Brace yourself... short term volatility ahead... (you're also quite welcome for the notes... they are as much for me as anyone else).
Two things to keep in mind for tomorrow (when I imagine the stock will drop at open) - (1) there is little likelihood of bankruptcy because Calpine can extend its build out plan and alreadty has adequate internal resources to build out its capital base (2) Calpine continues to grow and will have 30,000 MW of highly efficient gas generation plants by the middle of 2003 and 24,000 MW of capacity by the end of next year, enhancing liquidity ratios.
Here's Moody's report citing the possibility for downgrade: (Assume that the downgrade will happen)
moodys.com
MOODY'S PLACES CALPINE ON REVIEW FOR DOWNGRADE
Approximately $11.6 Billion of Debt and Preferred Securities Affected.
New York, December 13, 2001 -- Moody's Investors Service has placed its ratings for Calpine and its affiliates on review for possible downgrade. Moody's has taken this action because of increased concerns regarding Calpine's liquidity, modest near-term cash flow and reduced financial flexibility.
Moody's has placed the following ratings under review for possible downgrade:
· Calpine Corporation senior unsecured debt, rated Baa3;
· Calpine Canada Energy Finance ULC senior unsecured debt, rated Baa3;
· Calpine Canada Energy Finance II ULC senior unsecured notes, rated Baa3;
· Tiverton Power Associates Limited Partnership and Rumford Power Associates Limited Partnership pass through certificates, rated Baa3;
· South Point Energy Center, LLC, Broad River Energy LLC and RockGen Energy LLC pass through certificates, rated Baa3; and
· Calpine Capital Trust, Calpine Capital Trust II and Calpine Capital Trust III convertible preferred securities, rated Ba1.
Moody's expects that Calpine's operating profitability may moderate, in part due to projected warmer weather patterns and resulting lower power prices. The company has also lost financial flexibility because of the fall in its stock price. In addition, investor concern has increased throughout the entire energy sector. Although Calpine enjoyed access to the capital and credit markets in the past, it now finds itself facing skeptical investors and lenders, and Moody's believes the company's market access is materially reduced.
Against that background, and in the face of a significant debt load, modest near-term cash flow expectations and ongoing capex needs, Calpine is endeavoring to raise $1.5 billion in bank revolver and letter of credit facilities. The company will likely need to redeem $878 million in zero coupon convertible debt by April 30th. Throughout this period, the company must continue funding its power plant construction program, largely through draws on its $3.5 billion ($2.5 billion already drawn) construction revolvers. Additionally, the company will require credit support for its marketing and trading operations.
To the extent Calpine continues drawing on the secured project finance-style construction revolvers, the structural subordination of the senior notes will increase. Moreover, because Calpine may have greater difficulty eventually refinancing the secured project finance-style construction revolvers with corporate financing, the senior note holders may also remain structurally subordinated to the construction revolvers significantly longer than originally contemplated.
Moody's review will assess the company's prospects of obtaining its needed liquidity, refinancing the zero coupon convertible debt and obtaining additional later financing without increasing the potential structural or effective subordination of the senior notes.
San Jose, California-based Calpine Corporation develops, owns and operates natural gas-fired and renewable geothermal electric generating facilities. To date, the company has approximately 35,100 megawatts of base load capacity and 7,600 megawatts of peaking capacity in operation, under construction and in announced development in 29 states, the United Kingdom and Canada.
New York
Susan D. Abbott
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Andy Jacobyansky
VP - Senior Credit Officer
Corporate Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653 |
