2 Calpine Executives Replaced
Troubled Calpine Corp. replaced its founder and another top officer Tuesday, a move that sent the power producer’s stock and bonds to new lows and renewed speculation that the company would seek bankruptcy protection.
The San Jose-based company, struggling to repay more than $17 billion in debt, announced the departure of Peter Cartwright, its founder, chairman and chief executive. He will be succeeded by lead director Kenneth T. Derr, a former Chevron chief executive, who assumes the titles of chairman and acting CEO.
Chief Financial Officer Robert D. Kelly also left the company, and his post was filled by his deputy, Eric N. Pryor, on an interim basis.
Wall Street traders and analysts viewed the ousters as a step toward a major reorganization and a possible Chapter 11 filing.
Jon Kyle Cartwright, director of institutional research at BOSC Inc., a firm that owns Calpine shares and sells the company’s bonds, said Peter Cartwright and Kelly “were fighting to keep this company out of bankruptcy -- they did not want to file.”
Now, said the BOSC analyst, who is not related to Calpine’s founder, “we’re all expecting them to announce some form of restructuring sometime within the next 30 days, and that could include bankruptcy.”
Calpine operates more than 90 power plants across the country, providing enough electricity for 22 million households. California is home to more than a third of its plants.
The company’s financial troubles, even a possible bankruptcy filing, are unlikely to affect its daily operations and ability to deliver power.
Still, the market reaction Tuesday was swift.
Calpine shares lost more than half their value, plummeting 71 cents in heavy trading to an all-time closing low of 54 cents. The stock’s highest close was $56.99 in April 2001.
Merrill Lynch & Co. analyst Elizabeth Parrella downgraded Calpine shares to “sell” from “neutral,” writing in a report that the company would fall into bankruptcy or substantially restructure its debt. Either way, “there will be no residual equity value” for shareholders, she wrote.
Calpine bonds sank to new lows as well. Standard & Poor’s Ratings Services, noting that the executive exodus signaled a strategic shift “and may lead to a financial restructuring,” lowered the company’s corporate credit rating by two notches to CCC, sending it deeper into “junk” territory.
In its announcement Tuesday, the company’s board said, “Management changes are essential to better address Calpine’s financial challenges and to provide a new direction for the company.” The board said it hoped to hire a new chief executive “in the very near future.”
Calpine spokeswoman Katherine Potter declined to elaborate on the statement.
As an independent electricity producer, Calpine has never had the name recognition of major utilities such as Pacific Gas & Electric Co. But an aggressive expansion strategy transformed it into an important player in the power markets in California and across the nation, in particular by advancing the use of cleaner-burning natural gas to generate electricity.
Cartwright, now 75, founded Calpine in 1984. The company’s future seemed bright as California and other states began moving toward deregulating power markets and allowing Calpine and others to sell electricity in wholesale markets.
But when Enron Corp. collapsed in scandal and eventually its own Chapter 11 filing, the Houston company took the entire wholesale power market with it, leaving Calpine with fewer takers and lower prices for its electricity.
“Calpine’s been in trouble since Enron blew up,” said Cartwright, the BOSC analyst. “They’ve been fighting for their life ever since.”
In May, Calpine announced a restructuring under which it stepped up the sale of assets to pay down its stifling debt.
The company struggled as natural gas prices soared and it was forced to lower its estimates of its proved oil and gas reserves. Several board members defected. And bondholders objected when Calpine started using some proceeds of asset sales to buy natural gas for its plants.
The dispute made more than $400 million in cash off-limits to Calpine, and the bondholders group sued. Last week, a Delaware judge ruled that Calpine misspent $313 million on natural gas. The note holders want the money returned, but the judge has not decided on a remedy. Returning the money could be a crippling blow to a company with cash-flow troubles.
Analysts said there were still ways for Calpine to avoid bankruptcy.
“They could sell some of the premier assets, the geysers,” analyst Cartwright said, referring to Bay Area geothermal resources.
“They could break the company up, and there are other options. But bankruptcy just seems to be the most plausible.”
