Charter up on convertible deal rumor; Calpine revolver breaks and trades at over-par levels

By Sara Rosenberg

New York, July 10 - Charter Communications Inc.'s bank debt was very active on Thursday, moving up by about 50 basis points on rumors of a possible convertible offering, according to a trader. Meanwhile, Calpine Corp.'s $500 million first priority lien working capital revolver broke in the secondary and traded at around the 101 level.

Charter's term loan B was quoted at 94½ bid, 95 offered and the incremental loan was quoted at 93 7/8 bid, 94½ offered.

"There are rumblings out in the market that the company is doing some kind of convertible," the trader said.

Two reasons were given for the positive effect that the rumor is having on the bank debts' levels. One, if the company successful completes a convertibles offering, it is a possibility that proceeds may be used to pay down some existing debt or that the company may attempt to refinance its existing debt. Two, "just the fact that these companies can access the capital markets is a very bullish sign," the trader explained.

Besides this specific news, the St. Louis cable company's was also said to be stronger in response to better performance in the overall sector on Thursday.

For example, Adelphia Communications Corp., a Coudersport, Pa. cable company, was also up, with the Century old loan quoted at 85½ bid, 86½ offered, the Century new loan quoted at 84½ bid, 85½ offered and the Century revolver quoted at 85 bid, 86 offered, according to a second trader. All of the Century tranches were up about a point on the day.

Calpine Corp.'s $500 million first priority lien working capital revolver was led by the Bank of Nova Scotia and was marketed mostly to existing lenders.

Documentation is currently being finalized on the San Jose, Calif. power company's facility.

The revolver is secured by a first-priority lien on substantially all of the assets owned directly by Calpine, including natural gas and power plant assets and the stock of Calpine Energy Services and other subsidiaries.

This new revolver will replace the existing $950 million working capital revolver.

In addition to the revolver, Calpine priced on Thursday its $3.3 billion term loan and second priority senior secured notes offering, which was led by Goldman Sachs.

The offering includes a four-year floating-rate $750 million term loan priced at Libor plus 575 basis points, $500 million of floating-rate second priority senior secured floating rate notes due 2007 priced at Libor plus 575 basis points, $1.15 billion of fixed-rate 8.5% second priority senior secured notes due 2010 and $900 million of fixed-rate 8.75% second priority senior secured notes due 2013.

The transaction was upsized from its previously announced amount of $1.8 billion prior to pricing.

The notes and term loan are secured by a second-priority lien on the assets that are being used to secure the $500 million revolver.

Net proceeds from the offering will be used to repay existing indebtedness including approximately $950 million of term loan borrowings, $450 million outstanding under the company's working capital revolvers and outstanding public indebtedness. As part of the transaction, the company expects to purchase on the closing date approximately $573.1 million face value of outstanding senior notes at a cost of approximately $504.6 million, according to a news release.

All of the financing transactions are expected to close on July 16.

In general, some market participants are saying that they are beginning to notice a transformation in the plus-par secondary bank loan names due to strong market technicals posing a good opportunity for potential refinancings.

"What I'm expecting to see over the next 90 days is a fair amount of term B refinancing," a market professional said. "You can see it in the secondary. Bids are coming inside par because of heightened refinancing risk. There's a lack of new issuance so what do you do? You try to refinance the deals you've already done. Anything with a coupon of Libor plus 300 and no prepayment penalty is a candidate. Well, Libor plus 300 is marginal but certainly worth talking about. If you're just a standard manufacturing company that just ran into a bad market last year, god only knows what you can get done here.

"Portfolio managers are in a box," the professional continued. "The smart guy should sell these things at a premium, but then they're sitting there with the cash saying, 'great what do I invest in now?'

"I'm not crying crocodile tears here though. The market's healthy. The market's robust. There's tons of liquidity. And, credit quality calmed down. It's a cyclical market," the professional concluded.

However, not all agree that investor fear over refinancings can currently be seen in the secondary market. "We still have better buyers for just about everything," a trader said. "There are lots of bids, not a lot of offers. If there are offers they're getting lifted. We got a lot done in that context today where the offers got lifted."

In follow-up news, Noveon Inc. closed on its term loan B credit facility (BB-) due Dec. 31, 2009 on Thursday, consisting of a $468.6 million tranche with an interest rate of Libor plus 275 basis points and a €65.6 million tranche with an interest rate of Libor plus 300 basis points, according to a syndicate source.

Originally the deal was expected to consist of a $470 million tranche and a €30 million tranche with an interest rate of Libor plus 350 basis points.

Deutsche Bank and Credit Suisse First Boston were the lead banks on the deal, which was a repricing of the Cleveland specialty chemical company's existing term loan B.

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