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Calpine Prices $750M Senior Notes

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Calpine Corp. (CPN) announced that it has priced senior secured notes, worth $750 million in aggregate principal amount. The notes, carrying an interest rate of 6.00%, are expected to mature in 2022. The company will offer the notes through a private placement. The offering will close on Oct 31, 2013.

Initially, Calpine Corp. had plans to offer senior secured notes of $570 million. The company later increased the offering to meet the higher public demand.

The company intends to utilize the funds to repay a part or in full of its existing 7.25% senior secured notes due 2017 and use the rest to pay premiums, fees and expenses for the tender offer and consent solicitation and redemption of the aforesaid notes.

Calpine Corp. issues senior notes from time to time to accumulate funds for repaying its existing debts and for several corporate purposes. In addition, these offerings also enable the company to reduce its interest burden and extend repayment tenure. In Sep 2012, the company issued senior secured notes worth $615 million in aggregate principal amount, due in 2022, in a private placement. Calpine Corp. had utilized the net proceeds to redeem a portion of the original aggregate principal amount of each series of its existing notes and pay the fees and expenses related to the offering and redemption.

As of Jun 30, 2013, Calpine Corp. had a cash balance of $715 million compared with $1,284 million as of Dec 31, 2012. The company’s net debt was $11,020 million as of Jun 30, 2013, up from $10,750 million as of Dec 31, 2012. As of Oct 17, 2013, the company’s long-term debt-to-capitalization ratio was 73.2%, much higher than the industry average of 48.7%. The ratio is expected to climb further following the current offering.

Calpine Corp.’s weak debt position is reflected in its credit ratings. Credit rating agency, Moody's Investors Services has assigned a B1 rating on the notes, which symbolizes an instrument with high credit risk.

Currently, the company is in the midst of several vital projects, including a combined-cycle project in Delaware, a fossil fuel steam-based power plant called Deepwater Energy Center, and expansion of the Mankato Power Plant and Los Esteros critical energy facility. However, it seems that current liquidity position is not sufficient to meet its existing debt burden as well as complete the ongoing projects.

Calpine Corp. currently has a Zacks Rank #4 (Sell). However, all energy stocks are not performing as badly as Calpine Corp. Stocks that are worth considering include Zacks Ranked #2 (Buy) Brookfield Infrastructure Partners L.P. (BIP), Alliant Energy Corporation (LNT) and PPL Corporation (PPL).

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