Price-sensitive Calpine pulls high-yield bond deal

Mon Sep 24, 2012 4:57pm EDT

NEW YORK, Sept 24 (IFR) - Calpine Corp on Monday ditched plans to take out 10% of some of its longer-dated debt, following pushback from bondholders and the company's own price sensitivity.

The US energy company was expected to price a US$615m 10-year non-call five senior secured offering through Morgan Stanley, Barclays, Deutsche Bank and RBC joint bookrunners.

Proceeds of the deal were expected to be used to redeem 10% of the company's notes due between 2017 and 2023.

Existing bondholders viewed the transition as underhanded and a frivolous attempt to shave interest expense.

The bonds in question traded at around 110 ahead of the planned bond offering, but the company was able to take 10% of them out at 103, owing to a special early call feature.

"It was frustrating for existing bondholders," said one investor. "Calpine was trying to raise funds to mess up the bondholders by doing a 103 call that everyone would lose money on. Calpine had to be a little bit nicer, and the way you do that is you widen out on talk."

Indeed, price talk on the new notes offering was viewed as overly aggressive. There was a mismatch between terms that the investors demanded to participate and what the company was willing to pay - one investor said that price talk in the range of 7.75%, "did not match up".

High-yield investors are becoming more vigilant on pricing, after suffering from market indigestion when a host of tightly priced deals traded at or below new issue price last week.

"You had enough new money, not everyone was an existing bondholder, and the deal would have gotten done if the company had been willing to come with an appropriate price," said the investor.

CreditSights, an independent research firm, said the deal would have lowered the interest rate on roughly US$600m of debt by about 200bp, at most.

"This would have resulted in an inconsequential US$12m of annual interest cost savings," said Andy DeVries, analyst at CreditSights in a note. "In return, Calpine would have ruined years and years of goodwill built up with bondholders."

The cancelled B1/BB- rated bond offering was earmarked to fund the redemption of 10% of each of the 7.25% notes due 2017, the 8% notes due 2019, the 7.875% notes due 2020, the 7.50% notes due 2021 and the 7.875% notes due 2023.

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