Calpine increases previously troubled term B to $1 billion on strong institutional demand

By Sara Rosenberg

New York, May 28 - Calpine Corp.'s $600 million two-year term B loan was upsized to $1 billion (Ba3/BBB-), according to a syndicate source. The additional $400 million was taken from the San Jose, Calif. power company's $1.4 billion pro rata portion, which expires May 24, 2003. The modification of the offering may be in response a lot of institutional demand for the term B, the syndicate source added. Salomon Smith Barney and Deutsche Bank are co-lead arrangers for the deal.

At first, the loan had some trouble getting off the ground. After the interest rate and the security were increased, institutional investors started showing more enthusiasm towards the offering. The credit facility was launched to "smaller retail investors" in early May at a discount of 100 basis points. Initial price talk 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, according to a syndicate source. 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.

"This was all market driven," a syndicate source previously told Prospect News. Now that the loan is more securely backed and has better terms, investors are showing more interest, he said.

Proceeds will be used to finance capital expenditures and for corporate purposes.

Global Crossing Ltd's bank loan paper "fell off a little bit" on Tuesday since its "deal fell apart," a fund manager said. Trading on the loan has been in the 20 to 25 range over the past eight months. Last week, the paper traded at 26. Tuesday, the bid was at 23 for Global Crossing's bank debt, the fund manager said.

The company entered into Chapter 11 on Jan. 28 at which time a letter of intent was signed with Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte. Ltd. for a $750 million cash investment for a joint majority stake in the company's equity in connection with restructuring. The deal was not finalized, however, since "the value of the company is greater than the original offer made by Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte. Ltd.," stated John Legere, chief executive, in a press release.

On Tuesday, Global Crossing announced that it is "preparing a company-sponsored restructuring plan as an alternative to bids it anticipates receiving from independent investors next month," a company press release said.

In other secondary news, Reader's Digest Association Inc. traded up Tuesday with a bid of par and 3/4. The loan was allocated last week and has "been up since it broke," the fund manager said, which has been standard performance for new issues recently as supply remains low and demand remains high.

On May 20, the Pleasantville, N.Y. global publisher and direct marketer closed on its new $950 million credit facility, which consists of a five-year term and a six-year term, according to a company press release. JPMorgan and Goldman Sachs arranged the financing and more than 80 other banks and lenders took part in the facility, the release said. Proceeds are being used to fund the purchase of Reiman Publications LLC, to fund the repurchase of $100 million of class B voting common stock and to refinance some existing debt.

Alliance Imaging Inc. is working on a $286 million refinancing deal in which the company's term B and term C loans would be consolidated into one term C, a syndicate source said. Deutsche is the lead arranger and administrative agent for the deal. The consolidation would reduce the company's coupon by approximately 50 basis points.

The new term C has an interest rate of Libor plus 237.5 basis points and expires in 6½ years, the syndicate source said.

Alliance Imaging is an Anaheim, Calif. provider of outsourced diagnostic imaging services.

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