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10 Jan 2011
Approximately $1.2 billion of debt securities affected
New York, January 10, 2011 -- Moody's Investors Service assigned a B1 rating to Calpine Corporation's
(Calpine) planned issuance of senior secured notes due 2023. Calpine's
rating outlook is stable.
The B1 rating reflects continued improvement in the company's overall
financial performance and an expectation for strengthened cash flow and
earnings following the July 2010 purchase of Conectiv Energy's (Conectiv)
generation assets. The rating also considers actions taken by the
company to produce more predictable cash flow and earnings over the intermediate
term through new contracted projects being developed and bilateral arrangements
in place between the company and various end-users. The
rating considers the company's hedging program, a favorable environmental
profile, and the sustained operating performance of the generation
fleet. At 12 months ending September 30, 2010, we calculate
the ratio of Calpine's cash flow (CFO-pre W/C) to debt at 8.2%,
its cash flow coverage of interest at 1.9x and its free cash flow
to debt at 7.0%. In light of the incremental cash
flow and earnings expected from the Conectiv assets, we believe
that future financial performance will position the company Corporate
Family Rating (CFR) reasonably well as a strong "B" rated unregulated
wholesale power company.
The proceeds from this offering, together with cash on hand,
will be used to repay the remaining $1.2 billion of term
loan borrowings outstanding under the senior secured credit facility and
pay fees and expenses in connection with the offering. Prior to
this offering, Calpine had refinanced $4.7 billion
of the original secured term loan through a $1.2 billion
7.25% senior secured offering in October 2009, a $400
million 8.0% senior secured offering in May 2010,
a $1.1 billion 7.875% senior secured offering
in July 2010 and a $2.0 billion 7.50% senior
secured offering in October 2010. Upon completion of the financing
and repayment of the $1.2 billion in term loan borrowings,
Calpine will terminate the existing senior secured credit facility and
Moody's will withdraw the B1 rating on such senior secured credit facility.
The B1 rating assigned to the senior secured notes reflects the pari-passu
first lien collateral position of noteholders relative to the company's
existing $1 billion secured revolver (RC) due December 2015 (rated
B1). Moody's observes that while the first lien secured note holders
will share in the collateral on a pari-passu basis, note
holders will have limits placed on its voting rights in certain circumstances
until such time as the RC has been reduced to less than $500 million.
While these limitations serve to weaken noteholders' position relative
to the RC lenders, it is not considered material enough to warrant
a different rating on the notes.
..Issuer: Calpine Corporation
....Senior Secured Regular Bond/Debenture,
Assigned 50 - LGD4 to B1
The stable rating outlook reflects Moody's expectation for continued execution
of the company's strategy through strong plant performance and a carefully
implemented hedging strategy which is expected to result in free cash
flow generation helping to facilitate consolidated debt reduction.
In light of the May 2010 rating upgrade, limited prospects exist
for the CFR to be upgraded in the near-term. Calpine's CFR
could be upgraded if the company's ratio of free cash flow to debt reaches
the high single digits, its cash flow to debt exceeds 12%,
and cash coverage of interest expense is above 2.3x on a sustainable
basis. The rating could be downgraded if the company is unable
to execute on its current plan through strong plant performance and a
carefully implemented hedging strategy that results in free cash flow
generation and consolidated debt reduction. Specifically,
Calpine's CFR could be downgraded if the company's cash flow to debt drops
below 7%, and its cash coverage of interest expense falls
The principal methodologies used in this rating were Global Unregulated
Utilities and Power Companies published in August 2009, and Loss
Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Headquartered in Houston, Texas, Calpine is a major U.S.
independent power company that owns 91 operating power plants with an
aggregate generation capacity of approximately 27,500 megawatts
(MW) . For the 12 months ending September 30, 2010,
Calpine had operating revenues of $6.6 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B1 rating to Calpine's senior secured notes; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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