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

To: Howard R. Hansen who wrote (238)	1/6/2002 12:24:54 AM
From: ptanner	Read Replies (1) \| Respond to of 555

re: "Are you saying that when a holder of one of these convertible notes converts his note into common stock he/she has to pay $18.07 per share for their common stock he/she receives? Up to now I had been under the impression there was a straight swap of a convertible note for X number of shares of Calpine stock when the price of Calpine exceeded $18.07 per share. Which is it? " The holder of the convertible bond has the option of converting the bond principal to shares at a price of $18.07/share. The holder doesn't send a check but instead forgoes the return of the bond's principal value and any further interest payments. The conversion is not automatic and the bond prices will fluctuate based on the share price, conversion price, volatility and the time period on the bonds (eg. when they will mature or may be called by the issuer) so the bond holder doesn't have to convert in order to realize the value of a convertible bond which is "in the money" - not sure of the correct term. I am not familiar with all the specifics of CPN's recent issue nor overly familiar with convertible bonds as a direct investment, but IMO the 23% conversion premium seemed too low, particularly in combination with a 4% coupon for a 5-year bond. Still, it seems better (from a shareholder perspective) than just issuing additional equity at the then-current price and the market seems to feel more comfortable with CPN's financial position. HTH, -PT

To: Howard R. Hansen who wrote (238)	1/6/2002 11:24:51 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 555

Up to now I had been under the impression there was a straight swap of a convertible note for X number of shares of Calpine stock when the price of Calpine exceeded $18.07 per share. It all depends on the interest of the bondholder. Do they wish to hold a note that pays them 4% and equates to a dividend paying investment in the stock with a basis of $18.07, but not have the risk of physically holding the shares? Or would they find some reason to pay out the difference between where the stock currently trades (assuming some price determination based upon the average trading price over a certain period of time), which is below the $18.07 price at which the conversion is set. Basically this is a private placement where CPN effectively indirectly sold stock for a premium over current market value. They set a "floor" under that conversion at a price higher than where the stock has recently been trading... something that very much was a positive surprise to me when we first heard the news. (I was expecting a discount to market price which at the time was around $13-14/share.) So effectively the convertible note holders have found a place to park their money and make 4%, with the potential to enter into an equity position at any point over the coming years at a very favorable price, assuming that CPN contines to be successful at implementing its business plan. And if the company falters, the bondholders will be ahead of the common shareholders in any claims against the company. Overall, given the attitude the market has displayed toward the debt of energy providers in the wake of Enron, I think this deal was quite accretive and helped to restructure the company's liquidity in a way that promoted confidence on the street. Very strange to see the market reacting positively to a company that is hinting it will slow down it's developement plans. But maybe they see that with slower development, there will be higher price support in the power generation markets and better opportunity to maintain profit margins. Hawk

To: Howard R. Hansen who wrote (238)	2/6/2002 11:26:55 PM
From: Hawkmoon	Respond to of 555

My bet is that the holders of the convertibles actually shorted the stock, using the convertible notes as upside protection in case the trade went against them. The stock never approached the the $18 level after that transaction, which indicates that instead of placing a floor under the shares as we all hoped would happen, it placed a ceiling against which the shorts piled on and have made almost 50% (from $16-17 down to where it is today). The question is when will they cover, or is the stock set to fall to $5/share before it finally bottoms? askresearch.com Hawk