Calpine Second Lien Surges

Calpine Corp.'s second-lien loan traded up into the 91-92 range from the 85-86 context a week earlier. A trader said there is a lot of demand for the loan because investors are comfortable with the collateral backing the financing. He added that the strong interest in the second lien is matched by the demand for Calpine's $2 billion debtor-in-possession financing, which is oversubscribed. "Prospects for the company are good," said the trader. Calpine's bonds also traded up. Its 7.875% '08 bonds were up two-and-half points to 43, while its 7.75% '09 notes climbed three points to 43.5, according toMarkitandNASD.

Calpine last week announced the unfurling of a new business plan designed to help it emerge from Chapter 11. As part of the reorganization plan, Calpine intends to sell several businesses, such as its construction unit andThomassen Turbine Systems, a support services company for gas turbines. It also plans to shut down itsCalpine Power Servicesdivision.

Last week it also appealed a U.S. District Court decision, which ruled that theFederal Energy Regulatory Commissionshould have jurisdiction over Calpine's appeal to reject eight power sales contracts. A Calpine spokeswoman said the company believes its case to reject the contracts should be heard before a bankruptcy court.