Debt

At September 30, 2013 and December 31, 2012, our debt was as follows (in millions):



	September 30, 2013		December 31, 2012
First Lien Notes	$	5,304	$	5,303
First Lien Term Loans	2,444		2,463
Project financing, notes payable and other	1,870		1,789
CCFC Term Loans	1,194		—
CCFC Notes	—		978
Capital lease obligations	211		217
Total debt	11,023		10,750
Less: Current maturities	154		115
Debt, net of current portion	$	10,869	$	10,635

Our effective interest rate on our consolidated debt, excluding the impacts of capitalized interest and unrealized gains (losses) on interest rate swaps, decreased to 6.7% for the nine months ended September 30, 2013, from 7.4% for the nine months ended September 30, 2012. The issuance of our 2019 First Lien Term Loan in October 2012 allowed us to reduce our overall cost of debt by replacing a portion of our First Lien Notes and variable rate project debt with a corporate level term loan carrying a lower variable interest rate. Also, in February 2013, we repriced our First Lien Term Loans by lowering the LIBOR floor by 0.25% to 1.0% and lowering the margin over LIBOR by 0.25% to 3.0%. The issuance of the CCFC Term Loans in June 2013 also allowed us to reduce our interest expense by replacing the CCFC Notes, carrying a higher fixed interest rate, with the CCFC Term Loans carrying a lower variable interest rate.

First Lien Notes

Our First Lien Notes are summarized in the table below (in millions):



	September 30, 2013		December 31, 2012
2017 First Lien Notes⁽¹⁾	$	1,080	$	1,080
2019 First Lien Notes⁽²⁾	360		360
2020 First Lien Notes⁽²⁾	984		983
2021 First Lien Notes⁽²⁾	1,800		1,800
2023 First Lien Notes⁽²⁾	1,080		1,080
Total First Lien Notes	$	5,304	$	5,303

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(1)

On October 17, 2013, we launched a tender offer to repay our 2017 First Lien Notes with the proceeds from our 2020 First Lien Term Loan and 2022 First Lien Notes which are described in further detail below. On October 31, 2013, following the early tender and consent date of the tender offer, we purchased approximately $742 million in aggregate principal amount of our 2017 First Lien Notes and issued a redemption notice to the remaining holders of our 2017 First Lien Notes that did not tender their notes in the tender offer. The tender offer expires on November 29, 2013 and we expect to purchase any 2017 First Lien Notes tendered prior to the expiration of the tender offer, and redeem any remaining 2017 First Lien Notes on December 2, 2013.

(2)

On October 31, 2013, we issued notice to the holders of our 2019 First Lien Notes, 2020 First Lien Notes, 2021 First Lien Notes and 2023 First Lien Notes of our intent to redeem 10% of the original aggregate principal amount at a redemption price of 103% of the principal amount redeemed, plus accrued and unpaid interest. The redemption is expected to be completed in the fourth quarter of 2013 using proceeds received from the issuance of the 2024 First Lien Notes described below.

2022 First Lien Notes

On October 31, 2013, we issued $750 million in aggregate principal amount of 6.0% senior secured notes due 2022 in a private placement. The 2022 First Lien Notes bear interest at 6.0% payable semi-annually on January 15 and July 15 of each year, beginning on July 15, 2014. We used the net proceeds received, together with a portion of the proceeds from the 2020 First Lien Term Loan to repay a portion of the 2017 First Lien Notes on October 31, 2013 in conjunction with the tender offer initiated on October 17, 2013. The 2022 First Lien Notes mature on January 15, 2022.

The 2022 First Lien Notes were offered to investors at an issue price equal to 99.193% of face value and contain substantially similar covenants, qualifications, exceptions and limitations as the First Lien Notes. We expect to record approximately $11 million in deferred financing costs and approximately $43 million of debt extinguishment costs associated with the redemption premium and write-off of unamortized deferred financing costs during the fourth quarter of 2013 related to the repayment of our 2017 First Lien Notes.

2024 First Lien Notes

On October 31, 2013, we issued $490 million in aggregate principal amount of 5.875% senior secured notes due 2024 in a private placement. The 2024 First Lien Notes bear interest at 5.875% payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2014. We intend to use the net proceeds received from this issuance to redeem 10% of the original aggregate principal amount of our 2019 First Lien Notes, 2020 First Lien Notes, 2021 First Lien Notes and 2023 First Lien Notes at a redemption price of 103% of the principal amount redeemed, plus accrued and unpaid interest. The redemption is expected to be completed in the fourth quarter of 2013. The 2024 First Lien Notes mature on January 15, 2024.

The 2024 First Lien Notes contain substantially similar covenants, qualifications, exceptions and limitations as the First Lien Notes. We expect to record approximately $7 million in deferred financing costs and approximately $14 million of debt extinguishment costs associated with the redemption premium and write-off of unamortized deferred financing costs and discount during the fourth quarter of 2013.

First Lien Term Loans

Our First Lien Term Loans are summarized in the table below (in millions):



	September 30, 2013		December 31, 2012
2018 First Lien Term Loans	$	1,617	$	1,630
2019 First Lien Term Loan	827		833
Total First Lien Term Loans	$	2,444	$	2,463

2020 First Lien Term Loan

On October 23, 2013, we entered into our $390 million 2020 First Lien Term Loan. We used or will use the net proceeds received, together with the proceeds from the 2022 First Lien Notes to repay the 2017 First Lien Notes. We borrowed $50 million under our 2020 First Lien Term Loan on October 31, 2013 to partially fund the redemption of a portion of our 2017 First Lien Notes in connection with the tender offer initiated on October 17, 2013. We plan to borrow the remaining approximately $340 million under our 2020 First Lien Term Loan on November 29, 2013 to pay the consideration on the final settlement date of the tender offer in respect of our 2017 First Lien Notes and redeem any 2017 First Lien Notes not tendered in the tender offer, which is expected to occur on December 2, 2013.

The 2020 First Lien Term Loan matures on October 31, 2020 and carries substantially the same terms as the First Lien Term Loans. The 2020 First Lien Term Loan also contains substantially similar covenants, qualifications, exceptions and limitations as the First Lien Term Loans and First Lien Notes. We expect to record approximately $5 million in deferred financing costs during the fourth quarter of 2013 related to the issuance of the 2020 First Lien Term Loan.

CCFC Term Loans

On May 3, 2013, CCFC entered into a credit agreement providing for a first lien senior secured term loan facility comprised of (i) a $900 million 7-year term loan and (ii) a $300 million 8.5-year term loan.

CCFC utilized the proceeds received from the CCFC Term Loans to redeem the entire $1.0 billion in principal amount of CCFC Notes at a redemption price equal to 104% (plus accrued and unpaid interest), to pay related transaction expenses and for corporate purposes, as described in the credit agreement. The CCFC Notes were redeemed on June 3, 2013, at which date the CCFC Term Loans were fully drawn.

The CCFC Term Loans bear interest, at CCFC’s option, at either (i) the Base Rate, equal to the higher of the Federal Funds Effective Rate plus 0.50% per annum or the Prime Rate (as such terms are defined in the Credit Agreement), plus an applicable margin of (a) 1.25% per annum with respect to the 7-year term loan and (b) 1.50% per annum with respect to the 8.5-year term loan, or (ii) LIBOR plus (a) 2.25% per annum with respect to the 7-year term loan and (b) 2.50% per annum with respect to the 8.5-year term loan (in each case subject to a LIBOR floor of 0.75%). The term loans were offered to investors at an issue price equal to 99.75% of face value.

An amount equal to 0.25% of the aggregate principal amount of the CCFC Term Loans are payable at the end of each quarter commencing in September 2013, with the remaining balance payable on the relevant maturity date (May 3, 2020 with respect to the 7-year term loan and January 31, 2022 with respect to the 8.5-year term loan). CCFC may elect from time to time to convert all or a portion of the CCFC Term Loans from LIBOR loans to Base Rate loans or vice versa. In addition, CCFC may at any time, and from time to time, prepay the term loans, in whole or in part, without premium or penalty, upon irrevocable notice to the administrative agent.

The CCFC Term Loans are secured by certain real and personal property of CCFC consisting primarily of six natural gas-fired power plants. The CCFC Term Loans are not guaranteed by Calpine Corporation and are without recourse to Calpine Corporation or any of our non-CCFC subsidiaries or assets; however, CCFC generates the majority of its cash flows from an intercompany tolling agreement with Calpine Energy Services, L.P. and has various service agreements in place with other subsidiaries of Calpine Corporation.

In connection with the redemption of the CCFC Notes, we recorded $68 million in debt extinguishment costs for the nine months ended September 30, 2013 which is comprised of $40 million of prepayment penalties and $28 million associated with the write-off of unamortized debt discount and deferred financing costs. We also recorded $15 million in new deferred financing costs on our Consolidated Condensed Balance Sheet during the second quarter of 2013 associated with the issuance of the CCFC Term Loans.

Corporate Revolving Facility and Other Letters of Credit Facilities

On June 27, 2013, we executed Amendment No.1 to the Corporate Revolving Facility. Certain key terms of the amendment are listed below:


•	the applicable margin has been reduced from 3.25% to 2.25% for LIBOR rate borrowings and from 2.25% to 1.25% for base rate borrowings;


•	the fee on the undrawn commitment has been reduced from 0.75% to 0.50%; and


•	the maturity date of the Corporate Revolving Facility has been extended to June 27, 2018.

The table below represents amounts issued under our letter of credit facilities at September 30, 2013 and December 31, 2012 (in millions):



	September 30, 2013		December 31, 2012
Corporate Revolving Facility⁽¹⁾	$	244	$	243
CDHI	229		253
Various project financing facilities	152		130
Total	$	625	$	626

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(1)	The Corporate Revolving Facility represents our primary revolving facility.

CDHI

We have a $300 million letter of credit facility related to CDHI. As a result of the completion of the sale of Riverside Energy Center, LLC, a wholly-owned subsidiary of CDHI, on December 31, 2012, we are required to cash collateralize letters of credit issued in excess of $225 million until replacement collateral is contributed to the CDHI collateral package, which we are in the process of arranging. At September 30, 2013, we had $4 million in outstanding letters of credit issued in excess of $225 million under our CDHI letter of credit facility that were collateralized by cash.

Fair Value of Debt

We record our debt instruments based on contractual terms, net of any applicable premium or discount. We did not elect to apply the alternative U.S. GAAP provisions of the fair value option for recording financial assets and financial liabilities. The following table details the fair values and carrying values of our debt instruments at September 30, 2013 and December 31, 2012 (in millions):



	September 30, 2013				December 31, 2012
	Fair Value		Carrying Value		Fair Value		Carrying Value
First Lien Notes	$	5,652	$	5,304	$	5,863	$	5,303
First Lien Term Loans	2,446		2,444		2,489		2,463
Project financing, notes payable and other⁽¹⁾	1,738		1,735		1,599		1,629
CCFC Term Loans	1,171		1,194		—		—
CCFC Notes	—		—		1,075		978
Total	$	11,007	$	10,677	$	11,026	$	10,373

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(1)	Excludes a lease that is accounted for as a failed sale-leaseback transaction under U.S. GAAP.

We measure the fair value of our First Lien Notes, First Lien Term Loans, CCFC Term Loans and CCFC Notes using market information, including quoted market prices or dealer quotes for the identical liability when traded as an asset (categorized as level 2). We measure the fair value of our project financing, notes payable and other debt instruments using discounted cash flow analyses based on our current borrowing rates for similar types of borrowing arrangements (categorized as level 3). We do not have any debt instruments with fair value measurements categorized as level 1 within the fair value hierarchy.