Calpine Postponed, Pricing Seen As Too Low

  • 07 Apr 2002
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The launch of fallen-angel Calpine's $600 million "B" term-loan was postponed from last Thursday to possibly a week from now and potential investors are saying the lead banks on the deal should take that time to increase pricing from LIBOR plus 23/ 4%. A lack of familiarity with the name and a downgrade last week from Moody's Investors Service are two issues putting pressure on the coupon, bankers and investors said. "The banks are having trouble getting Calpine done at current pricing, given this week's downgrade to Ba3 [by Moody's Investors Service]. New pricing is likely to be as high as LIBOR plus 33/ 4% with a discount," one hopeful investor said.

Investors are not very familiar with the company and are looking to the bonds, one banker said. The 8 1/2% notes due 2011 are trading in the low 80s, and though the maturity and security is very different, on a relative-value basis, pricing will need to be hiked, he added. Another banker remarked the banks are fighting a difficult story with a credit in the power market.

Credit Suisse First Boston, Salomon Smith Barney and Deutsche Bank have underwritten the two-year institutional tranche, which is part of a $2 billion financing package for the company. The senior secured credit facilities consist of $1.4 billion in revolving credit facilities expiring in May 2003. The leads on the revolver are Bank of Nova Scotia, Bayerische Landesbank, Bank of America, CSFB and Toronto Dominion. The 14-month pro rata meanwhile has a 2% over LIBOR spread and a 1/2% commitment fee (LMW, 3/17).

"The postponement [of syndication] is due to a series of factors such as the requirement of further studies and documentation," said one banker, who added that although pricing will have to rise, there are some positives to the credit. "It is a very large company with valuable assets, and while the electricity companies have been deregulated, people will need more power in the future," he cited. Security comprises gas properties, the Saltend power plant in the U.K. and equity investments in nine U.S. power plants. Rick Barraza, director of investor relations at Calpine did not return calls regarding pricing by press time. But, the institutional players need to be made comfortable with a credit in the power industry, a banker said. Officials at the lead banks either declined comment or did not return calls.

  • 07 Apr 2002

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Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Citi 7,029 20 10.95
2 Bank of America Merrill Lynch (BAML) 6,703 19 10.45
3 JP Morgan 4,776 10 7.44
4 Credit Suisse 4,718 9 7.35
5 Deutsche Bank 4,262 13 6.64

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1 Wells Fargo Securities 67,591.81 167 11.54%
2 Bank of America Merrill Lynch 57,568.62 162 9.83%
3 JPMorgan 55,390.36 159 9.46%
4 Citi 55,051.46 160 9.40%
5 Credit Suisse 43,756.73 120 7.47%