Calpine Rejects Private Equity

The generator seeks to leave bankruptcy under its own power.
Publish date:



is going it alone.

The bankrupt independent power producer has opted to reject financing offers from private equity firms seeking a stake in a post-Chapter 11 entity,

has learned.

Instead, Calpine, which is due to file a plan of reorganization on June 20, is banking on the rising value of its clean power assets.

Calpine had been weighing obtaining additional funds to pay down creditors and emerge from bankruptcy, as reported by

, because it believed it might be able to bag cheap funding. But the company now believes that it can satisfy its remaining secured creditors with a combination of excess cash and fresh bank debt, according to one official familiar with Calpine's strategy.

A Calpine spokesman declined to comment on its bankruptcy proceedings.

Escalating energy prices in some of its key markets and a steady push to offload ancillary plants have enabled the San Jose, Calif.-based IPP to trim debt, placing it in better financial footing than it ever was while it was getting hopped up on construction loans in early 2000.

Calpine has tidied much of the $23 billion in debt it racked up in building its energy fleet.

Making the energy company even more financeable than before is its batch of highly desirable cash-flow-generating plants in Texas and California, where supply of electricity is significantly constrained.

Prices "have picked up so dramatically

in those markets that the capital markets are willing to give the company debt at much lower rates," the official says. That juice has obviated the need to tap private equity for funds.

Moreover, Calpine boasts a relatively green power fleet at a time when many companies are trying to burn cleaner fuel and cut dependence on foreign sources. Its fleet runs on natural gas, viewed as much cleaner than coal-belching generators, which will become more expensive to run with a carbon tax credit plan on deck.

Calpine also has an array of geothermal plants, which it is expanding, in Northern California. Those renewable energy plants, known as the Geysers, are considered Calpine's crown jewel because it produces energy from steam, which costs nothing.

Calpine turned down an unsolicited offer from hedge fund Harbinger Capital and energy-focused private equity outfit LS Power, which sought to commit some $1.8 billion in capital in exchange for rights that would have converted their claims into a 95% stake in the energy company.

Harbinger and LS Power are said to have scooped up about $2 billion in unsecured debt. A Harbinger official declined to comment, and a call to LS Power was not immediately returned.

At a recent creditors' meeting, Calpine also eschewed a rights offering from about five private equity firms. Calpine had asked them to submit proposals that would see Calpine obtaining about $500 million to $700 million in funds.

Calpine now is auditioning

Goldman Sachs

(GS) - Get Report


Credit Suisse

(CS) - Get Report

to provide additional debt for the company as it attempts to re-emerge.

Calpine will aim to use its additional debt and excess cash flow to pay down about $3.7 billion in unsecured credits.

A Goldman spokesman declined to comment, as did an official at Credit Suisse.

The IPP already has $5 billion in debtor-in-possession funds provided by

Deutsche Bank

(DB) - Get Report



(JPM) - Get Report

and Credit Suisse.

The DIP allows it to provide liens to counterparties to enhance its commodities hedging program, which reduces cash collateral and improves its ability to stabilize future cash flow. The DIP also allowed Calpine to repay $2.5 billion of secured debt by Calpine Generating, one of Calpine's largest operating subsidiaries in Canada. Calpine can get an additional $2.5 billion to $7.5 billion via the DIP, if needed.

Calpine's reorganization plan still needs to be approved by the bankruptcy court and could yet meet resistance from other creditors. Expectations are that the company will emerge sometime in January, an official said.

Calpine CEO Bob May is credited with helping to orchestrate the company's reorganization after having joined when former CEO Peter Cartwright and CFO Bob Kelly left.

How well Calpine might fare once it emerges is anyone's guess, but its roughly $20 billion in enterprise value will make it a formidable rival to IPPs including

NRG Energy

(NRG) - Get Report