Calpine’s Stock, Bonds Fall Again

Calpine Corp.’s stock and bonds were battered again Friday on threatened credit downgrades by debt-rating agencies as well as stock downgrades by several Wall Street equity analysts.

Moody’s Investors Service followed up on its threat to lower its rating on Calpine’s senior unsecured debt, reducing it by one notch to Ba1, its highest “junk” rating, after the market closed Friday.

San Jose-based Calpine said the sharp price declines are not affecting its day-to-day operations, but analysts predicted that the fast-growing company is sure to scale back its power-plant construction program because it is effectively locked out of credit and equity markets, which are leery of another Enron Corp.-style meltdown.

Calpine, with a market capitalization that has dropped to $4 billion as its stock has fallen 71% year to date, might become a takeover target if prices continue to fall, analysts said.

“We’re very disappointed because we worked really hard to achieve that rating,” Calpine spokesman Bill Highlander said, adding that the company is considering various steps to allay investor concerns. “We feel very comfortable that we are going to continue to be a strong company.”

Calpine shares fell $2.85 to close at $13.20 on the New York Stock Exchange. Its bonds were trading as low as 78 cents on the dollar.

The stock lost nearly 40% of its value this week after a New York Times article likened the company to crumbling energy trader Enron. Several analysts rushed to Calpine’s defense, noting that its business model and debt structure are different from those of Enron.

Standard & Poor’s on Wednesday reaffirmed Enron’s debt rating at its highest junk, or below-investment-grade, level. The Fitch Inc. rating agency said Friday it is considering downgrading the company to junk status, as Moody’s had said late Thursday.

Moody’s said it cut Calpine’s debt rating because it expects modest operating profit that, when coupled with the fallen stock price, would reduce the company’s financial flexibility.

Tightening credit markets will probably force Calpine to trim its construction plans, finishing plants totaling 17,000 megawatts of generating capacity but no longer pursuing its goal of adding 40,000 megawatts on top of that, said Commerzbank Securities analyst Andre Meade, who Friday lowered his rating on Calpine to “hold.”