Calpine Emerges from Bankruptcy Reorganization

By Published On: February 8, 2008

Two years after California-based Calpine filed for bankruptcy, a court reorganization plan went into effect January 31, 2008. A consortium of banks and financial institutions, led by Goldman Sachs, Deutsche Bank, and Morgan Stanley, agreed to finance about $6 billion in loans to the generator, according to Calpine’s Securities and Exchange Commission filing. Calpine began trading its shares on the New York Stock Exchange February 7. The company estimated last August that once the reorganization is approved distributable cash will be approximately $1.4 billion. Calpine owns natural gas-fired and geothermal power plants in California. Calpine attempted to sell itself, but gave up in August 2007. It could not find appropriate buyers. At the time, the company claimed its value was between $19.2 billion and $21.3 billion. One sticking point throughout the reorganization was Calpine’s contract with the Department of Water Resources. The state fought to keep it because it is considered a below-market-price contract. However, Calpine wanted to extricate itself from the deal for the same reason. Calpine officials called it an “impediment” to emerging from bankruptcy. Under its Chapter 11 reorganization plan in the U.S. Federal Bankruptcy Court Southern District, New York, it filed to keep the DWR contract August 24, 2007, to avoid the state interfering with its reorganization. In addition, the SEC filing stated the deal would allow it to continue providing 1,000 MW of fixed-price electricity through December 31, 2009. The contract was inked during the energy crisis in 2001, when the investor-owned utilities lacked the financing to buy electricity. The state, through DWR, took over power procurement on an emergency basis. Most of those crisis era contracts have expired, but Calpine’s remains. Ironically, during the crisis Calpine was routinely held up by Governor Gray Davis’ administration as a shining example of a company willing to move ahead with ambitious power projects to meet the state’s rising demand. Of the $6 billion in loans, $3.9 billion are “debtor in possession” that are set to be converted to exit loans. Of the total, $2.1 billion are additional exit loans. Another $1 billion are in senior secured revolving loans, according to the company’s SEC filing. There is also a $300 million bridge loan and a $1 billion revolving credit facility. Standard & Poor’s rating service gave Calpine a B for its corporate credit. It stated it expects between a 70 percent and a 90 percent recovery in the event of a payment default. The ratings agency conferred a “stable outlook” on the company. However, it cautioned that Calpine is “highly levered and its cash flows remain extremely vulnerable to gas price volatility” as most of its power plants run on natural gas. S&P added that Calpine’s financial situation “could hinder” its ability to expand and that current hydro conditions in California “will likely lead to lower power prices” in the state. On the plus side, Standard & Poor’s noted that Calpine owns 7 percent of California’s capacity and that its power plants are relatively new, efficient, and the first to be dispatched.

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