Calpine Corp.'s second-lien bank loan traded actively last week on talk that banks were pitching a $2 billion debtor-in-possession loan for the power company, which has not yet filed for bankruptcy. A trader said Citigroup was active in the name, trading in the range of $25-50 million of second-lien bank debt by last Wednesday. News of the debtor-in-possession loan did not cause the price of the loan trading to fluctuate, however. It was trading in the 77-78 range.
A trader said the price of the second lien stayed steady because the market was expecting the preparation of the DIP loan. He anticipated the loan would be popular with investors. "It will have a nice coupon and nice assets," he said, adding that its preparation indicated that bankruptcy is highly likely to happen soon. He predicted the large size of the DIP loan, which he said could grow to $2.5 billion, is likely to set off objections from second-lien and bond holders, who may see smaller recoveries because of the large size of the loan.
A Calpine spokeswoman declined to comment on a potential DIP loan.