Board Members Bolt From Calpine

Calpine (CPN - commentary - Cramer's Take) shares are under more pressure this morning, following Tuesday night's announcement that two board members -- Jeffrey Garten and John Wilson -- are leaving the company.

Garten is a well-respected businessman who served as undersecretary of commerce for former President Bill Clinton. Garten is the current dean of the Yale School of Management and has a strong Wall Street bloodline, including stints at The Blackstone Group and Shearson Lehman.

Wilson joined Calpine's board in 1997, shortly after the company's IPO, and plans to continue to serve as a faculty member of the University of California at Berkeley.

The company issued a press release saying the board had named William J. Keese, former chairman of the California Energy Commission, and Walter L. Revell, chairman and chief executive officer of Revell Investments International, to replace Garten and Wilson on the board.

The speculation among debt analysts and traders I spoke with is that the departure of Garten, which was effective as of Sept. 14, could be a sign that Calpine's walls are caving in and that Garten does not want to be associated with a company that could be on the verge of insolvency. This seems like a fair assessment based on my research, and I'd expect Calpine's current financial situation to gain more attention in light of this. I have contacted the company regarding these departures and am awaiting comment.

In other news, Calpine's planned $400 million preferred offering is not receiving a positive reaction on the Street. The deal size has been cut to $300 million, according to a report from DebtWire.com. And Calpine now plans to wait until February to buy back the $150 million preferred it issued in August, raising the question as to whether it will be able to get the $300 million deal done at all. But even if the deal does get done, the amount of time that has passed since the company announced its plans to issue these preferred securities leads me to believe the terms will not be favorable to Calpine.

By delaying the repayment of the $150 million, and cutting the deal size of the recently proposed preferred offering from $400 million to $300 million, Calpine's liquidity situation could be in an even worse position than I originally believed.

Finally, in response to Tuesday's column, Calpine sent me an email saying it could use the proceeds from its natural gas asset sale to acquire natural gas. The bondholders continue to disagree. But no matter who turns out to be right, the fact that Calpine's access to the funds it has with Bank of New York has been cut off is a negative for the company's ability to fund operations and secure natural gas.

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William Gabrielski is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabrielski welcomes your feedback; click here to send him an email.

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