par. Traded as high as par 3/4, 101 in its heyday but it's been around a par bid over the past couple of weeks," a trader said, adding that the company's recent financial results disappointed investors slightly pushing the paper down to the par area.

On Aug. 8, the company released second quarter results that included earnings per diluted share of $0.27 compared with $0.30 per share in the 12-week period ended July 14, 2002, revenues of $179.2 million compared to $115.1 million in the prior-year period and net earnings of $6.1 million compared with $6 million in the second quarter of 2002.

At that time, chairman and chief executive officer Gregory L. Burns stated in the earnings release that financial and operating results for the second quarter and year-to-date periods were not up to the company's standards and attributed the lower-than-expected results to a decline in traffic and comparable restaurant sales.

Then on Oct. 7, the company revised its guidance for the third quarter, changing expectations for earnings to $0.12 to $0.14 per diluted share compared with previously issued guidance of $0.21 to $0.24 per diluted share.

Meanwhile, Moore Wallace Inc.'s repricing of its term loan B, which launched last week, may close as early as next week, a source close to the deal told Prospect News.

"People are annoyed but it's going well," the source said.

The Mississauga, Ont. diversified printing company is looking to lower the rate on its $500 million institutional tranche to Libor plus 200 basis points from Libor plus 250 basis points.

This is the second time that the company has come to market to lower the interest rate. In August, Moore successfully repriced its term loan B at Libor plus 250 basis points from Libor plus 300 basis points.

Deutsche and Citigroup are the lead banks on the deal.

Quality Distribution Inc.'s bank meeting was said to be well attended and the deal seems to be going fine, according to a market source. On Tuesday the company launched a $235 million credit facility, consisting of a $140 million six-year delayed draw term loan, a $75 million five-year revolver and a $20 million six-year synthetic term loan.

All three tranches are priced with an interest rate of Libor plus 350 basis points. The delayed draw term loan and the revolver both carry a commitment fee of 50 basis points, according to a syndicate release.

Credit Suisse First Boston is the lead arranger and bookrunner on the deal with Deutsche Bank acting as joint lead arranger and syndication agent and Bear Stearns participating in the syndicate as well.

Security for the loan, which is being obtained in conjunction with an initial public offering, is a first priority perfected lien on substantially all of the company's properties and assets.

The IPO is conditioned not only on the successful completion of the new credit facility but also on a private offering by Quality Distribution LLC, a wholly owned subsidiary, of its unsecured notes, and the exchange of all outstanding shares of the 13.75% preferred stock for shares of the common stock, according to a filing with the Securities and Exchange Commission.

Revolver borrowings will be used for working capital and general company purposes, including effecting certain permitted acquisitions. Term loan borrowings will be used to repay existing debt.

Quality Distribution is a Tampa, Fla. operator of a bulk tank truck network.

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