Calpine Sales Raise $1 Billion; Shares Fall 7.8%

From Reuters

Calpine Corp. on Thursday raised $1 billion from private sales of secured notes and convertible bonds, but its shares fell 7.8% on concern the convertibles would dilute existing shares.

The San Jose-based company said it would use proceeds to pay down debt. Calpine shares fell 40 cents to $4.71 on the New York Stock Exchange.

Calpine said it sold $600 million of senior unsecured convertible bonds maturing in 2023. The bonds carry a 4.75% coupon and are convertible into Calpine shares at $6.50, a 38% premium over the Thursday closing price. Calpine said it might sell an additional $300 million of the bonds to meet demand.

Calpine shares fell as investors sought to push down the price before buying the convertible bonds, a stock-bond hybrid that will convert into stock.

The company announced plans for both sales Thursday morning.

"When people buy converts, they short the equity. I suspect that's what's happening today," said Chris Ellinghaus, an analyst with Williams Capital Group. Ellinghaus has a "buy" rating on Calpine and owns some of its shares.

Calpine also said it sold $400 million of second-priority senior secured notes maturing in 2011. These carried a yield of 10.243%, people familiar with the sale said.

Calpine is one of several power providers to face major financial challenges in the last couple of years.

Some of its peers -- including Mirant Corp. and National Energy Group, a unit of PG&E; Corp. -- have filed for Chapter 11 bankruptcy protection.

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