Calpine second-lien term loan heads lower following news of bond sale by subsidiary

By Sara Rosenberg

New York, July 24 - Calpine Corp.'s new second lien term loan was down by about a point on Thursday following news of a bond offering by one of the company's subsidiaries. Overall though, the secondary bank loan market seemed a little firmer, according to a trader who pointed out names like American Cellular Corp. and Massey Energy Co. as examples.

Calpine's term loan was quoted at 95 bid, 96 offered, compared to previous levels of 96 bid, 96½ offered, according to a trader.

The San Jose Calif. power company announced that Gilroy Energy Center, LLC intends to sell approximately $270 million of senior secured notes due 2011. Net proceeds will be used to reimburse costs incurred in connection with the development, construction, and purchase of, repairs, improvements or additions to, the peaker projects and for general corporate purposes, according to a news release.

"There's more paper coming out soon at a different operating company. None of the money will be used to pay down this new deal," the trader said referring to the recently obtained second-lien term loan. "They're asking some of the same investors to put up money but why would people want more Calpine exposure?"

American Cellular was quoted at 98 bid, 99 offered, up from previous levels around 96, according to the trader. "It's following Western Wireless and Nextel. Western Wireless is 98 bid, 99 offered. It jumped up a week or two ago. Nextel is still around par 1/8," he said.

Last week, American Cellular and ACC Escrow Corp. announced plans for a private offering of $900 million in senior notes due 2011. The offering will be made by ACC Escrow, a recently formed corporation that was organized to merge into American Cellular as part of a plan to restructure American Cellular's capital and indebtedness.

The roadshow for the bonds began early in the week and some are expecting the deal to price by the end of this week.

On completion of the restructuring, including the merger, the net proceeds from the bond offering will be used to fully repay American Cellular's existing bank credit facility and to pay all or a portion of the expenses of the reorganization, with any remaining net proceeds to be used for general corporate purposes.

American Cellular is an Oklahoma City wireless company.

Massey Energy's bank paper, "which has softened a hair and has now come back up" was quoted at 99 5/8 bid, par offered, according to the trader. The debt was quoted at par 1/8 bid, par ¼ offered for a while and then it fell back to 99½ bid, 99¾ offered, the trader added.

Meanwhile, in primary news, Moore Corp. approached lenders on Thursday with an amendment to its credit agreement that would allow the company to take out a new $500 million term loan with a lower spread to replace the existing $500 million term loan B. The new loan would be priced at Libor plus 250 basis points compared to the existing spread of Libor plus 300 basis points, sources said.

"They pretty much said they're looking to reprice their loan because of better than expected performance," one market professional said. "So, they're trying to get an amendment that would allow them to issue a new term loan to replace the existing term loan. They need only 51% approval. They're basically going to the existing group saying if you approve it you'll get to keep your existing positions. I don't imaging anyone would lose their positions over this just because of the lack of paper out there."

Deutsche Bank and Citigroup are the lead banks on the deal.

Moore obtained its $850 million credit facility earlier this year. Besides the institutional tranche, the loan contains a $350 million five-year revolver with an interest rate of Libor plus 250 basis points.

Moore is a Mississauga, Ont. manager and distributor of print information.

However, the market professional was not so optimistic about JohnsonDiversey Inc.'s odds of repricing its entire existing credit facility to Libor plus 275 basis points.

"It needs 100% approval. They're doing this through amendment, not issuing a new loan. I don't think they'll get it done unless they make some changes and don't bring it down by that much. A lot of guys were upset about this on the call. I'm probably going to hold out. They're only willing to pay us 10 basis points. I'll probably hold to my guns and see if I can get more from them," the professional said.

Besides the percentage difference needed in order for these to two companies to successfully reprice their loans, another factor being looked at is overall company performance.

"JohnsonDiversey is hitting their numbers, while Moore is hitting their numbers and then some. [Moore] is doing better than expected," the professional added.

However, not all agree with the market professional. Previously a market source told Prospect News that the JohnsonDiversey repricing is expected to be completed within the next couple of days and is moving along fine despite "getting a little pushed back from Europe".

In March 2002, JohnsonDiversey obtained an approximately $1.2 billion senior secured credit facility, consisting of a $220.25 million term loan A, a $450 million term loan B, a €221.878 term loan B, a $29.75 million term loan C and a $300 million revolver, according to a filing with the Securities and Exchange Commission.

The tranche A, tranche C and revolver were priced at Libor plus 325 basis points and the term loan B was priced at Libor plus 350 basis points.

Citigroup and Goldman Sachs are leading the deal.

The Sturtevant, Wis. provider of cleaning products used the facility to help fund the acquisition of DiverseyLever.

Market buzz is that Dean Foods Co. may be doing a new bank deal, according to a market source but no confirmation of the rumor was obtained by press time.

"It would probably be to refinance the existing bank loan to take advantage of market technicals. They may also use it for the acquisition. Because they're on positive watch (by S&P) they may able to cut their rate by quite a bit. It's at 225 over. If they become investment grade that could come down to 150 or even 125," the source said.

At the end of June, Dean Foods announced plans to acquire Horizon Organic Holding Corp. for approximately $216 million. At that time it was thought that the company would draw on its $800 million revolver to help fund the acquisition.

Dean Foods is a Houston processor and distributor of milk and other dairy products.

In follow-up news, Zale Corp. closed on its new $500 million five-year secured revolver. Fleet National Bank acted as the administrative agent on the deal.

The facility is secured by inventory and replaces the company's existing $225 million unsecured facility.

Completion of the credit facility was a condition to the Irving, Tex. fine jewelry retailer's previously announced tender offer to purchase up to 6.4 million shares of its outstanding common stock at a price not greater than $48 per share and not less than $42 per share. Cash on hand and borrowings under the credit facility will be used to complete the tender offer.

Rockwood Specialties Group Inc. closed on a slightly upsized $541.0435 million credit facility (B1/B+), according to a company spokesperson. JPMorgan, Merrill Lynch and Goldman Sachs were the lead banks on the deal.

The facility consists of a $100 million six-year term loan A with an interest rate of Libor plus 350 basis points, a $341.0435 million seven-year term loan B with an interest rate of Libor plus 350 basis points and a $100 million six-year revolver with an interest rate of, at the company's choice, either Libor plus 350 basis points or Prime plus 225 basis points, the spokesman said.

Originally the facility was expected to be sized at $535 million, consisting of a $100 million revolver, a $100 million term loan A and a $335 million term loan B. Pricing on the term loan B was reverse flexed by 25 basis points during the syndication process.

"The deal was oversubscribed," the source said in regards to approximately $6 million increase in size of the institutional tranche. "On the banks' side, it was probably just to do some clean allocations to parties to accommodate them and obviously it accommodated the company."

The Princeton, N.J. chemical company obtained this new credit facility as part of a recapitalization plan that also included the issuance of $375 million senior subordinated notes due 2011 and a $25 million equity infusion from Kohlberg Kravis Roberts & Co. This new capital structure of bank debt, bonds and equity replaces the existing capital structure, which consists of only bank and bond debt, the source said.

The company opted to attempt this recapitalization plan at this time mainly due to the markets' receptiveness to high yield deals.

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