Skip to comments.CALPINE FILES FOR BANKRUPCTY (HOUSTON CHRONICLE PERSPECTIVE)
Posted on 12/21/2005 6:21:25 AM PST by MeneMeneTekelUpharsin
Calpine Corp., the power plant owner saddled with more than $17 billion in debt, filed for bankruptcy protection Tuesday 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 in Clearwater, Fla., said in an interview Tuesday before the filing. "I would expect them to be in and out of bankruptcy within two years."
San Jose, Calif.-based Calpine is the fourth major U.S. electricity producer to seek bankruptcy protection since the December 2001 collapse of Houston-based Enron, once the dominant electricity trader. Mirant Corp., NRG Energy and National Energy & Gas Transmission all sought protection from creditors as an excess of plant construction pushed down U.S. electricity prices. In Houston, as of last month, Calpine had about 480 employees in a downtown building formerly named after the company. In addition, it had about 300 at offices and plants in the surrounding area.
The company is one of the nation's largest wholesalers of electricity. It operates 92 plants in the U.S. and Canada with a total capacity of 26,500 megawatts enough to provide power to about 20 million homes. Calpine spokeswoman Katherine Potter didn't immediately return a call to her office after business hours. Delaware's Supreme Court on Friday 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 the Bank of New York to lift a freeze on asset sale proceeds demanded by bondholders and lost. The company hired Robert May, a turnaround expert and former chairman of HealthSouth Corp., as chief executive Dec. 12. California petitioned federal energy regulators Monday 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. 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 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.
Calpine by going into bankruptcy court can choose not to assume certain contracts such as those that require the sale of electricity bellow generating costs. That means it can sell the power at market if profitable or not produce the power. The bondholders have claims on the physical assets of the company. The generating plants will be sold and the analyst must figure they can pay off the entire bond debt. This means there might be nothing for the shareholders and the junior debt holders. This could be a decent arbitrage play if the debt drops enough because of the bankruptcy filing and the assets are as good as the analyst says.
I think you're right. The stock opened at .19 and is trading up at .21 now -- odd.
This is a Chapter 11 (re-org) and not a Chapter 7 (liquidate),
for those interested in that important distinction (I have
a family member employed there, well, was yesterday, don't
know about today).
Lots of stories:
Calpine to have a hearing today at 11:30 EST.
Full Calpine press release:
A young relative will be smiling as he refused any jobs with Calpine unless they paid for each week's work, the week before. When the check cleared, they would work the pre paid amount.
Just like I said. It dipped and then bounced up -- a lot. Have a nice day.
During the power crisis that was ultimately responsible for Davis being recalled, Calpine was the "golden boy" of Davis and his cronies. Calpine didn't gouge like all the other evil energy producers - nosiree - claimed CA liberals.
Many Freepers in the know correctly predicted that Calpine would eventually go under and, lo and behold, those Freepers were correct (wouldn't be the first time).
For those who might be interested, there is an extensive archive going back about 5 years keyed calpowercrises which was meticulously kept by ernest_at_the_beach.
Well, like Davis, its going down.
Did a quick look through the Calpowercrisis list, looks like we only go back to 2002.,..
Thanks for the correction. Just SEEMS like 5 years ago, I guess.
Merry Christmas and thanks for the calpowercrisis pings. It's interesting to follow this folly.