Energy names weakened in the secondary loan market last week under pressure from Calpine Corp.'s new $750 million CCFC1 credit. AES Corp.'s recently completed deal traded off into the 983/4 991/2 context and Allegheny Energy's second-lien loan traded down into the 92- 94 range from the 95-96 context where it was moving last month. "The market ran way too far ahead of itself," noted one trader
Reliant Resources also traded down to the 881/4 891/4 range. One trader noted that there were large offerings of the paper, but said these offers were only at higher levels. Despite the softened levels, some market players spoke highly of the name. The company recently used a substantial portion of the proceeds from a $1.1 billion issue of senior secured notes to pay down its bank debt, noted one buysider. But one trader stated that Reliant's large loan was less attractive than some of the other, similar energy credits. Prior to the paydown, the company had a $2.1 billion senior secured revolving credit facility, a $921 million senior secured term loan and a $2.91 billion senior secured term loan.
One investor familiar with the company jumped to the defense of Reliant, noting that the company only had about $6 billion in debt. He explained that due to waning capital expenditure requirements, Reliant should be able to generate free cash flow in 2004, which it could use to pay down debt. He also pointed to the diversity of the company, explaining that if Reliant exercises its option to buy Texas Genco, it could become a fully integrated utility. Calls to Mark Jacobs, executive v.p. and cfo of Reliant, were not returned.