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Big Plans at Calpine

The company outlines a big debt-reduction initiative, sparking its shares.
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Calpine

(CPN)

will add eight power plants to its roster of those up for sale and consider temporarily shutting down underperforming facilities under a broad plan to accelerate a debt repayment outlined Wednesday.

Wall Street liked the blueprint, bidding the always-active stock up 32 cents, or 16%, to $2.30 on Instinet.

Calpine, which had to make a public proclamation on April 22 to quiet market rumors it was bankruptcy-bound, hopes the plan outlined Wednesday will accelerate by one year a targeted $3 billion reduction in overall debt. The company lost $168 million in the first quarter, hurt by low margins at its gas-powered energy plants.

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In addition to the plant divestitures and mothballing, the company is in talks to end all of its long-term maintenance agreements. It is weighing strategic alternatives for its U.S. oil and gas assets that could result in their sale, and is in talks with a financial institution about a partnership for its trading arm, Calpine Energy Services.

The company hopes all the steps can cut its annual interest expense by $275 million and lop $200 million out of its annual operating costs.

"To operate effectively in a business environment that has changed dramatically over the last few years, we are reviewing all options to provide near-term results, while continuing to focus on long-term value," Calpine said. "We have already recognized several attractive opportunities, which we expect will improve our operating cash flow."

First among those is the sale of the company's Saltend Energy Center in Britain. Calpine said it is completing the review of bids for the facility and has earmarked part of the proceeds toward the redemption of $620 million in preferred stock related to the projects.

Regarding its power plants, Calpine said it is evaluating the sale of up to eight facilities to "capture stronger market valuations," and might temporarily shut down plants with negative cash flow until they can be operated profitably.