Calpine bank debt, bonds trade off amid confusion over financing

By Paul Deckelman and Sara Rosenberg

New York, Feb. 23 - Calpine Corp.'s Calpine Construction Finance Co. II LLC bank debt revolver headed lower on Monday, as rumors were circulating that the bond and the bank deal were struggling, with some sources even suggesting that the bond deal was restructured or pulled. Calpine's existing bonds were also seen lower.

A bank debt trader quoted the revolver at 95 bid, 97 offered, explaining that the paper was regressing to the 95 context at which is was quoted prior to the refinancing news.

"Bonds are starting to back up a little bit. There must be some rumors that if the bonds price wide they won't get done. If they don't get the bond deal done, they don't get the new bank deal. The existing revolver would stay in place," the trader said.

Calpine's 8½% notes due 2011, which on Friday had opened at 79.5 bid, 80 offered and then had eased to 78.75 bid, 79.75 offered, were quoted by a trader as having eroded down to 75 bid, 77 offered by the end of Monday's dealings.

He also saw Calpine's 8½% notes due 2008 as having fallen to 77.25 bid, 78.25 offered from opening levels at 80 bid, 81 offered.

At another desk, a trader quoted Calpine's 8½% notes due 2010 as three-point losers, down to 91.75. Its 8 5/8% notes due 2010 were down a deuce at 78 bid.

Back among the bank loans, another trader placed the revolver slightly higher at 96 bid, 97 offered.

"I don't think the bank deal got done. It's a lot of leverage on the second lien. Nobody likes the deal. A lot of problems. They keep making changes and people still don't like it," the trader said.

"On Friday, the paper traded as low as 98, moved up to trade at 98.125 and then moved even higher to trade at 98.75, according to a trader. By late afternoon, the paper was being quoted at 98.75 bid, 99.25 offered.

Calpine Generating Co. LLC (previously Calpine Construction Finance Co. II LLC) increased pricing on its $1.3 billion non-recourse first priority secured institutional term loan (B+) to Libor plus 475 basis points from Libor plus 425 basis points on Friday, with the expectation being that this level would be where the deal gets done. The tranche also contains a 1.5% Libor floor, 50 basis points original issue discount, non-call of two years and two years of call premiums.

Also, price talk on the bond deal (B-) emerged on Friday with the $525 million floating-rate tranche talked at Libor plus 725 basis points, with a 1.5% Libor floor, 50 basis points original issue discount and seven-year non-call, and the $525 million fixed-rate tranche talked to yield in the area of 11¼%, according to a market source. Pricing on the bonds is expected to take place Tuesday.

Deutsche Bank is leading the financing transactions.

Proceeds from the term loans, combined with proceeds from the notes, will be used to refinance amounts outstanding under the $2.5 billion CCFC II credit facility that matures in November. Currently there is about $2.3 billion in outstanding debt under the CCFC II facility including letters of credit.

When the refinancing proposal was first announced, the CCFC II revolver moved to 98.5 bid, 99 offered. The paper was unable to reach the usual par levels that a refinancing announcement tends to incite as investors remained cautious on the company's ability to complete its proposed transaction.

Calpine Generating is a wholly owned subsidiary of Calpine Corp., a San Jose, Calif.-based power company.

Revlon steady as exchange starts

Elsewhere, Revlon Inc. officially announced the start of offers to exchange new Class A common shares for its outstanding 8 1/8% and 9% senior notes due 2006 and 8 5/8% senior subordinated notes due 2008; the exchanges will take place on the terms which the New York-based cosmetics company had already outlined earlier this month when it announced its intentions of cutting its $1.9 billion debt load roughly in half via a big debt buyback slated to take place before the end of next month (see Tenders and Redemptions elsewhere in this issue).

"I didn't see a whole lot of difference on the bonds today," a trader said, going along with the theory that Revlon already had its runup in the session immediately following its Feb. 12 announcement.

"They hung in there pretty well," he said, quoting the Revlon Consumer Products Corp.'s 9% notes at 106.125 bid, 107.125 offered and its 8 5/8% notes at 92 bid. 94 offered.

The trader opined that where the Revlon bonds end up by the time the exchange offer wraps up in mid-March will depend on where the company stock is trading, since Revlon plans to issue as many as 350 million new shares to use as the currency funding the debt takeout.

"I think some of it will be where the stock trades. The stock was off three cents today (to $3.27 in New York Stock Exchange dealings), so the stock is still hanging in there, so that gives you the high premium value on the 8 1/8s and the 9s.

"I think eventually you'll see the stock diluted and you'll see things trade down. But so far, the stock is hanging in there."

A market source agreed with that level for the 9% notes, and said the 8 1/8s were likewise holding steady around that same 106.5 level.

Oglebay Norton officially filed for Chapter 11 protection from its junk bond holders and other creditors.

But a market observer noted that the company's bonds "have been distressed for a long time." He saw its 10% notes due 2009 unchanged at 36 bid.

He likewise saw Adelphia Communications Corp.'s 9¼% notes due 2002 steady at 102.5 and its 9 3/8% notes due 2009 holding at 103.

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