21 December 2005 - One of America's largest electricity producers Calpine Corporation has filed Chapter 11 petitions to give it the breathing space to reduce its $18bn of debts and restructure its business.
Making the announcement yesterday, recently appointed CEO and turnaround specialist Robert P. May said, "We intend to move through this restructuring process as quickly as possible to regain our financial health and to take the necessary steps to become a stronger and more competitive energy provider."
Calpine said the move would allow continued operations at its power plants and facilities in the US, Canada, and Mexico, strengthen its balance sheet, protect its assets, and enhance the value of its business.
In conjunction with the filing, Calpine has received commitments for up to $2 billion of secured debtor-in-possession (DIP) financing from Deutsche Bank and Credit Suisse First Boston, joint lead arrangers and joint bookrunners. The financing includes a $1 billion revolving credit facility and a $1 billion term loan. Upon Court approval, the financing, combined with cash from operations, will be used to fund post-petition operating expenses, including employee and supplier obligations.
"With our new financing we will have additional financial flexibility and sufficient liquidity to meet our obligations going forward," said May. "We believe that Calpine needs to change its business model in light of the ongoing evolution of competitive power markets and our current financial condition," May said. "Although the company has taken numerous steps to reduce its debt and strengthen its balance sheet through asset sales and other means, these actions were not sufficient to offset the cost of Calpine's substantial debt obligations.
In addition, Calpine has petitioned the court to reject certain of its contracts, including power sales agreements in which the price paid to Calpine for electricity is significantly below its cost or market prices. The company expects its power plants will continue to be available to meet the needs of electricity consumers in all of its service areas.
In late November, the company was ruled by a Delaware court to have inappropriately spent $313m in proceeds from asset sales. It was given until January 22 to hand the funds to bondholders, a timetable it said it could not meet. The share price collapsed, losing 90 per cent of its value, leading to suspension of trading in Calpine at the New York Stock Exchange.
Calpine generates electricity for more than 20m households across the eastern US, as well as Canada and Mexico, operating some 90 power plants.