Calpine launches amendment to exit facility to allow for incremental debt

By Sara Rosenberg

New York, Jan. 8 - Calpine Corp. held a lender call on Tuesday at 10 a.m. ET to launch an amendment to its exit financing credit facility that would allow for $2.6 billion in incremental term loan debt, according to a market source.

Goldman Sachs, Credit Suisse, Deutsche Bank and Morgan Stanley are the lead banks on the deal.

The incremental term loan debt, which is not being syndicated right now but may be sold off when market conditions are appropriate, consists of a $2.3 billion first-lien term loan add-on due March 29, 2014 and a $300 million 366-day first-lien bridge loan that is expected to be repaid with proceeds from the sale of certain non-strategic assets and tax refunds.

The existing exit financing, which is being done through the rollover of the company's debtor-in-possession financing facility, is comprised of a $4 billion first-lien term loan due March 29, 2014 and a $1 billion revolver due March 29, 2014.

Under the amendment, leverage covenants on the first-lien term loan and revolver will be adjusted to allow for the additional term loan debt, the company will get greater flexibility to operate the businesses and develop and finance new projects, permitted annual capital expenditures will be revised and the company's ability to manage commodity exposure going forward will be enhanced.

In addition, call protection of 102 in year one and 101 in year two is being added to the first-lien term loan debt, which includes the incremental first-lien term loan.

Pricing on the amended exit facility will be announced once ratings emerge. Under the current exit facility, if corporate ratings are Ba3/BB-, then pricing is Libor plus 200 basis points; if ratings are B1/B+, then pricing is Libor plus 225 bps; if ratings are B2/B, then pricing is Libor plus 275 bps; and if ratings are below B2/B, then pricing is Libor plus 350 bps. Pricing on the amended exit facility will not come cheaper than what was outlined in the existing exit facility, the source said. Whether pricing will stay within the original terms or move higher has not yet been revealed.

The existing exit facility provides the company with an ability to borrow incremental term loans of up to $2 billion. This accordion feature will continue to be available to Calpine under the amended exit facility. Proceeds from this accordion will be limited to repayment of certain project secured debt, secured lease obligations or preferred securities.

As was previously the case, financial covenants include maximum total leverage and maximum senior leverage requirements, minimum interest coverage and maximum capital expenditures.

Proceeds from the incremental term loans will be used primarily to repay the company's existing second-lien debt.

Proceeds from the other exit financing bank debt will be used to fund distributions under the plan of reorganization, and for working capital and general corporate purposes.

Total net debt to EBITDAR will be 7.0 times upon emergence, based on 2007E estimated accrual EBITDAR of $1.384 billion

Consents are due from lenders on Jan. 18.

Lenders will be paid an amendment fee.

Closing on the amendment and funding of the incremental term loan debt is scheduled for Jan. 31.

Calpine is a San Jose, Calif., power company.

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