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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
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
- 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.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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