- The company’s pro formainterest in 66 power plants and steamfields, representing
1 1,600 MW of capacity, created a true portfolio effect, because no single project con-
tributed more than 10 per cent of cash flow. - Calpine’s existing projects all had excellent operating histories, with average availability
of 95.7 per cent for gas-fired plants and 98.9 per cent for geothermal plants.
•To date all of the company’s construction projects had been built on time and within
budget. - Early financial results indicated that Calpine had been able to earn above-average returns
by siting plants in areas where it could take advantage of capacity shortages or transmis-
sion constraints. - Increasing electricity demand in the United States appeared to support Calpine’s plant-
construction plans, although the agency warned that older generating capacity may not
be retired as fast as the company had anticipated. - The agency observed that Calpine had been successful in raising capital and assembling
the human resources needed to manage an annualised 44 per cent growth rate over the
past few years.
Standard & Poor’s cited similar risks and strengths in April 2001 when it assigned a ‘BB+’
rating to Calpine’s issuance of US$850 million convertible debentures. The company planned
to use US$717 million to refinance existing project debt at 10 of its generation facilities and
the remaining US$133 million to prefund new construction projects. Because of their zero-
coupon feature the bonds would not affect interest coverage ratios up to 2003, but after that
time they could accrue interest during any period when their market price was less than 98
per cent of accreted value.
Financing in October 2001
In October 2001 Calpine raised US$654 million in structured lease obligation bonds (SLOBs)
and US$2.6 billion in a multitranche securities issue. The SLOBs freed some cash and refi-
nanced sale-and-leaseback transactions on three natural-gas-fired plants in the United States.
They functioned as passthrough certificates, allowing Calpine to bundle payments and pass
them on to security holders as interest.
The multitranche bond issue refinanced senior bank debt, including a US$1.2 billion loan
for the acquisition from Dynegy of the Saltend power station in the United Kingdom. Five
concurrent offerings of senior notes were made in the US dollar, Canadian dollar, sterling and
euro fixed-income markets. By issuing all of them at once Calpine could gauge investors’
appetites and adjust the size of each tranche.
With all the senior notes guaranteed, this was essentially a corporate deal. It was consis-
tent with Calpine’s policy of maintaining flexibility and creating value by financing its power
plants on the balance sheets and running them as a system.
At the time of the financing both Fitch and Moody’s raised Calpine to a ‘BBB-’ invest-
ment-grade rating, while Standard & Poor’s maintained its ‘BB+’ rating. Credit Suisse First
Boston, which served as the arranger and underwriter, considered the split rating helpful for
such a large-sized issue, because it helped in selling the bonds to both investment-grade and
high-yield investors. The issue turned out to be well-timed, because Calpine’s investment-
grade ratings from the two agencies would not last for long.
CALPINE, UNITED STATES