Calpine, Brokerage in Venture
Calpine Corp. said Thursday that it had set up an energy marketing and trading venture with investment firm Bear Stearns Cos., a key part of the independent power producer’s plan to slash debt and strengthen its operations.
CalBear Energy, based in Houston, will use capital from Bear Stearns and about 200 Calpine traders, the companies said. Bear Stearns, which will provide about 15 executives and risk managers, didn’t say how much it would invest.
The new venture aims to take advantage of Bear Stearns’ strong credit ratings to reduce collateral requirements for San Jose-based Calpine’s power and natural gas trades and attract new business, said Paul Posoli, president of Calpine Energy Services.
“We will be able to transact with more counterparties,” Posoli said. “There are several parties who won’t deal with Calpine due to credit restraints.”
The venture also gives Bear Stearns an immediate step into the energy trading markets.
Goldman Sachs Group Inc. and Morgan Stanley, the fastest banks to expand in energy trading after Enron Corp.’s 2001 collapse, each generated $1 billion of revenue from the business last year, according to estimates by Sanford C. Bernstein & Co. analyst Brad Hintz. Calpine, though saddled with $17.4 billion in junk-rated debt, offers Bear Stearns the largest U.S. network of natural gas-fired power plants.
Calpine is on an aggressive program to sell natural gas and power assets to help pay down a heavy debt load. Since the start of the third quarter, it has cut its debt by $1.3 billion, moving closer to its target of $15 billion by the end of the year.
In mid-May, Calpine said its cash needs for the following 12 months would exceed cash on hand and cash from operations.
The venture “does pose some risk for Bear Stearns because of Calpine’s tenuous financial position,” said Craig Pirrong, director of energy markets at the University of Houston’s Global Energy Management Institute. “But Calpine has a lot of physical assets, so they see a lot of what’s going on in the marketplace.”
Calpine shares rose 16 cents to $3.10; Bear Stearns shares fell 71 cents to $103.91.
