Calpine Secures Bank Credit, Cuts Spending
Calpine Corp., a builder and operator of power plants, delayed or canceled $3 billion of turbine purchases and obtained $1.6 billion in bank credit to shore up its finances.
Cancellation penalties and unrefunded deposits on 35 General Electric Co. turbines will reduce profit by $98 million this quarter, Chief Executive Peter Cartwright said. Calpine also deferred delivery and payment on 81 more turbines from General Electric, Siemens and Toshiba Corp.
Energy firms are delaying projects or selling assets to raise cash and bolster their balance sheets after the collapse of Enron Corp. eroded investor confidence in the industry. Calpine in January postponed $2 billion of projects to avoid a cash crunch. Moody’s Investors Service and Standard & Poor’s rate Calpine debt as junk.
“They’ve plugged a leak in their liquidity, but they’ve just raised a lot of money and are putting up a lot of collateral to build plants above market value,” said Commerzbank Capital Markets analyst Andre Meade, who rates Calpine “hold” and doesn’t own its shares.
Credit-rating agency Fitch Inc. lowered Calpine debt to BB from BB-plus because Calpine used U.S. and Canadian natural-gas reserves, its U.K. Saltend power plant and its equity investment in nine U.S. plants to secure the new financing. The rating is two levels below investment grade.
Standard & Poor’s put Calpine on watch for a possible downgrade, saying “the additional debt will likely increase interest expense, refinancing risk and interest-rate risk, and limit financial flexibility.”
Shares of San Jose-based Calpine fell $1.06 to $11.68 on the New York Stock Exchange. They have tumbled 75% in the last year.
Calpine’s 8.5% coupon notes maturing in 2011 fell to 77 cents on the dollar from 79 cents Monday, traders said. That pushed the yield on the debt up to 12.9% from 12.5%.
Standard & Poor’s BB-plus rating of Calpine and Moody’s Ba1 ranking are a notch below investment grade. Moody’s had Calpine’s credit as investment grade for 73 days before reducing it in December and placing the company on watch for a possible downgrade.
Calpine got a $1-billion secured credit line and a $600-million term loan available after the company satisfies certain conditions.
The firm said it might get $250 million in cash from asset sales as early as the end of next quarter. Calpine is in talks on selling unspecified “non-strategic” assets.
Cartwright said Calpine also will form a Canadian Royalty Trust with its stakes in three Canadian power plants to raise $300 million.
