Updated from 10:14 a.m. EDT
Shares of debt-laden
surged Thursday after the California power generator announced an energy-trading operation with
The venture, CalBear Energy, will be wholly owned by Bear Stearns but pay out half its profits to Calpine. The enterprise is structured so that trades carried out through CalBear will be done under agreements guaranteed by Bear Stearns, with Calpine acting as exclusive agent for power and natural gas.
That's good for Calpine, whose junk credit rating makes it off limits to most trading partners.
Energy trading, whose popularity rose and fell with
, has enjoyed a minor renaissance with the proliferation of hedge funds and other speculators in oil and gas markets, as well as with Wall Street investment banks. The Calpine/Bear venture will provide "liquidity, execution and clearing services in the physical energy market," the companies said.
In a joint conference call, executives from both Calpine and Bear Stearns said they weren't seeking to create a hedge fund that would profit from risky bets on energy prices. Instead, the executives said, Bear Stearns' hedge fund clients, looking for expanded opportunities to trade energy, will be the main customers of the new company.
Bear Stearns chief financial officer Sam Molinaro said that in partnering with an existing energy company, the New York investment firm will save both time and money.
"The joint venture gives us the opportunity to shorten the time period to get the business up and running up to scale,'' says Molinaro.
Calpine has about 200 energy traders who will join the new venture.
The deal also includes a $350 million credit facility from Bear Stearns to Calpine's existing energy-trading division, Calpine Energy Services, which will continue to make its own power trades. The agreement will give Calpine more leverage in the marketplace in buying natural gas and electricity. The credit agreement will improve Calpine's working capital by returning cash that had been posted elsewhere as collateral.
In effect, Bear Stearns will be renting out its balance sheet to Calpine.
The Bear Stearns credit agreement with replace an existing $250 million credit facility that Calpine had with
, which was set to expire in October.
Calpine, whose primary business is the operation of gas-fired power plants in the western U.S., recently embarked on an urgent plan to reduce its roughly $17 billion in outstanding debt. Though a pair of July asset sales helped kick-start the process,
some critics doubt it will succeed.
The stock got a boost from Bear Stearns' vote of confidence, recently gaining 25 cents, or 8.50%, to $3.19 in midday trading. Shares of Bear Stearns were off 27 cents to $104.34.
Molinaro says Bear Stearns did not expect to see any substantial earnings gains from the new venture in the immediate future.
In some ways, Bear Stearns is latecomer to the revival in energy trading on Wall Street.
are the leaders on the Street in energy trading. A year ago, Merrill Lynch jumped back into the fray with its estimated $1 billion acquisition of the energy-trading business of
. In May 2004,
Credit Suisse First Boston
announced a joint energy-trading venture with
, a Texas-based utility.