Calpine Pulls Plug on Debt Deal
Calpine
(CPN)
has finally blown a fuse.
The giant power producer, which relied on sizzling market conditions torefinance debt in the past, has found itself canceling a $2.3 billionoffering as investor sentiment cools. The company now plans to exploredifferent financing options to address a big debt payment, due in November,that looms as a possible bankruptcy threat.
Typically upbeat, the company said on Tuesday it "remains confident"that it can satisfy the debt before it matures late this year. But investorsshivered, pushing shares of Calpine down 53 cents, or 9.2%, to $5.20 Tuesday morning.
Merrill Lynch analyst Elizabeth Parrella admitted on Tuesday that shehad been "incorrect" to assume that Calpine would pull off its latest deal.In the meantime, she warned that the stock was in for a hit.
"Calpine has been meeting with potential investors for the past twoweeks, terms of the deal were sweetened on Friday and conditions in thehigh-yield market have been favorable," wrote Parrella, who has a neutralrating on the stock. "We view the failure of this deal as a significantnegative."
The market's frosty reception to Calpine's latest offering came as asurprise to many. When Calpine first laid out its plans early this month,some analysts predicted another warm welcome from investors.
"We anticipate that the re-financing effort will be very well-subscribed," wrote Williams Capital analyst Christopher Ellinghaus, whohas a buy rating and a $16 target price on Calpine's stock. "The appetitefor Calpine's high-yield securities is extremely strong right now."
Ellinghaus did go on to acknowledge that the offering would come at a "significant cost" for the company. But he nevertheless predicted that Calpine would successfully complete this "important milestone for the company."
Instead, Calpine wound up canceling the deal even after sweetening thereturn for investors. And it reignited a simmering bankruptcy worry in theprocess.
Up to now, several analysts had expected Calpine to clear away its lastnear-term bankruptcy risk with the proposed offering.
"The resolution of (this) hurdle will remove a major uncertaintyfacing Calpine, plugging the company's last perceived near-term liquiditygap," wrote Credit Lyonnais Securities analyst Gordon Howard on Feb. 5. He has a buy rating and a price target of $9 on Calpine's stock. "We do not believe the incremental interest expense will be onerous," Howard wrote.
In a second research note published Feb. 9, Howard grew evenmore bullish. He insisted that the ratings agencies could adopt a morepositive outlook on Calpine because of the refinancing.
"Unless the ratings agencies are simply unwilling to react to any positive Calpine news, we would suspect that -- if Calpine is successful withthis offering -- that this, at the very least, should put Calpine in a morefavorable light."
He did, however, back away from his criticism of the agencies in thefollowing breath. "Their concern to this point," he wrote, "was well-taken andwell-deserved."