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Politics : High Tolerance Plasticity
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To: jim_p who wrote (11116)12/14/2001 5:08:11 PM
From: Clement  Read Replies (2) of 23153
 
Jim,

I'm equally biased in the opposite direction <g>. Incidentally, my first name is Clement and my last name is Wan.

In the short term I think there is the potential for panic in the sector, but I think time will calm these fears down. If I were in the shoes of Calpine's management, I would be somewhat bewildered. The only reason to sell off assets and reduce debt (which is what Calpine is about to do anyway) is to manage the short term price fluctuations. The next set of public debt that is due is in '05. They will have to renew their revolver in a year and a half.

Personally I'm for management building long term value as opposed to managing for the short term.

So the question unless you believe that the market will stay this way forever, I'm not sure that it would be a wise decision to change course in terms of their capital structre. Incidentally the debt-equity calculation you made I think includes the trust preferreds which is probably not really the best categorization for them.

If need be, it's easiest for Calpine just to slow the buildout and use FCF to pay down debt. Either way, the hysteria in the market is somewhat amusing from the perspective of a long term holder (which is my bias).

I agree with you though that we are going to see turbulent waters ahead, but if Calpine is able to pull a rabbit out of their hat, buy back their bonds, while maintaining their buildout (which is a fairly high probability), the markets will work themselves out in the mid term.

Clement
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