Calpine Shrs Up 4.4% On Apparent Short Squeeze
DOW JONES NEWSWIRES
By David Bogoslaw
Of DOW JONES NEWSWIRES
NEW YORK -- Calpine Corp. (CPN) shares shot up as much as 7.5% early Tuesday on talk that the energy company will be able to buy back some debt with excess proceeds from what could be an oversubscribed bond offering.
As reported Monday, about $1.2 billion in second-priority senior secured notes are expected to price Thursday via Goldman Sachs.
A $600 million term loan, to be secured by substantially all of the assets owned directly by Calpine, makes up the balance of the total $1.8 billion refinancing package announced late last month.
"I'm hearing (the bond offering) could very well come in oversubscribed," said analyst Gordon Howald at Credit Lyonnais Securities.
If the San Jose, Ca. company is able to increase the proceeds from the offering, it could potentially buy back convertible notes due in 2006 that have a put option in December 2004, Howald explained.
"The strike price on that is $18 to $19 a share. All of these convertible holders are large short holders who shorted the stock as a hedge against (the convertible)," he said.
Howald estimates that between 50 million and 60 million of the 92 million shorts that existed in mid-June might be related to the convertible notes.
"If you put the whole thing together and there's a possibility that Calpine has funds available to go out and buy some of those converts back, this is a classic short squeeze going on," he concluded, adding that the inflated trading volume on Monday also supported that.
Howald said he doesn't own Calpine stock and that Credit Lyonnais doesn't have an investment banking relationship with the company.
Shares were trading at $7.51, up 30 cents, or 4.2% on volume of about 11.1 million, compared with the daily average of about 10.4 million shares. Calpine's stock surged 55 cents, or 8.3%, on Monday, on volume of 12 million shares, roughly 50% above recent daily averages, Howald said.
Calpine was emphatic in telling Howald, the Credit Lyonnais Securities analyst, soon after announcing the $1.8 billion refinancing on June 26 that it planned to use all the proceeds from the bond offering to pay down debt and wouldn't use any of it to fund plant construction, Howald said. No one at the company was available to comment.
When it announced the refinancing, the company said it would use the proceeds to pay off roughly $950 million of term-loan borrowings, $450 million outstanding under the company's working capital revolvers and outstanding public debt in open-market purchases.
After repaying the term-loan borrowings and the working capital revolver, the company would still have $400 million to put toward buying back $1.2 billion in convertible notes, or debt that's even cheaper, Howald said.
Lasan Johong, an equity analyst at Blaylock & Partners, also said that Calpine would try to buy back as many of the convertibles as it can, seeking to reduce exposure to putting in December 2004.
While he agreed that the short covering was to some degree tied to the convertibles, he said there are other investors that shorted the stock simply because they didn't have faith in the company's plan to dig itself out of dire financial straits.
"Once the bond deal is done, they will probably put their shorts back on," betting on another plunge in the stock price, he predicted.
Johong said he doesn't own shares, and that Blaylock doesn't do banking with Calpine.
But if Calpine succeeds in buying back a significant portion of its convertible notes, then the major concern for 2004 will have disappeared, said Howald at Credit Lyonnais.
He said the stock moves this week probably reflect Calpine's access to debt markets. He believes rolling over bank debt after 2004 will be much easier than it is currently, as the power markets are expected to trough in 2005 and improve from there.
On Tuesday, IFR Credit reported talk of Calpine's seven-year notes pricing at 8.25% to 8.50%, and the 10-year notes pricing at between 8.50% and 8.75%. Both tranches are part of the $1.2 billion bond offering.
Calpine bonds, which have been on the rise since the deal was announced, were up another two cents Tuesday. The 8 1/2% notes due 2011 were around 82 cents on the dollar. |
