Calpine heads closer to par as investors anticipate successful completion of refinancing plan

By Sara Rosenberg

New York, June 26 - Calpine Corp.'s bank debt moved up by about three quarters of a point to a point on Thursday, heading closer to par, as investors gained confidence that the company will successfully complete its proposed refinancing resulting in a pay down of the existing bank debt.

The San Jose Calif. power company's debt was quoted at 99 3/8 bid, 99 7/8 offered, according to a trader, who placed previous levels in the high 98s.

"It will continue to converge onto par if your view is that the deal will get done, which I think is widely believed," the trader added.

On Thursday, Calpine announced that it will offer approximately $1.8 billion of second-priority senior secured notes and term loans. The final principal amount and note maturities will be determined by market conditions. The senior secured notes and term loans, which will be led by Goldman Sachs, according to market sources, will be offered in a private placement under Rule 144A.

"I would imagine that would be priced to attract high yield money or hedge fund money," one market professional said in regards to Calpine's proposed term loans. "I have a sneaky suspicion it's going to play out pretty well."

Another professional agreed, saying that hedge funds and bond guys will mainly participate in the term loan transaction. "It will be a juicy piece of paper. It's well over-collateralized. Par guys will like the collateral. Hedge funds will like the yield."

Security for the notes and term loans will be substantially all of the assets owned directly by Calpine, including natural gas and power plant assets and the stock of Calpine Energy Services and other subsidiaries.

Proceeds from the offering will be used to repay existing indebtedness including approximately $950 million of term loan B borrowings, $450 million outstanding under the company's working capital revolvers and outstanding public indebtedness.

Furthermore, the company plans on establishing a $500 million working capital revolver, which will be secured by a first-priority lien on the same assets that will secure the notes and term loans. This new revolver will replace the existing $950 million working capital revolver.

Meanwhile, Nextel Communications Inc.'s bank debt stayed firm at 99 ½ bid, par offered on Thursday. The Reston, Va. wireless company's paper did not head any higher on news that the company is on track to meet or exceed its full-year 2003 guidance. Some believe that the paper will not move over par due to a belief that the company may refinance its bank debt, while others say that the paper hasn't traded over par in years and the market just won't push it to those type of levels.

"There's talk about other refinancing candidates and that's certainly one," a source said regarding Nextel. "There's enough flow there where you could probably sell it at par. In this market where it's favorable to refinance though, people aren't going to pay too much of a premium."

I'm not of the belief that they'll refinance. They have a lot more expensive debt in their capital structure that they could take out," a trader said. "It hasn't traded over par since June 2000. The market just won't support levels that high."

Infinity Property & Casualty Corp. held a bank meeting for a $180 million seven-year term loan talked at Libor plus 300 basis points on Thursday, according to market sources, and it appears as if the deal is moving along quite smoothly. During the meeting, it was said that there are already $90 million of orders in the book, according to a fund manager.

"I still have a lot of work to do on this but initial impression is that the spread for that rating is pretty solid. It's rated BBB/Baa3," the fund manager said. "Plus, the amortization scheduled looks pretty good. It's 5% in year one, 5% in year two, 7 ½% in year three, 10% in year four, 17 ½% in year five, 25% in year six and 30% in the final year. Usually you get 1% each year for the first six years and the last year you get the remainder. They're doing it much quicker."

Lehman and Bear Stearns are the lead banks on the deal.

Proceeds from the term loan will be used to repay the $55 million 10-year note payable to American Financial Group Inc. (the ex-parent company), for working capital and general corporate purposes.

The company had already tried once to repay the AFG note by proposing to sell $180 million of 10-year senior unsecured notes. However, in February 2003 the company withdrew its plans to offer the notes due to unfavorable market conditions.

At the time that the company revealed its plans to sell the notes, it was also revealed that if the note offering were not to be completed, as in fact turned out to be the case, then the intention was to obtain financing through a bank line of credit.

Infinity Property & Casualty is a Birmingham, Ala. auto insurance policy provider.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.