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Calpine Corp., the U.S. power plant owner saddled with more than $17 billion in debt, filed for bankruptcy protection after soaring natural gas prices left it unable to make loan and bond payments.
The filing in U.S. Bankruptcy Court in New York followed the ouster of top executives after they lost a fight with bondholders over using asset sale proceeds for plant fuel.
"I would expect bondholders to receive about par following an abbreviated bankruptcy," Jon Kyle Cartwright, director of research for BOSC Inc. in Clearwater, Florida, said in an interview today before the filing. "I would expect them to be in and out of bankruptcy within two years."
Calpine is the fourth major U.S. electricity producer to seek bankruptcy protection since the December 2001 collapse of Enron Corp., once the dominant electricity-trader. Mirant Corp., NRG Energy Inc. and National Energy & Gas Transmission Inc. all sought protection from creditors as an excess of plant construction pushed down U.S. electricity prices.
Calpine spokeswoman Katherine Potter didn't immediately return a call to her office after business hours.
Management Changes
Delaware's Supreme Court on Dec. 16 upheld a lower-court ruling that Calpine must return $313 million to a bond collateral fund by Jan. 22. The money represents the amount plus interest, spent from sale of the company's gas- production business to buy plant fuel.
Calpine's board removed founder Peter Cartwright as chief executive officer and Chief Financial Officer Robert Kelly on Nov. 29, after they sued Bank of New York to lift a freeze on asset sale proceeds demanded by bondholders and lost. The company hired Robert P. May, a turnaround expert and former chairman of HealthSouth Corp., as chief executive Dec. 12.
California petitioned federal energy regulators Dec. 19 to compel Calpine to continue power deliveries to the state. In bankruptcy, the company may try to void a contract to supply as much as 1,000 megawatts of power to the state at below-market prices, Attorney General Bill Lockyer said in the filing. That's enough power for 800,000 average U.S. homes.
Mirant, NRG
Atlanta-based power-producer Mirant Corp. filed for bankruptcy protection in July 2003 after failing to persuade creditors to refinance $4.9 billion in debt. Mirant is expected to exit bankruptcy in January under a court-approved reorganization plan. Unsecured creditors will get 96.25 percent of Mirant's new common stock. Pre-bankruptcy shareholders will get 3.75 percent, under the plan.
NRG, refinanced as it exited bankruptcy in December 2003, got $9.9 billion in bank financing in October to buy Texas Genco Holdings LLC, an owner of power plants in the Houston area. NRG will pay $5.8 billion in cash and stock and assume $2.5 billion in debt. The company's stock has more than doubled since its bankruptcy ended.
Calpine, the biggest issuer of high-yield debt last year, raised $48 billion over the past 10 years to build the nation's biggest network of natural-gas fueled plants. Rising debt and credit concerns surrounding Enron's collapse prompted Moody's Investors Service in 2001 to cut the company's credit rating to junk from the lowest investment grade.
Demand Tumbled
Demand for Calpine's power tumbled as prices for the natural gas its plants burn more than doubled this year, making production more expensive than electricity from plants using coal or nuclear energy. The company reported net losses in eight of the past 11 quarters.
The firing of Cartwright, 75, and Kelly, 48, was a prelude to the bankruptcy filing, as soaring gas prices forced the Calpine board to abandon Kelly's strategy of extending maturities on its $17 billion of debt, said Dorothea Matthews, a debt analyst for CreditSights Inc. in New York.
New York Stock Exchange trading in Calpine stock ended Dec. 6, after the shares tumbled to 22 cents. They had reached $58.04 on March 30, 2001, as an electricity shortage gripped California, sending power prices as high as $1,000 a megawatt-hour. The shares slid as construction of new power plants produced a power glut in much of the U.S., slashing wholesale electricity prices below Calpine's costs.
"They've been burning cash at an incredible rate," said Mathews, who doesn't own Calpine shares or stock.
Delaware Ruling
The company on Nov. 22 lost a court battle with bondholders over its use of asset sale proceeds to buy power plant fuel. The decision by Delaware Chancery Court Judge Leo Strine Jr. blocked the company from $400 million in proceeds and Strine indicated he would order Calpine to restore $313 million already spent to back secured debt.
The Delaware Supreme Court upheld Strine's ruling this month.
Calpine reported a third-quarter loss of $216.7 million, or 45 cents a share as fuel and interest costs rose. The shares fell 63 cents to 62 cents as of 3:41 p.m. in composite trading on the New York Stock Exchange,
Calpine's 8.5 percent bond maturing in May 2008 rose 0.25 cent on the dollar to 28 cents on the dollar in New York, according to Trace, the bond price reporting system of the NASD. The bond yields 82 percent, Trace data show.
Calpine's plants can produce enough power for 22.1 million average homes. Enron's collapse triggered tighter credit requirements for generators as a power glut from new plants cut prices for their output.
Cartwright expanded Calpine in the late 1990s after federal regulators passed rules forcing utilities to allow competition in their service areas. Debt jumped eightfold as the company borrowed money to pay for the new generators, building the largest network of gas-fired plants in the U.S.
source: http://quote.bloomberg.com/apps/news?pid=10000103&sid=aiuIPNkiCT9M&refer=news_index 20dec2005
NEW YORK — Embattled power producer Calpine Corp. <CPNL.PK> said it filed for bankruptcy on Tuesday, weighed down by $17 billion in debt and battles with its bondholders over how to use its cash.
Calpine, hit by a credit crunch and a weak merchant power market that resulted from the collapse of Enron and the California energy crisis in 2001, said it filed voluntary petitions to restructure under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan.
It said many of its subsidiaries also filed for bankruptcy protection.
Calpine said it received commitments for up to $2 billion of secured debtor-in-possession financing from Deutsche Bank <DBKGn.DE> and Credit Suisse First Boston <CSGN.VX>, who acted as joint lead arrangers and joint bookrunners.
California energy market experts have suggested Calpine's bankruptcy would look in many ways like an airline insolvency -- workers would keep working, facilities would keep running and operations would not be disrupted.
"Our plan calls for power plants to remain available for operation to provide reliable supplies of electricity," Chief Executive Robert May said in a statement.
But the company also said it has petitioned the court to reject some of its contracts, including power sales agreements under which Calpine must sell electricity significantly below its cost or market prices.
Under its restructuring, San Jose-based Calpine will also continue to evaluate all opportunities to strengthen its balance sheet and improve its cash flow, including asset sales and reductions in operating and overhead costs.
Calpine went on a building spree in the 1990s, putting together a major power-generating system. But when markets collapsed after the California power crisis and the Enron scandal, merchant generators like Calpine struggled with rising credit costs and declining prices for their electricity.
Investor focus now seems likely to turn quickly to some of Calpine's prized assets, such as the Geysers geothermal plant in Northern California. The 750-megawatt plant could fetch $2.5 billion in a sale, Calpine executives said this summer.
Other parts of Calpine's generating portfolio will be in focus, though it was not immediately clear how much of the company's roughly 27,000 MW of generating capacity will survive a corporate restructuring. One megawatt can power about 800 homes, according to North American averages.
Late last month, the company ousted its founder and chief executive, Peter Cartwright, and its chief financial officer, Robert Kelly, moves the stock market took as signals that insolvency was possible.
Calpine shares shed much of their value on that news, and the company's already-distressed debt plummeted further.
Calpine Corp. filed for protection from creditors under the U.S. bankruptcy code in the Southern District of New York, bogged down by $17.2 billion in debt it amassed in an ill-fated attempt to become the biggest power generator in the U.S.
The filing last night came less than a month after Calpine's board pushed out its two top executives, including founder and Chief Executive Peter Cartwright, and just a week after it brought in a new chief executive, Bob May, a former health-care industry executive who helped guide HealthSouth Corp. through a recent accounting scandal.
Mr. May said the filing was needed because "we didn't have sufficient cash to fund the business." He said the company intends to restructure its operations and emerge from bankruptcy-court protection "better and stronger." In the meantime, he said, "we will continue to supply power to the market tomorrow as we did today."
Calpine hopes to restructure its debt as other troubled generators have done. Mirant Corp., for example, shed about half its debt through the bankruptcy process. Mr. May said investment banks Credit Suisse First Boston, a unit of Credit Suisse Group, and Deutsche Bank AG will line up $2 billion in debtor-in-possession financing for Calpine, giving it the ability to buy fuel and run its business. A person familiar with the matter said Calpine has secured financing at the London interbank rate plus 3.5 percentage points, a lower price than many had expected.
Despite the Chapter 11 filing, Calpine hopes to retain ownership of as many good power plants as possible in the best wholesale energy markets, such as Texas and California, where it has a solid market position. The company, which employs 3,300 people, likely will shed some other plants, particularly those with low utilization rates, perhaps in the Southeast.
The filing could prove especially contentious for the San Jose, Calif., company because hedge funds and other institutional investors have large holdings of Calpine debt and equity and will be trying to extract the most value for it.
Also at issue will be billions of dollars in wholesale power-supply contracts entered into by Calpine. Mr. May said the company intends "to commence discussions tomorrow [Wednesday] to modify those contracts" but added he is hoping to do so without a court fight. The California attorney general already has said he will defend contracts in which Calpine supplies the state's utilities with power at below-market prices. In the past, bankruptcy courts and federal regulators have been reluctant to disrupt power-supply contracts if that would hurt consumers.
The filing likely will require a judge to make difficult calls on complicated contracts and covenants associated with many bond issuances. A disagreement over the terms of some bond covenants landed Calpine in court recently when investors accused it of selling security needed to back their bonds.
The roots of Calpine's distress lie in the huge sums it spent on a plant-construction program that was conceived when deregulation of retail electric markets was sweeping the U.S. in the late 1990s. Independent generators like Calpine landed contracts to furnish electricity to utilities that were getting out of the power-generation business themselves and also sold power on the open market through new auctions.
But Enron Corp.'s tumble into bankruptcy in late 2001 sent a shudder through the industry, tightening credit considerably. Most big generators pulled back, canceled projects and sold assets, often at a loss. Calpine, practically alone, stuck by its expansionist game plan, hoping to grow its way out of its problems even though a sagging stock price meant it had to finance the build-out with debt.
A series of legal skirmishes with investors plagued the company. A Delaware court this week ruled that Calpine must repay $313 million it took from proceeds of an asset sale to buy natural gas for its power plants. An earlier ruling in the same matter last month helped spur Calpine's board to oust Mr. Cartwright and Robert Kelly, the company's longtime finance chief. People with knowledge of the matter say the board wanted Messrs. Cartwright and Kelly to have a backup plan, in case the company's business continued to struggle, but the men remained committed to the path the company was on and declined to develop a bankruptcy alternative.
For the past two weeks, directors have been exploring two paths for the company. One group of managers and consultants met with bondholders, trying to reach agreement on the rough outline of a bankruptcy reorganization plan. Another team looked for ways to avert a bankruptcy-court filing altogether.
Mr. May said it became clear that the company couldn't survive with such an enormous debt load on about $27 billion in assets, making a Chapter 11 reorganization unavoidable. There wasn't time to come up with a prepackaged bankruptcy plan before big payments came due, beginning with the $313 million due in the Delaware case by Jan. 22. In addition, Calpine has $560 million in bond principal maturities due in 2006 and $1.9 billion in 2007.
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