LMAO - JPM must have exposure to CPN as well as ENE
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TRADE IDEA-JP Morgan says to "overweight" Calpine
NEW YORK, Feb 4 (Reuters) - J.P. Morgan Chase & Co. has advised investors to ``overweight' bonds of independent power producer Calpine Corp. (NYSE:CPN - news).
The recommendation, in a report dated Feb. 3, is based on the San Jose, California-based company's ``relatively' certain revenue sources, its alternative means of financing, its potential attractiveness as a takeover target and its portfolio of new power plants.
``Calpine has indicated that it has sufficient sources of financing and current liquidity to cover its expected expenditures in 2002,' analyst Peter Quinn wrote in the report. ``Even so, the weak (U.S.) economy, weak spark spreads, and the power plant construction program at Calpine and in the U.S. will make 2002 a challenging year.'
Based on this, Quinn said he did not anticipate Calpine bumping up to investment-grade ratings in 2002 ``based solely on operating performance.'
But he said Calpine has indicated it will work with the top three U.S. credit rating agencies to figure out how to accomplish upgrades.
Moody's Investors Service currently rates Calpine's senior unsecured debt at ``Ba1,' while Standard & Poor's and Fitch Ratings rate it ``BB-plus,' all one notch below investment grade.
Calpine last Thursday reported a 23 percent drop in fourth-quarter earnings because of weak wholesale electricity prices resulting from the soft economy.
While Calpine warned low prices would continue ``for some time,' the company's 2002 earnings guidance assumed some improvement in prices, particularly later in the year.
J.P. Morgan continues to recommend swapping into Calpine's 8.5 percent notes due February 2011, trading at 7.6 percentage points over Treasuries, from AES Corp.'s (NYSE:AES - news) 8.875 percent notes due February 2011, trading at 6.2 percentage points over Treasuries.
The following bond price quotations were as of Feb. 1, according to J.P. Morgan:
- Calpine Corp.'s 8.50 percent notes maturing in February 2011, rated ``Ba1' by Moody's and ``BB-plus' by S&P, bid at 7.60 percentage points more than Treasuries;
- NRG Energy Inc.'s (NYSE:NRG - news) 7.75 percent notes maturing in April 2011, rated ``Baa3' by Moody's and ``BBB-minus' by S&P, bid 3.28 percentage points more than Treasuries;
- Mirant Corp.'s (NYSE:MIR - news) Mirant Americas Generation 8.30 percent notes maturing in May 2011, rated ``Ba1' by Moody's and ``BBB-minus' by S&P, bid at 5.87 percentage points more than Treasuries;
- AES Corp.'s 8.88 percent notes maturing in February 2011, rated ``Ba1' by Moody's ``BB' by S&P, bid at 6.2 percentage points more than Treasuries. |
