Calpine Leaders Quit, Fueling TalkOf a Bankruptcy
By REBECCA SMITH
Staff Reporter of THE WALL STREET JOURNAL
November 30, 2005; Page A3
Peter Cartwright, the 75-year-old founder and chief executive of Calpine Corp., and his top lieutenant stepped down under pressure from the board, fueling speculation among analysts and investors that the debt-heavy power generator may be heading to bankruptcy court.
The departures of Mr. Cartwright, who founded Calpine 20 years ago, and Chief Financial Officer Robert Kelly, who had kept the company above water despite a tough energy market, came a week after an adverse court ruling restricted the company's use of cash from some asset sales. It marks the end of an effort to create a massive national power wholesaler able to sell electricity without being limited to serving a specific territory or utility.
Kenneth Derr, Calpine's lead director, assumed the title of acting chief executive. He said he hoped to have a successor in "days or weeks" capable of implementing "new ideas," which he declined to detail. Mr. Cartwright and Mr. Kelly, 48, couldn't be reached for comment.
Mr. Derr cautioned against "making assumptions" about what would happen next but acknowledged that a bankruptcy filing was one option. He said no single event precipitated the board's conclusion that a management change was needed, and added that there was no discovery of impropriety. He said that last week's court decision was a "major negative" that helped persuade the board to act. The court ruled that Calpine acted improperly when it spent $313 million to buy natural gas for its plants, rather than paying down debt.
"It's never easy when you have the founder involved and Pete [Cartwright] built this company," Mr. Derr said. Mr. Cartwright not only created Calpine, but he also helped create the independent power-wholesalers industry, and his team was one of the few left intact following restructurings at NRG Energy Inc., Reliant Energy Inc. and others.
Calpine stock was down 71 cents, or 57%, at 54 cents as of 4 p.m. in New York Stock Exchange composite trading, and its shares were dropped by the Standard & Poor's 500-stock index. S&P's rating service lowered its credit rating on Calpine to triple-C from single-B-minus, saying the management change may lead to a financial restructuring. Its bonds plunged in active trading.
VIDEO
[WSJ's Rebecca Smith discusses the management shake-up at Calpine.Calpine stock, which hit $56 a share in 2001, has been under pressure for four years but recently swung lower when its third-quarter results showed it continues to be hamstrung by high natural-gas prices, which increase the fuel bill for its power plants, and lackluster profit margins on the sale of wholesale electricity.]
Messrs. Cartwright and Kelly, beginning in the mid-1990s, put Calpine on a path to build an enormous fleet of gas-fired plants, intending for Calpine to become the biggest generator in the U.S. Wholesale power markets had been deregulated and utilities were leaving plant development and electricity sales to others.
But the collapse of Enron Corp. in an accounting scandal in late 2001 sent shudders through the market. Though lenders were pulling back, its stock was falling and profit margins were narrowing, Calpine continued to build plants because Mr. Cartwright was convinced that power markets would rebound. In the process, Calpine racked up $17 billion of debt.
Bowing to pressure from shareholders, Mr. Cartwright sold some assets and shuttered money-losing power plants. That set the stage for the sale in July that led to the adverse court decision last week.
A Delaware court is expected to consider possible remedies today that could include requiring Calpine to repay $313 million to a trust account. Mr. Derr said the board thought Calpine was on solid ground with its use of proceeds. |
