Calpine Corp.'s second-lien levels dropped last week from the 86 range into the 83-85 context. Weak figures and a new letter of credit facility that could divert collateral from the existing lenders were cited as reasons. The second-lien is approximately $742 million and is led by Goldman Sachs.
Calpine announced last Thursday it has entered into a new $250 million letter of credit facility with Deutsche Bank under a newly created entity called Calpine Energy Management.
The facility, which expires October 2005, will use receivables generated from power sales as collateral for the letters of credit, a trader said. "Since the new facility will be taking all of the receivables, the second-lien is in a worse situation." When secured against the receivables any money that the company owes will have the first claim before the first-lien and the second-lien holders, another dealer noted. But one dealer said, "The company had the ability to secure these receivables. People shouldn't be surprised."
Market apprehension on the company's financials is also a factor, loan participants said. Calpine reported a $28.7 million, or seven cents per share, loss in the second quarter.
However, according to a buysider, neither the disappointing earnings nor the new facility should constitute a significant handicap for the company. In the end Calpine has a great chance of moving up, he said, citing the large demand for energy in California as a catalyst. "It's going to be a hot summer," the buysider noted. "At these low levels Calpine is probably a good buy." Richard Barraza, Calpine's v.p. of investor relations, did not return calls.