Investors in energy company bank debt increased their focus on trying to unload paper last week, but finding buyers has been difficult and very little paper actually changed hands. Maturing debt and Securities and Exchange Commission investigations have had the spotlight on energy bank debt for some time, but investors started paying more attention last week as some of the companies started to issue earnings reports, traders said.
A small piece of Calpine's term loan "B" was said to have traded at about 88 last week, but names such as Dynegy, NRG and Williams Companies were locked. "People are trying to sell their exposure, but the bids just aren't there," said one trader. Typical energy company paper is held by relationship lenders and is unsecured, which causes the lack of liquidity, he explained. Another trader said the lack of trading comes more from the inherent nature of the credits. "These are very complicated names. It's going to take awhile before people act on them," he said.
Bids for Dynegy, for example, had been quoted in the 50-60 range last week but, because the name is unsecured, the real market for the paper is alongside the bonds -- well into the 30s, one trader said. NRG is another unsecured name that should trade alongside of the bonds, which are down in the 20s. "I don't think that anyone has swallowed the pill that they will have to sell these names at a 65 point discount," said one trader. "People would love to sell if they could get a 75 bid, but I don't think they will."
As these companies face pending maturities, many of them are able to get extensions or new deals, in exchange for extra security. "The bank markets are tightening at the same time companies need help from the banks," said Ralph Pellecchia, Fitch analyst.
Calpine, for example, was able to obtain $1 billion in new financing after upping the pricing and throwing extra collateral into the deal (LMW, 5/20). Williams was also able to life-boat financing at the final hour and its bank debt has since been quoted well into the 90s.