Morgan Stanley has snared the lead role on a fully underwritten $2.4 billion refinancing for Calpine Generating Co., formerly Calpine Construction Finance Co. II (CCFC II), with a structure that is being pitched to loan and high-yield investors. This comes after Deutsche Bank was dropped from the lead role after failing to sell a bond portion of the financing.
As first reported on Loan Market Week's Web site last Thursday, the deal comprises a five-year, $800 million super-secured floating-rate loan/note, which cannot be called until year-three. Pricing on that tranche and three other tranches has yet to be finalized, but price talk on the super-secured is LIBOR plus 31/2-3/4%. The rest of the package consists of a six-year, $855 million senior secured note/loan that is non-call until year four and is being talked up at LIBOR plus 5/2-3/4%; a seven-year, $550 million secured floating rate note that cannot be called at LIBOR plus 83/4-9%; and a seven-year, non-callable $200 million secured fixed-rate note priced at 111/4-1/2%.
There is also a new three-year, $200 million revolver being led by Scotia Capital. The revolver will be used for the costs to complete the company's power generation facilities that are still under construction. Scotia and Credit Suisse First Boston are the leads on CCFC II's existing bank debt. Rick Barraza, Calpine's senior v.p. of investor relations, declined comment.
Deutsche Bank was in the market last month with a $2.3 billion loan and bond deal to refinance the credit. The facility included $1.3 billion of non-recourse first-lien term loans and $1 billion of second-lien notes. Price talk on the loan was LIBOR plus 41/4% (LMW, 3/1). The offering was cancelled due to market conditions, the company said in a press release. There were reportedly issues relating to the covenants on the note issue, disputes over the collateral and the pricing of the bond. Deutsche Bank and Morgan Stanley spokesmen declined comment.
Covenant changes on the new deal are: no asset substitution and asset sale proceeds must first offer to repay debt. Investors will have the direct lien on two-thirds of the California plants and lien of the stock on the Goldendale facility. The deal also includes a three-year, $100 million spark-spread hedge between the issuer and Morgan Stanley. This is a feature that ensures debt repayments even if generation margins deteriorate.