agency’s adjustments to include guarantees on lease payments and partial debt treat-
ment of convertible preferred stock increased debt to total capitalisation from 65 per
cent to 70 per cent.- Because of Calpine’s preferred method of construction, the company was fully respon-
sible for construction delays and cost overruns, and did not benefit from the liquidated
damages in many EPC contracts. Calpine also faced the possibility of stranded assets in
construction if long-term electricity prices dropped.
Standard & Poor’s cited the following strengths to mitigate the risks at the ‘BB+’ rating level.
- Calpine’s growth strategy had been focused on building power plants in the United States
and other developed markets, such as the United Kingdom and Canada. The company
faced less sovereign and regulatory risk than those power companies that had invested
heavily in Latin America or Asia. - Over the course of 2001 Calpine had proved its ability to manage multiple plants in a
timely and efficient manner. The company had successfully built its power projects on
time and within budget. Because most of its new plants were combined-cycle facilities
using the F turbine technology, Calpine was able to standardise the design of its plants,
and achieve economies of scale in design and maintenance. - The company had been successful in recruiting and training a strong and capable man-
agement team to direct new aspects of its business, such as development, gas exploration
and production, construction, marketing and trading, and operations. - Calpine had built up a strong trading and marketing organisation in slightly more than
one year by acquiring leading talent from major energy trading companies and investing
heavily in supporting technology. The company’s trading organisation was focused on
stabilising earnings and cash flow, by managing commodity risk exposures arising from
its generating assets and gas reserves.
•A large proportion of Calpine’s plants were powered by highly efficient gas turbines,
which were expected to ensure a higher level of dispatch compared to the older plants
that Calpine’s competitors had purchased over the past few years. - Calpine’s policy was to mitigate merchant risk by covering two thirds of its capacity with
long-term contracts. Revenues from existing contracts covered 100 per cent of debt ser-
vice, although not at levels commensurate with an investment-grade rating. - Calpine’s revenue stream benefited from a portfolio effect because of its generating
assets and gas reserves in various US markets, although it was less diversified than some
other developers that owned generation, transmission and distribution assets in various
parts of the world.
On 11 January 2002 Calpine’s received commitment letters from its lenders for a US$1 bil-
lion one-year unsecured working capital credit facility that provided for borrowings up to
US$350 million and letters of credit for up to US$1 billion. Taking into account an existing
US$400 million unsecured working capital credit facility, expiring 24 May 2003, Calpine
would be able to borrow up to US$750 million and post letters of credit up to US$1.4 billion.
Adding in the company’s revolving construction credit facilities, the company had US$4.9
billion bank financing in place. Bob Kelly, President of CCFC, said that, along with a recent
sale of US$1.2 billion in convertible debentures, the new credit facility demonstrated that the
CALPINE, UNITED STATES