Calpine Corp.'s bank debt has climbed about 10 points out of its hole as investors brush off fears of a near-term liquidity crunch and an early 2003 bankruptcy filing. Bolstering interest in the paper is buzz that the company is talking to its bank group to reduce the capacity under its revolver. Traders said that small pieces of the company's mammoth
$1 billion "B" loan traded in the 87 to 89 range last week. Hedge funds were said to be the most active buyers, but the names of those players could not be determined by press time. Repeated calls to Bob Kelly, cfo, were not returned.
The current bank debt levels are up significantly from the high 70s where the "B" piece sunk in the last half of October. "There was a huge overhang that Calpine would file for bankruptcy in 2003, though we have felt, and continue to feel, that this is not the case," commented analyst Nathaniel Furman, v.p. and principal at CRT Capital Group. He explained that the negative sentiment has somewhat dissipated because of the company's ability to generate liquidity through strategies such as the monetization of its above-market contracts.
But Calpine is not in the clear yet, according to market players who believe that there is still a risk that the company could file in the intermediate term. The company has roughly $5.5 billion of secured debt maturing by November 2004, noted Furman. "Assuming the company can make it to 2004, I think between now and then they can build out the value of the estate," he said. "Our view is that the company remains likely to file for bankruptcy in 2004." He said the company had a large interest cost burden and also heavy capital expenditure commitments. He noted Calpine is likely to push out portions of its revolving credit facilities that were going to expire in May 2003, rather than cut back the available borrowing capacity.
A dealer suggested that the name had regained momentum due to its good coupon, good ratings, and quality security package. A buysider noted that the bank debt paper had followed suit after the company's bonds, which have also jumped, trading from the 30s range into the high 40s over the last couple weeks.