UPDATE 1-Calpine seen well positioned after bankruptcy
Wed Jan 2, 2008 6:09pm GMT
uk.reuters.com
(Adds details on restructuring)
By Lisa Lee
NEW YORK, Jan 2 (Reuters) - With its low carbon-emitting fleet, the future looks bright for bankrupt power company Calpine Corp (CPNLQ.PK: Quote, Profile, Research) after its emergence from Chapter 11, expected in the coming weeks.
After it exits bankruptcy protection, Calpine will be the nation's largest independent power producer, having nearly 24,000 megawatts of generating capacity, mainly fired by natural gas, which makes Calpine an attractive investment, analysts say.
Also, many of Calpine's power plants are well-located in the power markets of California and Texas. It will also be the market leader in geothermal generation.
"Calpine is very well positioned," Daniele Seitz, analyst at investment bank Dalman Rose, told Reuters.
"The fleet is more environmentally friendly," she added.
Lehman Brothers, in initiating coverage on Wednesday, sees a nearly 50 percent rise in Calpine's shares, which it calculated as $16.90 emerging from Chapter 11, based on its current enterprise value.
"We see 48 percent stock upside potential to our $25 target from the emerging value of $16.90," said Lehman in a research note, citing Calpine's strong assets, its free cash flow outlook, geothermal position, and upside potential for its Southeast capacity.
Risks remain. Seitz said Calpine's performance ahead will depend on how astutely it manages its fuel. Natural gas prices are notoriously volatile, with prices fluctuating from $5.19 to $8.71 per mmBtu in 2007 alone.
An economic recession is also a risk, said Lehman.
In addition, Calpine's value will likely dip if it fails to complete its restructuring and exit bankruptcy protection by Febuary 7 since its favorable debt financing will have expired.
Calpine secured its exit financing before the subprime mortgage debacle hit credit markets this summer, making it unlikely the power company could receive as attractive terms if it needed an extension or a replacement, given the credit environment.
On Dec. 19, a U.S. bankruptcy court confirmed Calpine's reorganization plan, setting an enterprise value of $18.95 billion for the company. Enterprise value is a company's market capitalization plus debt and preferred stock, but excluding its cash.
Calpine sought Chapter 11 protection in December 2005, burdened by more than $22 billion in debt and court battles with creditors on how to use its cash.
The company struggled after it went on a credit-financed power plant building spree in the late 1990s. (Reporting by Lisa Lee; Editing by Jeffrey Benkoe/Gunna Dickson |
