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

To: Clement who wrote (227)	12/20/2001 2:00:19 PM
From: aerosappy	Respond to of 555

CPN observations by a knowledgeable money manager [not my comments] The deal yesterday was a blowout - they sold $1 billion 5 year notes with a 3 year put at 4% and a $18.07 conversion price. The deal could get upsized to $1.2 billion. Again, the dilution effects are discouraging (though not that material). I have seen some analysts raise estimates and target prices based upon the elimination of the liquidity crisis and rolling over of the zero. A competitor, Mirant (MIR), priced 46mm shares at 13.70 today, putting a little pressure on the sector. In general, though, the industry has improved liquidity and balance sheets in very short order, albeit at distressed prices. Big picture, this is encouraging. CPN still has the CA DWR renegotiations, which evidently focus on just the peaking contract and not the two larger base-load contracts, as well as the increase in the corporate revolver (more likely with the $1 billion being raised). I listened to a call hosted by Moody's, the rating agency that downgraded CPN last week. Rarely have I heard such hostile calls - the analysts from both the sell-side and the buy-side ripped the rating agency for its arbitrary actions, its lack of objective standards and its reactionary behavior. The call focused not just on CPN, but also AES, NRG, MIR, and DYN. The agency talked about permanent changes in its criteria which will now require a lot more equity to get an investment grade rating (though it could not be specific at all). Investment grade ratings are important, because they lower the cost of capital. If CPN scales back its growth plans, this becomes less important. Bottom line, it appears as though the agency, once again, has let the market lead. They just upgraded CPN in October - now they are having a difficult time explaining why it is not investment grade except that "they must not be - look at their stock and bonds"!!!