Calpine seeks approval of $5 billion replacement DIP

By Caroline Salls

Pittsburgh, Jan. 29 - Calpine Corp. requested court approval of a $5 billion replacement debtor-in-possession facility that would be used to refinance its existing DIP and repay $2.516 billion of operating subsidiary Calpine Generating Co., LLC's secured pre-bankruptcy debt, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Credit Suisse, Goldman Sachs, JPMorgan and Deutsche Bank are leading the new DIP facility, according to a market source, and a bank meeting to launch the deal is expected to take place sometime in March.

In both instances, Calpine said the proposed refinancing will replace higher interest-rate debt with lower interest-rate debt.

Given the large sums of principal at issue, the company said it would save about $100 million a year in interest, or $8 million per month, and it expects to save another $5 million annually by no longer having to pay the professionals' fees of the 11 trustees, law firms and financial advisers retained by the holders of the CalGen secured debt.

More specifically, the company said it is looking to borrow $5 billion at an interest rate of 7.61% to refinance $2 billion of 8.66% existing DIP facility funds and to repay $2.516 billion of 11.25% CalGen secured debt.

In addition, Calpine said the proposed replacement DIP substantially enhances its prospects for a successful emergence from Chapter 11 because a rollover option allows, but does not obligate, the company to convert the replacement DIP into exit financing.

Calpine said this rollover option dramatically reduces exit financing risk and sets a capital structure floor for developing and negotiating a reorganization plan.

Also, by repaying the CalGen secured debt, Calpine said there will be measurably fewer lenders with whom the company will have to negotiate a reorganization plan.

The replacement DIP will consist of a $4 billion secured first-priority term loan and a $1 billion secured first-priority revolving credit facility, including a $550 million letter-of-credit subfacility.

Maturity will be the earlier of the effective date of a plan of reorganization or the second anniversary of the DIP closing date.

Calpine can expand the facilities by up to $2 billion to refinance secured project debt or project preferred securities.

Amortization will be 1% per year on the term loan, payable quarterly.

Interest will be based on the ratings of the replacement DIP.

For ratings of BB-/Ba3 with stable outlooks, interest will be Libor plus 200 basis points; for ratings of B+/B1 with stable outlooks, interest will be Libor plus 225 bps; for ratings of B/B2 with stable outlooks, interest will be Libor plus 275 bps; and for ratings of B-/B3 or lower, interest will be Libor plus 325 bps.

Calpine will pay a revolver commitment fee of 0.50% per year.

A hearing is scheduled for Feb. 27.

Calpine, a San Jose, Calif., power company, filed for bankruptcy on Dec. 20, 2005. Its Chapter 11 case number is 05- 60200.

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