Time to catch up on Calpine (CPN) .

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Detox addressed the news that rating agency Standard & Poor's wasn't considering a downgrade of Calpine, despite liquidity fears in the market. This was positive for Calpine, as a ratings downgrade could further undermine investor confidence and drive up its cost of capital.

Thursday morning, this column got a chance to speak to the S&P analyst, Jeffrey Wolinsky. Among other things, he offered some key detail on the cash needs of the company's trading desk. Calpine's trading operations have made a significant contribution to earnings this year, and the company says more cash is needed to support them. This increased need comes at a time when capital markets, spooked by the Enron (ENE) collapse, are deeply skittish about lending to energy companies, especially for trading purposes.

Calpine was up 20 cents to $16.11 Thursday afternoon.

On the wider liquidity issue at Calpine, Wolinsky was reported as saying on a conference call Wednesday that he felt Calpine had enough cash to pay for current construction projects and to possibly redeem a $1 billion bond issue that investors have the right to demand repayment of in April. However, news reports of the call didn't include any comments from the analyst on an important source of cash: a corporate revolving loan that Calpine wants to increase to $1.5 billion from the current $400 million. The company said Tuesday this extra money was needed to fund its trading.

When asked about that loan, Wolinsky said S&P's affirmation of Calpine's BB-plus rating in October wasn't contingent upon Calpine increasing the size of the corporate revolver. In other words, if the company's banks don't increase the size of the loan, S&P doesn't currently see that as a basis for a negative ratings action, which is surely comforting for Calpine.

But Wolinsky did shed some useful light on what the cash needs are for the trading operation. He said that, before Enron's meltdown, Calpine's trading needed about $200 million to $350 million of credit support. Now, with nervousness in the energy trading market, Wolinsky says that sum could be "substantially higher," though he didn't say by how much. The analyst noted that margin requirements in the energy commodity market have been as much as doubled recently.

Wolinsky added that S&P's rating doesn't factor in a big emphasis on Calpine's debt-to-total-capital ratio, which has also drawn some scrutiny this week. The company disclosed Tuesday that it uses a nonstandard method to get to its 65% debt/35% equity ratio. Instead, says Wolinsky, S&P puts more weight on the coverage ratio, which compares expected after-tax cash earnings with interest expense. He forecasts cash earnings at an average of 2.7 times interest expense over the next five years.

Wolinsky denied that, by affirming its rating Wednesday, S&P showed undue favor toward Calpine to help it through a tough spot. "We're in the business of stating an opinion in the most timely manner," he said. As for upgrading Calpine debt to investment grade, the analyst didn't think that was likely any time soon because Calpine has said it won't be taking the steps that S&P deems necessary to get to that level of creditworthiness.

Unrelatedly, a couple of bond market sources said Wednesday's Detox had estimated too deep a discount when calculating the savings Calpine could make when buying back its bonds, something the company said Wednesday that it was doing. Instead of the 65% of face value that this column estimated, the bonds were actually trading in the 85% to 91% range Wednesday. Calpine hasn't responded to a request to give the prices at which it bought back the bonds. But if it were buying at the higher levels, then the savings from a buyback are less and cash usage would be higher.

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In keeping with TSC's editorial policy, Peter Eavis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.