In a widely-anticipated move, Calpine Corp. filed a chapter 11 case the Southern District of New York yesterday (I’ll bet getting a case of that size filed during the N.Y. transit strike was fun) to restructure over $17 billion in debt that the company incurred in attempting to become the largest power generator in the U.S. An earlier post on Calpine’s troubles is here.
Calpine has lined up investment banks Credit Suisse First Boston and Deutsche Bank AG to provide up to $2 billion in debtor-in-possession financing at favorable rates, fueling creditor hopes that the company will be hold on to its profitable power plants in the better wholesale energy markets, such as California and Texas. Nevertheless, it is anticipated that the company’s plan will involve selling a substantial number of less profitable plants. The company has about $27 billion in assets and presently employs about 3,300 people.

As noted in the earlier post, Calpine spent huge amounts of money building power plants in the late 1990’s when deregulation of retail electric markets was all the rage in the power-generation business. The company’s plan was to become the biggest player in furnishing electricity to utilities that were exiting the power-generation business while also selling power on the open market through auctions. However, the demise of market-maker Enron Corp in late 2001 hammered the energy trading industry, which increased financing costs for the entire industry.
Although most power-generators pulled back and cut losses in the deteriorating market, Calpine persisted in its expansion plan by incurring even more debt. As a result, Calpine’s liquidity has been gradually strained over the past several years by increasing financing costs and the steadily increasing price of natural gas, which is the primary fuel for its power plants. But when a court ruled last month that the company could not used over $300 million in proceeds from an asset sale to buy natural gas for some of its power plants, Calpine no longer had sufficient liquidity to maintain operations outside of chapter 11. Just to give you an idea of the burden of Calpine’s debt load, the company reports over half a billion in bond principal maturities in 2006 and almost $2 billion in 2007.