Calpine Said to Withdraw Deal to Lower Rate on $2.5 Billion Loan

Calpine Corp. (CPN), the Houston-based energy company, withdrew a proposal to lower borrowing costs on about $2.47 billion of loans, according to two people with knowledge of the transaction.

The company had been seeking to reduce the rate to 2.75 percentage points more than the London interbank offered rate with a 0.75 percent minimum on the lending benchmark, down from 3 percentage points more than Libor and a 1 percent floor it currently pays, said the people, who asked not to be identified because the terms are private. The financing included a $1.28 billion term portion and a $355 million piece due in 2018, and about $831 million under a facility maturing in 2019.

“We will continue to take advantage of this low interest rate environment and will continue to capture opportunities to lower our cost of capital and to increase adjusted free cash flow per share whenever possible,” Zamir Rauf, chief financial officer of Calpine, said on a May 2 teleconference to discuss first-quarter earnings with analysts and investors.

Borrowers have been taking advantage of low financing costs and investor demand for loans, with $26.6 billion of loan rate-reductions announced in May and $180 billion year to date, according to a June 4 Citigroup Inc. research report. Investors poured last week $930 million into U.S. floating-rate funds that buy leveraged loans, according to Bank of America Corp.

Sherri Green, a spokeswoman for Calpine, declined to comment about the transaction.

Calpine had $10.8 billion of debt as of March 31, the company said in a May 2 regulatory filing.

Leverage

Fitch Ratings last month raised its issuer default rating on the company to B+ from B, a grade that reflects Calpine’s “highly consolidated gross leverage, relatively stable EBITDA, strong liquidity position including a growing free cash flow profile, manageable debt maturities and consistently demonstrated capital market access,” analysts Shalini Mahajan and Philip Smyth wrote in a May 29 report.

Fitch expects Calpine’s leverage, or debt to earnings before interest taxes, depreciation and amortization, to be about 6.2 times in 2013 and 4.5 times in 2017, according to the report. The ratings firm expects Calpine to generate more than $800 million of free cash flow in 2014.

To contact the reporter on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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