Posted on 06/09/2005 6:07:44 PM PDT by MeneMeneTekelUpharsin
SAN FRANCISCO (MarketWatch) -- Calpine Corp.'s (CPN) proposed partnership of its energy-trading operations with a major U.S. financial institution is a done deal with details to be announced in about a week, according to the company's chairman and chief executive, Peter Cartwright. As part of a broad financial reorganization the company announced two weeks ago, Calpine said it was in discussions to combine its marketing and trading operation, Calpine Energy Services, with the credit support of a major financial institution. The investment-grade partnership would result in hundreds of millions of dollars in collateral being returned to the parent corporation, and allow more trading. Calpine's low credit rating has greatly limited its ability to trade electricity and natural gas the past few years.
"There really was no pertinent negotiation at the time we made the announcement. It's just at the point of getting approvals," Cartwright said in an interview. Calpine's head of development, Robert Fishman, added that "the deal was already baked" at the time of the announcement. The company isn't really giving up much in the deal, Cartwright said. Though it will have to share the profits, those profits should expand considerably as the entity will be able to trade more. All the people and systems now employed by Calpine Energy Services will remain in place, he said.
But, he added, the company won't be getting cash from the partnership up front by contributing profitable long-term contracts, as some Wall Street analysts had speculated might happen. Cartwright first said the company had to create an investment-grade trading operation back in February 2002, and it has since looked at a half-dozen deals. Past proposals were rejected in some cases, he says now, because potential partners demanded control of the venture, which Calpine wasn't willing to give. Beyond that, Cartwright declined to give any further details until an official announcement he expects very soon.
Bear-Stearns Seen As Partner
Investment bank Bear Stearns Companies Inc. (BSC) is the financial institution involved, according to Peter Fusaro, head of energy consultancy Global Change Associates in New York. Other knowledgeable sources confirmed that it's Bear Stearns. Both Calpine and Bear Stearns declined to comment on the identity of the financial partner. Bear Stearns has taken a small role in North American energy trading, Fusaro said. It bought a long-term power contract from El Paso Corp. (EP) early last year, for example. "I think this benefits Bear Stearns more," Fusaro said. "It gets them into illiquid markets, into price discover and further down the learning curve for the power sector." For Calpine, Fusaro said, the ability to trade won't solve Calpine's major problems. A new-found ability to purchase natural gas under long-term contracts doesn't change the fact that gas-fired power plants aren't profitable in much of the country where Calpine has plants, he said. For the entity to have get an investment-grade credit rating and trade on the size proportionate to Calpine's fleet of power plants, the venture would need a capital commitment from Bear Stearns approaching $2 billion, according to some estimates. The deal, however, hasn't been submitted to the major credit-rating agencies, sources said. Major energy-trading joint ventures in the recent past, like Entery-Koch and Duke-Louis Dreyfus, ended either through dissolution or buy-out despite apparent profitability.
Thought you'd want to know this.
And you fellas...maybe this one will be of interest.
Just pumped a nice chunk of change into their stock (2.52 a share) in March. The bankruptcy rumors followed soon as well as the downgraded credit rating.
Also have some small change in this company. Are they safe, at least through this year, say? Thanks, Guitarist.
All's I know is that energy MFs/stocks have been the top Q1 performers...this one has not. My broker talked me out of something more speculative to go with this one. Its all a risk & it must be accepted prior to purchase. I'm waiting for the smarter people to post, but I'm reading this as a good move and an indication that the company is worth the corporate investment.
So am I. I also bought some CPN because I thought that it was worth the risk. Now, does baby get a new pair of shoes, or should I polish up the pencil cup?
Thanks. Seat belts tightened.
BK rumors were a lie to drive the price of the stock down so shorts could cover. Look at the volume of shares traded during that period -- 25 - 40 million per DAY. This is going to be an interesting case. So is Mirant.
Yahoo said shorts were an indication that bankruptcy was a possibility...not investors manipulating the price.
Wrong. Harbet sent a letter to all of the Calpine directors AND made it public that it thought that the Saltend sale (big plant in England) was going to violate convenants of some debt instrument. Of course, that was false, but some fell for it and the rumor of BK went through the market. Calpine stock tanked to 1.32 per share before recovering. Sadly, almost everyone on margin got a margin call if they were extended beyond actual funds available and a lot had to sell. It was a legal ripoff. Now, it looks like the shorts are going to need to cover BIG TIME. It will be one to at least watch. Have a nice day.
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