The market for Calpine Corp.'s $750 million second-lien term loan may be starting to climb back up into the 90s, but the 12-point drop in the levels within weeks of allocation has left some investors pointing an annoyed finger at Goldman Sachs, the sole lead arranger for the $3.3 billion debt transaction. Investors complained that the deal was increased by too much, that Goldman stuffed accounts full of the paper and did not support the new deal in the secondary market. "Clearly, there was disconnect between how the deal was marketed to us and how the deal was completed," said a buysider. But some investors admitted that the economic impact is the real source of the complaints. "Honestly, we're not happy because we lost money," said another investor. An official at Goldman declined to comment. Calls to Steve Hickey, head of Goldman's U.S. loan trading team, were referred to a loan sales official, who did not return calls by press time. Rick Barraza, Calpine's v.p. of investor relations, declined to comment on the story.
Market players suggest that Goldman exaggerated the size of the book, claiming that the deal was three times oversubscribed. But when investors put in for allocations, they were hit with a large portion of what they asked for, rather than getting cut back. "[Goldman] just jammed it in there," said one buysider. But another buysider noted that investors played their part in the game. "When the deal was smaller people inflated what they wanted," he explained.
Another gripe some in the market have with Goldman is that the firm did not adequately support the new deal in the secondary market by making markets in the new debt. But one dealer asserted that Goldman did provide two-sided markets for the name, just not necessarily at bids that investors liked. The new loan also experienced more volatility than many expected because it was pari passu with the other $2.55 billion of floating-rate debt and senior-secured notes. One traditional loan investor said he learned the lesson that when a lot of hedge funds are signing into a deal, be watchful of what is going to happen on the break.
Some observers assert that market fundamentals played a strong role in depressing the prices for the new term loan. "It's tough to look at the market and think that it shouldn't come off because you look at the Treasury market, which has come off about 100 points," said one investor. Moreover, there was pressure on the energy sector reflecting Mirant Corp. filing for bankruptcy and weaker reported numbers from companies including Reliant Resources. Finally, the sheer size of the $3.3 billion transaction makes it more reactive to market ebbs and flows, said one market player.
One thing market players do agree on though is that Calpine hit the market at the perfect time. One dealer said Goldman took advantage of a very strong market and some investors believe it was better to increase the deal to take out some of Calpine's upcoming debt maturities, he added. While some carping investors said Goldman had burned some relationships, one was more philosophical about how the deal went down. "We're all big boys," he said.