Calpine's Sales Mask Debt Woes

In the company's press release that accompanies its second- quarter earnings report, Calpine reported having $636 million in cash and $993.9 million in restricted cash. Of this reported restricted cash, some $400 million has already been spent by the company to repurchase some preferred securities.

This, in and of itself, is quite paltry relative to the company's $17.4 billion debt load and more than $1.5 billion in annual interest payments. But what's more concerning is that the $636 million cash figure may not be representative of the amount of cash Calpine can actually spend. And when the company's 10-Q is issued Tuesday, some of these concerns may come to light.

First, about $315 million of this cash is inaccessible because it is sitting on the balance sheet of its subsidiaries, as required by certain debt indentures that require a certain amount of collateral. In addition, the company has about $186 million in debt due on Aug. 15.

So of the $636 million in cash on hand, roughly $200 million may be free to fund operations, capital expenditures and further debt and interest payments in the third quarter. This type of liquidity is unsustainable for a public company with large capital expenditures. Calpine will struggle to shell out cash to make plant repairs or buy natural gas to generate power.

To be fair, the company has closed two large asset sales since the end of the June quarter that it said significantly improved its cash position. During the first week of July, the company closed the sales of its natural gas reserves in Canada, the Gulf Coast and California for net proceeds of $835 million. And on July 28, Calpine sold its Saltend facility for $848 million.

If you add this $1.7 billion to the $100 million to $200 million or so in cash the company had to fund its operations at the end of the second quarter, plus Street estimates for about $350 million in EBITDA this quarter and $122 million in proceeds from two other asset sales, you could argue the company is in a decent financial position to get through the end of the year, at least.