With its interest expense growing by $100 million last quarter and topping the $1 billion level overall, Calpine Corp. received its latest bids Friday from a short-list of prospective buyers for its 1,200 MW Saltend power plant and a cogeneration facility in England, which may be just the beginning of a wave of asset sales, including some in North America, CFO Bob Kelly said.
Kelly made his remarks in response to questions during Calpine's conference call with financial analysts. The company reported a larger net loss in the first quarter of $168.7 million, or 38 cents/basic and diluted share, compared with a loss of $71.2 million, or 17 cents/basic and diluted share, for the first quarter of 2004.
In the improving domestic wholesale electricity market, Kelly told analysts that Calpine thinks its efficient new gas-fired power plants have a lot of potential buyers.
"We're entering the final stages right now [for the potential sale of Saltend], [and] after final bids [on Friday] I expect it will take the rest of May to go through the process of selecting and negotiating with the final potential buyer," Kelly said. "While we have not made a final decision to sell Saltend, if the bids meet Calpine's expectations, the sale should be completed by the end of June or July. Everything is right on the process we put in place three months ago."
Proceeds from any Saltend sale will be used to repay a $360 million preferred offering issued last October and a $260 million six-month preferred issued last January, Kelly said, with any remaining profits applied to repurchase the company's widening debt.
Even with the large debt load as Calpine's overall power plant portfolio -- now exceeding 27,000 MW -- nears the 30,000 MW level, Kelly said the company is looking at new financing surrounding specific generation plants where the levels of debt could be increased. "We're looking at transactions where we can purchase debt at a more attractive rate and buy back bonds at an even more attractive rate," Kelly said.
"We're also beginning to see increasing activity in the potential sale of power generating assets -- utilities, munis, and co-ops, are looking to acquire steel in the ground to match their load requirements over the next decade," he said. "In addition, we're seeing a significant amount of financial capital being raised to invest in hard assets. And we're also starting to see capital flows out of Asia re-entering the American power market."
Kelly said that over the last three years, Calpine has sold eight power plants for "in excess of $700 million," and the company has achieved some "significant book gains" along the way.
In response to a question, another senior Calpine executive, Paul Posoli, said that in the Southeast region where the spark spreads right now are the poorest, Calpine continually analyzes the economic benefits of mothballing some of its plants, but so far that option has not penciled out.
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