Energy names were received with open arms last week as investors returning from vacation jumped all over Calpine Corp. paper andAES Corp.'s refurbished credit facility. Investors have become more comfortable with the collateral packages, noted one buysider, and pieces of AES's revolver, "A" term loan, and "C" tranche changed hands at 91-92, 95 1/2 96 1/2, and 93-94, respectively. Across the board, the credit is one-two points stronger since before the holidays. "AES bank debt has been ticking up primarily because vulture funds are playing the capital spreads," said Jon Kyle Cartwright, a fixed income analyst with Raymond James & Associates.
Cartwright explained that the funds were buying the bank debt and shorting the equity and the subordinated bonds because if AES' problems do continue, AES bank debt will hold up because of its security package and the subordinated debt values will fall. "The collateral package provides enough value for secured lenders to realize 100% recovery," said Scott Taylor, S&P analyst, in a recent report. Ahmed Pasha, AES' investor relations spokesperson, confirmed that the subordinated debt has no security, but declined to comment further.
Calpine has also ticked up into the 90 range, from the high-80s. The paper received a Christmas rally due to the end of the year, beginning of the year reshuffling, said Cartwright. "Calpine is out of the clear from a bankruptcy perspective," he added. In addition, he noted that Dynegy's prediction of surpassing earnings estimates has set a good overall tone for the sector. He qualified, however, that the sector is still economically very sensitive. Bob Kelly, Calpine cfo, could not be reached by press time.