Jerome, I guess it could take some while before these efforts are being noticed. I hope CPN can do more to shore up its balance sheets, for example, monetizing its vast assets of gas-fired generation plants through derivative transactions such as selling tolling options to utility companies. It would be nice if the company can reduce its debt load to around $8-9b or so (50% capitalization) through asset sales and reductions of construction programs. At the current debt/capital ratio, the company's fate is at the mercy of rating companies. Any further downgrade from rating companies will make servicing the debt even more difficult. And we all know that many rating companies, after being blamed for late in downgrading Enron's rating, have over the past few months been in a mission to restore their image, hastily downgrading the rating across the board on energy merchant companies and independent power producers. The rating downgrades on top of Enron's downfall have caused the once-booming energy trading business on a dead-spiral as these resulted in higher credit cost across the entire energy trading industry. In a sense, the rating company's actions have forced some otherwise healthy companies such as Williams and Dynergy to the verge of bankruptcy. Indeed, some industry participants now privately complained that rating companies and the media are the main force for the quick downfall of the energy trading industry.
However, I should point out that CPN's current troubles have little to do with energy trading, as this part of business only contributed about 10% to its bottom line in good time, and contributed virtually none in bad time. It's the depressed power price due to weak economy and the cash liquidity that make investors nervous. |
