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Rating Action:

MOODY'S PLACES THE RATINGS OF CALPINE CORPORATION (Caa3 SENIOR UNSECURED) AND SEVERAL SUBSIDIARIES UNDER REVIEW FOR POSSIBLE DOWNGRADE

29 Nov 2005
MOODY'S PLACES THE RATINGS OF CALPINE CORPORATION (Caa3 SENIOR UNSECURED) AND SEVERAL SUBSIDIARIES UNDER REVIEW FOR POSSIBLE DOWNGRADE

Approximately $12 Billion of Debt Securities Affected.

New York, November 29, 2005 -- Moody's Investors Service placed the debt ratings of Calpine Corporation (Calpine: Caa3 senior unsecured, B3 Corporate Family Rating) and several of its subsidiaries under review for possible downgrade.

The rating action reflects:

1) Very weak operating cash flow relative to the company's substantial debt load;

2) Higher than expected natural gas prices, resulting in low generating margins and increased liquidity needs to meet collateral requirements;

3) An adverse court ruling last week on bondholder litigation, which affects the company's liquidity position;

4) A continuing need to raise significant external funds to meet operating expenses and debt maturities.

The rating action considers Calpine's very weak financial performance during the first month nine months of 2005, with funds from operations equaling negative $203 million and cash from operations equaling negative $407 million. Debt levels, while declining about $1 billion during 2005, remain quite high at about $17 billion. Calpine's very weak financial performance reflects the challenging environment for natural gas fueled electricity generators that results from very high natural gas prices and an excess of generating capacity in some markets. Following the sale of its natural gas producing assets in July 2005, Calpine ceased to benefit from the natural gas price hedge that was derived from these assets and spot market prices for natural gas have skyrocketed since July.

The rating action also considers other near-term challenges facing the company, including litigation with bondholders, as the company attempts to de-leverage its balance sheet. Asset sales and asset monetization transactions have been a substantial source of cash. Accordingly, last week's decision by a Delaware court in regard to asset sales proceeds is of particular concern. The court decision could require Calpine to return $313 million plus interest to the second mortgage trustee and requires about $400 million of asset sales proceeds to remain with the trustee for the benefit of second mortgage bondholders. In addition to the impact that this decision might have on the company's near term liquidity, Moody's is concerned that the decision may impact Calpine's flexibility to continue to bolster its liquidity through on-going asset sales. Under its stated deleveraging plan, the company had hoped to reduce debt by $3 billion by year-end 2005, and the company was well short of this goal as of September 30.

Calpine announced today that its CEO and CFO will leave the company and cited a need to address the company's financial challenges. Moody's review will assess the likely impact of possible changes in the strategic and financial direction of the company. The review will particularly focus on Calpine's ability to improve its operating margins and maintain adequate liquidity in the face of very high natural gas prices, narrowing margins, and on-going litigation.

Ratings placed under review for possible downgrade include:

- Calpine's Corporate Family Rating at B3;

- Calpine's senior unsecured notes and senior unsecured convertible notes rated Caa3;

- Calpine Canada Energy Finance senior unsecured notes (guaranteed by Calpine) rated Caa3;

- Calpine Generating Company, LLC (CalGen) first priority senior secured revolving credit and term loan facilities rated B2;

- CalGen second priority term loans and floating rate notes rated B3;

- CalGen third priority notes rated Caa1;

- Riverside Energy Center and Rocky Mountain Energy Center secured term loans rated Ba3;

- South Point Energy Center, LLC, Broad River Energy LLC and RockGen Energy LLC Pass Through Certificates rated B3;

- Tiverton Power Associates Ltd. Partnership and Rumford Power Associates Ltd Partnership Pass Through Certificates rated Caa2;

- Shelf registration for the issuance of various senior unsecured debt and trust preferred rated (P)Caa3 and (P)Ca, respectively.

The ratings of Power Contract Financing, LLC (PCF) and Gilroy Energy Center LLC (Gilroy) are unaffected by this rating action for Calpine, their indirect parent. Both special purpose entities (SPEs) are designed to be bankruptcy remote, with features that include independent management and directors. Both SPEs rely upon contracted cash flows from entities unrelated to Calpine to service their debt and have separate contractual arrangements with credit worthy counterparties, the most important of which are power sales contracts to the California Department of Water Resources (CDWR), which importantly appear to be highly favorable to the SPEs in comparison to current wholesale power market conditions. A bankruptcy filing by Calpine would not affect the CDWR contracts. However, an associated bankruptcy filing by PCF or Gilroy would provide an opportunity for CDWR to challenge the contracts, which is a key consideration in Moody's belief that these entities would not be drawn into a Calpine bankruptcy filing.

Headquartered in San Jose, California, Calpine is an independent power producer that has a net operating portfolio of more than 90 natural gas fired plants capable of producing about 27,000 megawatts of generation in the US, Canada and Mexico, and leases and operates a significant fleet of geothermal plants at The Geysers in California.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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