The new $2.4 billion financing for Calpine Generating Co., formerly known as Calpine Construction Finance Co. II, softened after breaking into the secondary market last week. The $835 million first-lien "super-priority" tranche, which has about $600 million of loan paper, traded as high as the 1003/4 range before resting into the 100-1001/2 context by week's end. The $740 million second-lien tranche, which has about $100 million of loan paper, was trading around the 961/2-971/2 level.
Traders said the overall secondary loan market was weaker in general last week. Due to the plethora of Calpine debt already held by accounts from the company's previous sizable debt packages, the name is subject to an extra dose of technical pressure, they added. Still, more than 200 accounts bought into the deal, which also includes a third lien of $680 million of non-recourse, floating-rate secured notes and $150 million of non-recourse, fixed-rate secured notes. That wide audience of investors includes insurance companies, pension funds, mutual funds, high-yield buyers and bank loan buyers, a source familiar with the deal said. Morgan Stanley, which fully underwrote the debt, filled the book only one day after announcing it to investors last Thursday (LMW, 3/11).
Investor demand led to some adjustments of the tranche sizes by Morgan Stanley on the new deal from that first pitched to investors. "With a deal that size you are going to find a greater pocket of demand in some pockets and less in others," the source said. Both the first-lien and third-lien tranches were upsized, whereas the second-lien and the fixed-rate portions were reduced. "People either buy the riskiest or the safest," the source said. "It's like middle-child syndrome. The secured and third lien generally get the most demand," he added.
The first lien, second lien and third lien floating-rate financing priced at LIBOR plus 33/4%, LIBOR plus 53/4%, and LIBOR plus 9%, respectively. The fixed-rate notes carry a coupon of 111/2%. The floating rate portions of the financing also have a LIBOR floor of 11/4%. A Morgan Stanley spokesman declined comment and Rick Barraza, Calpine's senior v.p. of investor relations, did not return calls.