S&P; Affirms Calpine Rating; Shares Buoyed

Shares of Calpine Corp. swooned again in early trading Wednesday on investor fears that the company might be another Enron Corp., but the stock price rebounded sharply late in the day after Standard & Poor’s reaffirmed the ratings of the San Jose-based power plant builder.

Calpine, the country’s largest independent power plant owner, sought to reassure investors by repurchasing $122 million of its bonds and declaring that it has plenty of cash for operations.

“These purchases reaffirm our commitment and position that Calpine has sufficient liquidity to meet our current and ongoing capital requirements,” said Robert Kelly, president of Calpine Finance Co.

Calpine’s stock fell as low as $10 a share Wednesday but then jumped to close at $15.91, up 41 cents, on the New York Stock Exchange.

Calpine and other energy companies have suffered in recent weeks from the “Enron effect”--investor nervousness that a firm’s business or accounting practices might resemble those of Enron, which filed the largest bankruptcy proceeding in U.S. history Dec. 2 after a precipitous seven-week decline.

Another company suffering from Enron fallout, El Paso Corp., said Wednesday that it will strengthen its balance sheet and improve liquidity by selling assets and reducing capital spending. Shares of El Paso, a large natural gas pipeline company, rose $1.90 to close at $41.07 a share on the NYSE.

Calpine’s stock lost 26% of its value this week after an article in the New York Times likened Calpine to Enron because of its fast growth, its increasing energy trading and its complex financial statements.

On top of that, Morgan Stanley analyst Kit Konolige on Monday downgraded Calpine and some other unregulated power producers because of weak energy prices, the increasing likelihood that California will renegotiate its long-term electricity contracts at lower prices, and lingering investor distaste brought about by Enron’s woes.

Calpine tried to soothe investors by holding conference calls Monday and Tuesday, spending three hours taking questions during the second call.

Several Wall Street analysts rushed to Calpine’s defense, saying the company’s business is much different from Enron’s.

Enron, once the world’s largest energy trader, owns few power plants or other energy assets. Calpine, by contrast, owns power plants capable of producing 12,000 megawatts of power and uses its trading operation primarily to peddle its own electrons.

Standard & Poor’s analyst Jeffrey Wolinsky said nothing has changed in Calpine’s financial situation that would cause the credit-rating agency to rethink the “BB+” rating on Calpine’s debt.

“We feel they have sufficient liquidity to continue their construction projects” and to refinance bonds that come due in April, Wolinsky said.

Investors have been fretting that Calpine might issue stock to retire the zero-coupon convertible debentures, which would dilute the holdings of existing shareholders. Calpine executives said they have no such plans.

Several analysts pointed out Wednesday that Calpine did not talk about earnings for 2001 and 2002 in its conference calls, an omission that also spooked investors. The price of electricity in spot markets has declined sharply this year, a trend that could hurt earnings, analysts said.

UBS Warburg analyst Ronald Barone, who rates Calpine a “strong buy,” reduced his earnings estimates for 2001 and 2002 because of lower power prices.

Nevertheless, he said, the “doomsday fears” about Calpine are unwarranted.

Analysts said Calpine differs significantly from Enron in that Calpine lacks Enron’s enormous appetite for cash, which the Houston energy giant needed to maintain its role as a market maker in a variety of commodities.

Enron fled to bankruptcy protection because of an all but fatal cash crunch brought about by a loss of investor confidence in the financial health of the company. Investors feared that Enron was hiding trading losses and money-losing investments in a murky grid of off-balance-sheet partnerships.

If Calpine can’t get its hands on capital, the worst that would happen is the company would have to slow its pace of power plant construction, not seek bankruptcy protection as Enron did, said Chris Ellinghaus, an analyst with Williams Capital.

“Reducing plant construction does not jeopardize Calpine’s existence,” he said, “and any worst-case reduction in Calpine’s forward growth potential is already priced into Calpine’s stock price.”