Calpine Corporation (CPN) taking advantage of the prevailing market conditions has decided to issue senior unsecured notes to swap its existing debts. The company priced $1.25 billion of 5.3755% senior unsecured notes due 2019 and $1.55 billion of 5.75% senior unsecured notes due 2025.
The offering pursuant to Calpine Corp’s shelf prospectus filed with the Securities and Exchange Commission is expected to close on Jul 22, 2014.
Purpose of New Issue
The company will utilize the net proceeds from the issue to redeem 8% Senior Secured Notes due 2019, redeem the outstanding principal amount of the company’s 7.875% Senior Secured Notes due 2020 and 7.50% Senior Secured Notes due 2021. In addition, the proceeds will go to pay premiums, fees and expenses relating to the purchase and redemption of existing secured notes described above. Any remaining proceeds not utilized for the causes mentioned above will be used for general corporate purposes.
Benefits of the Swap
The issue of new notes at a lower interest rate will enable the company to keep the borrowed funds invested in its business for a longer period of time, at a cheaper cost. This is a common strategy used by companies to lower their overall capital costs. Calpine Corp. is also expected to reap the benefits of swapping.
Performance Recap
Calpine Corporation outpaced the Zacks Consensus Estimate in the last two quarters with an average beat of 200%. The company will likely keep the positive surprise alive in the second quarter too.
Calpine plans to concentrate on the wholesale and competitive power space and the steady economic recovery in its major power markets will bode well for future growth. The Zacks Consensus Estimate for 2014 is 74 cents, which reflects a year-over-year increase of 105.3%.
Zacks Rank
Calpine Corporation currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the utility sector include Ameren Corp. (AEE), Consolidated Edison, Inc. (ED) and Wisconsin Energy Corp. (WEC). All these stocks carry a Zacks Rank #1 (Strong Buy).
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