Calpine bonds, bank debt seen firmer as deal is revived

By Paul Deckelman and Sara Rosenberg

New York, March 11 - News that Calpine Corp. will come to market Friday with a $2.4 billion financing package, less than a month after failing to complete such a deal, helped to push the San Jose, Calif.-based power generating company's bonds and bank debt up, traders said.

Calpine's existing bonds "were a little stronger," a trader said, quoting the company's seven-year bonds a point better at 76.5 bid, 77.5 offered.

Calpine's 8 5/8% notes due 2010 were seen likewise up a point, at 77.5 bid, while a market source at another desk saw the 8¾% notes due 2007 a point better at 81.5 bid, 83.5 offered, while its 8½% notes due 2008 were half a point better at 77.5 bid, 78.5 offered.

However, at some other desks, Calpine's bonds were seen having backtracked ahead of the new deal. A trader said the Calpine notes were "all down two to three points" from where he sat, with the 7 7/8% notes due 2008 dipping to 75 bid, 76 offered, the 8½% notes due 2010 easing to 93 bid, 93.5 offered and the 8¾% notes due 2013 drifting down to 92 bid, 93 offered.

In the bank debt sphere, Calpine Construction Finance Co. II LLC's revolver jumped around on Thursday moving up, then down and finally settling about a point and a half higher by late day.

The bank debt ended the session quoted around 99 bid, 99.5 offered or maybe slightly higher at 99.125 bid, 99.625 offered, according to a trader, up from opening levels of 97.5 bid, 98.5 offered.

Following news of the refinancing transaction, the CCFC II revolver had moved up to 99 bid, 99 3/8 offered. However, some market confusion set in about whether the deal was underwritten or not, leading the paper to drop back down. Once the confusion got sorted out and investors determined that the new financing was underwritten, levels jumped back up, the trader explained.

On Thursday Calpine revealed that its subsidiary, Calpine Generating Co. LLC (CalGen) will commence an offering for term loans and senior notes in a second attempt to refinance the CCFC II revolver. Morgan Stanley is leading the transactions, which are expected to price on Friday, according to various market sources.

The planned deal is split into four parts. There is an $800 million "super" secured floating-rate loans or notes tranche due 2009 that is non-callable for three years and is talked at Libor plus 350 to 375 basis points. The second piece is $855 million of senior secured floating-rate loans or notes due 2010 that are non-callable for four years and are talked at Libor plus 550 to575 basis points. The third tranche is $550 million of secured floating-rate notes due 2011 that are non-callable for life and are talked at Libor plus 875 to 900 basis points. Lastly, there will be $200 million of secured fixed-rate notes due 2011 that are non-callable for life and are talked at 11¼% to 11½% sources said.

On Feb. 24, CalGen pulled its CCFC II refinancing proposal of a $1.3 billion non-recourse first priority secured institutional term loan from the bank loan market and its $1.05 billion secured notes offering from the high-yield market due to what it said were current market conditions. Deutsche Bank was the lead bank on that deal, but has since been replaced by Morgan Stanley.

Ever since those transactions were tabled, rumors have been flying around the market regarding a potential refinancing, timing of a new deal and lead banks. And the speculation - which now proved be to be right on the money - was that once affirmation of a new deal hit the market the CCFC II revolver would trade up to 99ish levels.

Allegiance bonds down

Elsewhere, a market source saw the bonds of Allegiance Telecom quoted below recent levels, although he offered no explanation for the slide in the bankrupt Dallas telecommunications operator's paper.

He saw the company's 11¾% notes due 2008, which had recently been trading around 50 bid, as having pushed down to around the 45 level, while its 12 7/8% notes due 2008 were at 46 bid, down from recent levels around 52.

Allegiance last month agreed to be acquired by billionaire investor Cal Icahn's XO Communications after a bankruptcy auction.

Solutia, Tenet decline

The market source also saw a retreat in Solutia Inc.'s bonds, quoting the bankrupt St. Louis-based chemical company's 6.72% notes due 2037 two points lower, at 42, although he saw its 11¼% senior notes due 2009 unchanged at 95 bid.

Tenet Healthcare Corp. - whose bonds had fallen several points on Wednesday after an analyst warned the company might be blowing through its cash reserves too quickly and Standard & Poor's downgraded it - continued to fall back on Thursday, although a trader said it managed to rebound from its lows after having plunged four to five points.

He saw the Santa Barbara, Calif.-based hospital operator's 5 3/8% notes due 2006 at 93 bid, 94 offered and its 6 3/8% notes at 86.5 bid - up from their earlier lows, but still off two to three points on the day.

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