Calpine drops on sector woes; PanAmSat waiting for resolution; Nextel up on technicals

By Sara Rosenberg

New York, Oct. 10 - Calpine Corp. continued to weaken in secondary activity Thursday on investor intolerance towards the energy sector. Meanwhile, PanAmSat Corp. has been relatively stable this week as investors remain mesmerized with the EchoStar/Hughes saga. And Nextel Communications Corp. managed to gain about a point in an overall marketplace that has been described as down.

Calpine Corp.'s term loan B was quoted in the high 70's on Thursday, down from recent quotes in the low 80's, mainly due to sector woes, according to a distressed trader.

In early to mid September, the San Jose, Calif. power company's loan was quoted in the high 80 region, while in late August the loan was quoted in the mid 80 region. The loan was characterized as "consistently disappointing people" and "an emotional name" after drifting lower and lower since it broke in the secondary, sources previously told Prospect News.

The term loan B had some trouble getting off the ground in the primary when it was initially launched. After the interest rate and the security were increased, institutional investors started showing more enthusiasm towards the offering. In fact, interest improved so much that the syndicate was able to upsize the loan to $1 billion from $600 million, taking the additional $400 million from the company's pro rata tranche.

The credit facility was launched to "smaller retail investors" in early-May at a discount of 100 basis points. Initial price talks had the term B at an interest rate of Libor plus 275 basis points. However, the interest rate was later revised upwards to Libor plus 375 basis points. The loan was originally secured by interests in the company's natural gas properties, the Saltend power plant in the United Kingdom and equity investments in nine U.S. power plants. The company supplemented the security by adding mortgages on gas properties as collateral.

"The energy and utility sector has problems," the trader explained. "All these energy names are putting out lower earnings and defaulting."

For example, on Tuesday, Allegheny Energy, a Hagerstown, Md. energy company, was declared in default under its trading agreements following the company's refusal to post additional collateral with trading counterparties. Upon defaulting on its trading agreements, cross-default provisions were triggered resulting in technical default under its principal credit agreements as well as those of its subsidiaries.

Currently, Allegheny is seeking up to $2 billion in a secured loan, Cindy Shoop, vice president of

corporate communications told Prospect News on Wednesday. "We're in negotiations with the banks right now. We're looking to restructure the financing that we currently have in place," Shoop said. "We're talking to banks about options but we can't finalize terms or come to any agreement until we get SEC

approval [on collateral support]."

Another name that has received media attention recently is TXU Corp., which slashed its profit outlook for the next year mainly because of troubles at its European operations. The company estimates cash flow in 2002 at $5.38 billion, including $2.3 billion from asset sales and $1.08 billion in equity issuance. After debt reductions of some $2.85 billion and dividends of $680 million, the company puts available cash flow at yearend at $1.85 billion. Cash flow in 2003 is estimated at $3.24 billion, the bulk of which would be the $2.3 billion in cash from operations. After debt reductions in 2003 of about $950 million and $710 in dividends, available cash flow is estimated at $1.58 billion.

In addition, the Dallas, Tex. global energy services company is asking its bank lenders to remove a cross-default provision tied to its three-year $500 million revolver. More specifically, TXU is seeking the removal of a provision on an outstanding credit line that would trigger repayment if its European unit defaults on its debt. Three of six banks have already agreed to waive the provision, the company said in a conference call Wednesday.

PanAmSat's bank debt levels are basically in line with last week's quotes although over the past few weeks the paper has been "drifting" north, according to a trader. The loan was quoted with a bid of 95 and an offer of 96 on Thursday. Exactly one week ago the company's bank debt had a "95 post" but in the not too distant past, the loan was quoted in the 99 region.

The name has been undergoing some scrutiny as investors are waiting for the EchoStar/Hughes situation to play out. EchoStar Communications Corp. was expected to purchase Hughes Electronics Corp. However, the merger is now unlikely to come to fruition due to opposition by federal regulators, with the Federal Communications Commission saying Thursday it would not allow the deal to go ahead and directed an FCC judge to hold a hearing. In addition, under the agreement, EchoStar is required to acquire Hughes' 81% stake in PanAmSat.

"People are trying to figure everything out so they're not really doing anything with the paper," the trader explained.

PanAmSat is a Wilton, Conn. provider of video, broadcasting and network services through satellites. EchoStar is a Littleton, Colo. provider of direct broadcast satellite programming services and products. Hughes is an El Segundo, Calif. provider of digital entertainment, information and communication services and satellite-based private business networks through its commercial satellites.

Nextel Communications Corp. was bid at 85 and offered at 87, up from a previous bid of 84 and offer of 86, according to a trader.

When asked how the Reston, Va. telecommunications company has managed to move up while everything is moving down, the trader responded, "Market technicals. There are more buyers than sellers."

In general, the bank loan market is falling off, according to sources. "I'm noticing a weakening in everything," one trader said. "Everything over the last couple of days has come in a lot," a distressed trader added, explaining that the worsening loan market is a reaction to overall economic problems in which both the stock market and the high yield market are experiencing difficulties.

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