Possibility of additional first-lien debt sends Calpine's second-lien paper lower

By Sara Rosenberg

New York, June 10 - Calpine Generating Co. LLC's second-lien bank debt took a bit of a tumble on Thursday as investors were disheartened by the news that there may be a greater amount of first-lien debt ahead of it in the capital structure.

The second lien bank debt was trading at around 90, according to one trader, who placed the debt down about a point and a half from the 91½ bid, 92½ offered levels seen during the previous day's activity.

A second trader placed the debt at 88½ bid, 89½ offered by late day and had seen quotes at 89½ bid, 90½ offered earlier in the day.

Calpine is looking into selling its natural gas reserves located in Alberta, Canada, and certain unidentified U.S. natural gas reserves, the company revealed Thursday, adding that these potential asset sale proceeds would be used to repay the existing $500 million first-lien debt.

Normally, an asset sale resulting in a paydown would be good news for bank debt holders and it was for those invested in the first-lien paper, which continued to trader a little above par during market hours, unchanged from prior levels, the second trader said.

However, the San Jose, Calif., power company went on to say in its release that if it repaid the $500 million of first-lien debt it would then have the ability under its existing bond indentures to issue up to about $700 million of new first-lien debt, thereby increasing the amount of first-lien debt in the capital structure by $200 million.

"People are nervous of the fact that there would be more first-lien debt than second lien," the second trader explained.

CACI trades up

CACI Inc.'s term loan B traded up about a quarter of a point on Thursday at around 983/4, according to a trader, as market technicals push bids higher and investors choose to place little focus on a recently filed class action lawsuit related to the Iraqi prison abuse scandal.

"There's upped demand on the buyside. Sellers have pulled back a little. It's really just bid up with the rest of the market," the trader explained.

On Wednesday, the Center for Constitutional Rights and the Philadelphia law firm of Montgomery, McCracken, Walker and Rhoads filed a lawsuit in federal court in San Diego charging CACI and Titan Corp. with violating the Racketeer Influenced and Corrupt Organizations Act and alleging that the companies used illegal acts to obtain intelligence from prisoners, in the pursuit of more contracts from the government. The action also brings claims under the Alien Tort Claims Act and various Constitutional amendments as well as other U.S. and international laws.

In reaction to the lawsuit, CACI put out a news release Thursday denying the allegations and calling the suit "a malicious recitation of false statements and intentional distortions."

"CACI does not have and has never had any agreement with Titan Corporation or anyone else pertaining to conspiring with the government, or to perpetrate abuses of any kind on anyone. CACI has never entered into a conspiracy with the government, or anyone else, to perpetrate abuses of any kind," the release went on to say.

The company claimed that the lawsuit is full of "inaccuracies" and "falsehoods," such as claiming that named defendant John Israel was an employee of CACI, something that the company says is not and was never the case, and that CACI had contracts for interrogation work in Guantanamo Bay, Cuba.

"These falsehoods and inaccuracies simply demonstrate the utter lack of investigation prior to filing suit by the entities ultimately behind this lawsuit," the release said. "In light of the frivolous and malicious nature of this lawsuit, as well as the apparent lack of any pre-filing investigation of the facts, the company stated it is examining its options for sanctions against the lawyers who participated in the filing of this lawsuit."

Once again, the company reiterated that it has not been charged with any wrongdoing or illegal acts relating to any work in Iraq, a fact that the company has pointed out since allegations surfaced weeks ago.

CACI is an Arlington, Va., provider of IT and network solutions.

Caribbean Restaurants ups pricing

Caribbean Restaurants LLC (B2/B+) increased pricing on its proposed $180 million five-year term loan B to Libor plus 325 basis points from Libor plus 300 basis points, according to a syndicate document.

The $30 million five-year revolver was left unchanged with pricing of Libor plus 300 basis points and a commitment fee of 50 basis points.

Credit Suisse First Boston and Wachovia are the joint lead arrangers and joint bookrunners on the deal.

Proceeds will be used to help fund the previously announced acquisition of Caribbean Restaurants by Castle Harlan Inc. from Oak Hill Capital Partners for $340 million.

Under the acquisition agreement, current management of Caribbean Restaurants, an operator of Burger Kings in Puerto Rico, would remain in place and would continue to hold an equity stake in the company.

In March, the company had launched a $260 million credit facility that made it past the allocation stage. The facility consisted of a $150 million five-year term loan (B2/B+) with an interest rate of Libor plus 300 basis points, an $80 million six-year second-lien term loan (B3/B-) with an interest rate of Libor plus 650 basis points and a $30 million five-year revolver (B2/B+) with an interest rate of Libor plus 300 basis points and a commitment fee of 50 basis points. Proceeds were supposed to be used for a dividend recapitalization.

However, upon news of the leveraged buyout in May, the facility was pulled from the market. Since the deal had never officially closed, all trades that took place in the secondary basically unwinded.

Credit Suisse First Boston and Wachovia were the joint lead arrangers and bookrunners on that deal as well, with CSFB acting as administrative agent and Wachovia acting as syndication agent.

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