Calpine sets pricing for $100 million term loan; General Growth, Delphi active in the secondary

By Paul A. Harris

St. Louis, June 14 - Tuesday's session passed quietly in the leveraged loan market, according to sources.

Calpine Corp. subsidiary Metcalf Energy Center, LLC showed up with details of a new $100 million term loan as Calpine announced plans for $357 million of asset sales, which caused Calpine bonds and bank debt to firm.

Elsewhere in the secondary market the paper of General Growth Properties Inc. and Delphi Corp. traded up, while Wyndham International, Inc.'s first lien loans slid slightly on acquisition news.

One trader labeled the Tuesday session a "quiet" one.

"It wasn't soft or robust," the trader noted, adding that

General Growth paper was active, trading within a quarter-point range.

Another trader, noting that the market was "a little better" on Tuesday, with "a lot of buying," also marked General Growth paper up.

The trader said that the Chicago-based mall developer's term loan B had been "pretty active, up an eighth to a quarter of a point," and added that a sizeable portion had traded at 100.75 bid "after the repricing has finally been finalized."

The $2 billion 3.5-year term loan was repriced at Libor plus 200 basis points, in from Libor plus 225.

The trader also saw Delphi active in the 102.625 area, but noted that the paper softened up toward the end of the day.

Another capital markets source, noting that Delphi's junk bonds had also gotten a two-to-four point boost during the session, attributed the moves to a perception among investors that there has been meaningful movement among General Motors Corp. and Delphi management and the United Auto Workers.

The union appears ready to accept substantial concessions in health care benefits for active and retired workers at GM, the source commented.

The source recounted that an emergency meeting had taken place last Thursday morning involving top UAW officials and the brass from UAW locals at GM and Delphi, the country's largest auto parts supplier, which was spun off by GM in 1999 and remains part of the GM-UAW national agreement.

At that meeting the union agreed not to contest GM's three-year plan to cut approximately 25,000 jobs and close as many as six factories, the source added.

Meanwhile the trader also saw movement in the Wyndham International paper, on news that the Dallas-based upscale and luxury hotel and resort operator will be bought by The Blackstone Group in a transaction valued at $3.24 billion.

Under the terms of the agreement Blackstone will acquire all of Wyndham's outstanding common stock for $1.15 per share in cash.

Wyndham had previously announced an agreement with some holders of Wyndham's series B preferred stock in which all outstanding shares would be converted into common stock, with the preferred holders to receive $72.17 per share in cash, subject to potential adjustment to reflect additional shares that may be issued as dividends after June 30, 2005.

"They announced a potential refinancing because of Blackstone, so the first lien definitely dropped a bit on that news," the trader commented.

"The second lien, which is non-callable for a year, and then has 103, 102, 101 call protection was trading to a tender-type price, close to 105."

Calpine firmer on sale news

Meanwhile the trader noted a firmer bid to the paper of San Jose power producer Calpine Corp., after the company announced an extensive asset sale early in the session

Calpine plans to sell four power plants. The company announced Tuesday that it is in talks with Tenaska in regarding the sale of its Ontelaunee, Grays Ferry and Philadelphia Water Works plants, for approximately $275 million, total, and with Diamond Generating Corp. for the Morris Power Plant, expected to generate an additional $82 million.

Meanwhile Calpine subsidiary Metcalf Energy Center, LLC, announced in a Tuesday press release that it will obtain a $100 million five-year senior term loan at Libor plus 300 basis points.

Credit Suisse First Boston is leading the deal, according to a market source.

Proceeds will be used to refinance all outstanding debt under the company's existing construction credit facility.

The loan was launched in mid-May with opening price talk of 375 basis points.

At the same time Metcalf Energy Center announced that it priced a $155 million issue of 5.5-year redeemable preferred shares, also via Credit Suisse First Boston, according to the market source.

The shares will pay a dividend of Libor plus 900 basis points.

B/BB spread gap seen widening

One buy-side source told Prospect News on Tuesday that the volatility that shook the leveraged loan market in May could be in the rear view mirror.

"May is over with," the source contended.

"During the first two weeks in June everything has felt a little better. The volatility has slowed down and things are slowly trending back up to where they were pre-May."

The source also commented that the difference between double-B coupons and single-B coupons "has gapped out to a one-year high.

"It's really been that the double-Bs have tightened, rather than the single-Bs widening that much," the source noted, adding that single-Bs have more or less stayed the same.

"The average spread between single-B and double-B has widened out to 109 basis points, the highest since June 2004," the buy-sider added.

"Banks are playing very aggressively in the double-B sector."

The source also said that issuers may not have yet fully acclimatized themselves to the present realities of pricing a single-B deal.

"Over the past 30 days deals have flexed up by a ratio of three-to-one, versus flexing down," said the investor.

"They are having to come up with more coupon.

"We came out of May with a lot of volatility. There was a 10-day period when you walked into the office and everything was down half a point, which for the loan market is a lot. It was pretty ugly.

"Some people say that these are tough deals, and that that is why spreads are widening.

"But there was so much volatility that the underwriters were facing a challenge in advising their clients.

"So there is still is phenomenal liquidity in the bank loan market. But the single-B bank loan market is very much correlated to the high-yield bond market. And as spreads to Treasuries widen in the high-yield bond market it is safe to assume that those same investors are going to demand something similar out of the loan market."

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