Calpine Credit Rating May Be Lowered
Moody’s Investors Service said Thursday that it is mulling a downgrade of Calpine Corp.’s debt to junk status, causing shares of the beleaguered power producer to tumble in after-hours trading.
The Wall Street credit-rating agency said it placed Calpine and its affiliates on review for possible downgrade because of “increased concerns regarding Calpine’s liquidity, modest near-term cash flow and reduced financial flexibility.”
“Although Calpine enjoyed access to the capital and credit markets in the past, it now finds itself facing skeptical investors and lenders, and Moody’s believes the company’s market access is materially reduced,” the rating agency said.
Calpine’s stock had plunged 53% this week to a low of $10 a share at one point Wednesday on the New York Stock Exchange. The sell-off was sparked by a New York Times story that likened Calpine to Enron Corp., which on Dec. 2 filed the largest bankruptcy case in U.S. history, as well as investor concerns about profit and liquidity.
The stock leaped late Wednesday to close at $15.91 a share after Standard & Poor’s reaffirmed its BB-plus rating on Calpine’s debt, which is the highest of its junk, or noninvestment-grade, ratings.
Shares edged up Thursday to close at $16.05. But after Moody’s announcement, Calpine’s stock was selling at about $13.50 in after-hours trading. Moody’s rating of Baa3 on Calpine is its lowest investment-grade rating. The Fitch Inc. rating agency also has dubbed Calpine investment grade.
“We certainly wouldn’t like to be downgraded. We’ve been working very hard for some time to get up to investment grade,” said Calpine spokesman Bill Highlander. “We feel we have strong fundamentals.”
Analyst Chris Ellinghaus of Williams Capital said a downgrade, if it occurs, should not hurt Calpine the way that it did Enron, which filed for bankruptcy protection shortly after its downgrade to junk. That’s because Calpine’s trading operation does not have the same appetite for cash that Enron’s did, and Calpine’s off-balance-sheet partnerships do not require investment-grade ratings.
“This would have been a tragedy if it was Enron,” Ellinghaus told Reuters news service. “For Calpine it is not that important.”
