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Gold/Mining/Energy : CPN: Calpine Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Clement who wrote (166)	12/9/2001 4:10:38 PM
From: Clement	Read Replies (1) \| Respond to of 555

An equally interesting article from Calpine: www0.mercurycenter.com Here are my thoughts - First it depends what the concern is with respect to Calpine - is it (a) solvency? or (b) future earnings potential and growth. If (a) you can bet that there would be a lot more concern re: bonds, and bond ratings agencies post enron. And in fact we did see that when the price of calpine's public bonds dropped -- but they subsequently recovered. Calpine has raised an additional $2.6 billion in debt since October. Granted, this is pre-enron, but if I recall, concerns about enron first popped up in October anyway. Bank debt and bank facilities are often considered good signals to the public markets because bankers have access to more information than the public markets do. If (b) - I think there is legitimacy with respect to concern about their trading activities. But marginally, the returns are pretty small net-net (10%). And Calpine doesn't extend their risk levels beyond what they produce to any substantial degree (I believe 10% was the margin quoted). So the bottom line is -- do you think Calpine will continue to be able to execute well. Bearing in mind that they are a low cost producer. Also bear in mind their focus on long term contracts. Thoughts? Clement

To: Clement who wrote (166)	12/9/2001 7:27:21 PM
From: Raymond Duray	Respond to of 555

Hi Clement, You're doing some great digging on this one lately. :) Re: Gretchen Morgenstern/NY Times ~ I've read her for years and I like her work. Last weekend, she did a piece on Jack Grubman the SSB analyst who led thousands of investors to losses in the telecom sector. It's an area of interest for me and I was very impressed by her understanding of the fact case there. I'm not as familiar with the financial aspects of Calpine's business, but this quote seems especially troubling to me: Perhaps the most important similarity between the two companies is this: Both rely on the kindness of investors and lenders. Without deep support from the capital markets, neither company can operate. Calpine, which went public only in 1996, tapped public capital markets seven times this year, raising $5.7 billion. That strikes me as an extremely risky basis for valuing CPN. I would refer you to the case of McLeod USA (MCLD) finance.yahoo.com which relied very much upon the same "support of capital markets" to maintain its cash flow. The last infusion of bond money of significance occurred last January. As you can see, it's been a bad year since then for the company. So, I see a couple of risks in the CPN story. First of all, the stock has for the past several years been priced based on the growth potential of the company. I will submit that the IPP market looks drastically different today than it did a year ago, with the industry generally heading toward a surplus of supply, as opposed to the anomaly of the California energy markets last winter and spring. Then there is the question about just how conservative investors are going to feel about the derivatives business aspect of CPN going forward. There is a taint on Arthur Anderson as well as ENE, which I can't help but think is going to put an upper limit on the exuberance of momentum players for CPN equity. I don't see the company to be in danger, financially speaking. I merely think it is no longer the growth stock darling it once was. -R.