Calpine rallies in a generally better bid energy/utility sector on earnings and plant sale news

By Sara Rosenberg

New York, May 13 - The energy/utility sector headed higher once again with Calpine Corp. being one of the most prominent movers. Calpine's bank debt moved up to 97¼ bid, 97¾ offered on Tuesday and traded at 97¼ after the company released its earnings numbers and announced a plant sale, according to a trader. On Monday, the paper was quoted at 96½ bid, 97 offered on Monday.

For the quarter ended March 31, Calpine reported a $0.12 loss per share, or a $45.3 million net loss, compared with a $0.25 loss per share, or a $75.7 million net loss for the first quarter of 2002. The company achieved approximately $2.2 billion of revenue for the first quarter 2003, compared with approximately $1.3 billion for the first quarter of 2002.

During the quarter, the company made progress on its liquidity enhancing program by generating $105.5 million through contract monetization and joint venture restructuring at its Acadia Power Project; generating proceeds of approximately $90 million through the completion of a secondary offering of its Calpine Power Income Fund; issuing warrants as part of the Calpine Power Income Fund secondary offering, which are expected to generate approximately $45 million by the end of 2003; completing the sale of a preferred interest in the 115-megawatt King City Power Plant for approximately $82 million; nearing completion of the securitization of one of its 1,000-megawatt baseload contracts with the California Department of Water Resources; continuing efforts on obtaining the non-recourse construction financings for two 600-megawatt projects currently in construction; and, making progress on the plan to approach the capital markets for the $350 million, long-term financing for its 495-megawatt California peaker projects.

"Our long-term strategy continues to succeed in spite of difficult market conditions. During the quarter, Calpine made significant progress on our 2003 liquidity program and the refinancing of two secured working capital facilities. We brought on-line eight new gas-fired energy centers, seven of which are already under long-term power contracts, and we entered into long- and short-term power contracts totaling nearly 2,400 megawatts of capacity," said Peter Cartwright, chief executive officer, in a news release.

On March 31, liquidity totaled approximately $615 million, including cash and cash equivalents on hand of $378 million, the current portion of restricted cash of $146 million and approximately $90 million of borrowing capacity under various credit facilities.

The San Jose, Calif. power company is in final discussion with its bank group regarding refinancing its $400 million and $600 million working capital facilities maturing later this month.

In addition to the earnings news, the company announced that it has received $105.5 million following completion of a contract monetization and a restructuring of its interest in Acadia Power Partners, LLC.

The $105.5 million was paid by Aquila Inc. to release Aquila from all of its obligations under the 20-year tolling agreement with Acadia Power Partners. The transaction returned to Aquila $45 million in posted collateral and eliminates $843 million in payments due to Acadia over the remainder of the 20-year term. Aquila entered into the contract with Acadia in 2000.

"Removing these obligations not only strengthens our balance sheet, but, more significantly, moves us closer to completing our exit from the energy merchant business," said Keith Stamm, Aquila's chief operating officer, in a news release.

The Kansas City, Mo. electricity and natural gas company's pro rata bank debt, spurred on by this announcement, was "up slightly with a little bit of activity" on Tuesday, according to a trader who quoted the paper at par ¼ bid, par ¾ offered.

"All of these names are doing well on positive earnings and access to capital markets," the trader said.

For example, Allegheny Energy Inc.'s bank debt was quoted at 97 bid, 98 offered, up from a selling price of 97 on Monday, according to the trader. CMS Energy Corp.'s bank debt is strong with the term A quoted at 99¾ bid, par ¾ offered, the term loan B quoted at par bid, 101 offered and the term C quoted at par ½ bid, 101½ offered, sideways from previous levels. Lastly, Dynegy Inc.'s pro rata bank debt was quoted at 96½ bid, 97½ offered, in line with previous levels.

Charter Communications Inc. term loan B was slightly better bid at 90 5/8 and traded at that level as well, up from Monday's bid of 901/2. The offer remained at around 91, according to a trader.

The continuous gradual improvement in the St. Louis cable company's bank debt has been attributed to an overall improvement in investor attitude towards the company since Paul Allen agreed to provide a loan and recent positive earnings numbers.

Following up, Werner Holding Co. Inc.'s $170 million six-year term loan, which launched on Friday, is already fully subscribed, according to a fund manager, but is still open to commitments. The term loan B is currently priced with an interest rate of Libor plus 325 basis points.

"It will likely flex down by 25 basis points," the fund manager said, adding that timing on the possible change in price is unknown.

Attracting investors to the deal is the company's leading market share in the ladders industry and the healthy amount of free cash flow that the company generates, according to the fund manager.

Werner's senior secured facility (Ba3/B+), which is being led by JPMorgan and Citigroup, also contains a $60 million five-year revolver.

Proceeds are being used to redeem $150 million of common stock and options from existing holders.

Werner is a Greenville, Pa., operator in the climbing products and extruded products business segments.

Salton Inc. closed on its new $275 million four-year revolver, which was oversubscribed. Bank of America and Wachovia Corp. were the lead banks on the deal and Bank One and Fleet Capital Corp. acted as co-documentation agents.

Under the new agreement, the credit spread was reduced by 100 basis points compared to the existing facility and unused fees were reduced by 22.5 basis points. Furthermore, the agreement provides for greater financial covenant flexibility, allowing the company to enter into transactions like stock or bond repurchases dividend payments.

Proceeds were used to refinance the company's existing $193 million credit agreement, which included a $160 million revolver and a remaining balance of $33 million under the term loan.

"We believe that this new agreement represents a powerful endorsement of Salton's future prospects," said Leonhard Dreimann, chief executive officer, in a news release. "The terms of this agreement are more favorable than our previous bank deal, and give us greater flexibility in making acquisitions and entering into capital markets transactions. The maturity of this agreement extends beyond our 2005 notes, reflecting our lenders' confidence in our ability to continue to generate solid cash flow and to refinance our debt."

Salton is a Lake Forest, Ill. designer, marketer, manufacturer and distributor of a broad range of branded small appliances, tabletop, time and lighting products and personal care and wellness products.

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