A month from a key bankruptcy court hearing on its reorganization plan for leaving Chapter 11 at year-end, San Jose, CA-based Calpine Corp. last Tuesday said an independent analysis has lowered by $900 million its projected value if it leaves bankruptcy protection Dec. 31. The initial Wall Street reaction was negative.

The new estimate "raises the odds" that unsecured creditors won't be paid back in full, and also means "Calpine thinks its current shares are largely worthless," a Dow Jones report carried by Associated Press said.

The updated valuation was filed with the U.S. Bankruptcy Court for the Southern District of New York and will be part of the company's scheduled reorganization plan hearing Dec. 17. Potential distributable cash was $1.7 billion, and the latest announcement from the independent power plant operator did not revise the estimated range of allowed claims by its creditors, which was set at $20.1-22.3 billion June 20 when Calpine filed its original reorganization plan and disclosure statement, both of which have been modified in the interim.

Still outstanding is part of the dispute between Calpine and Houston-based Rosetta Resources Inc. that includes Calpine's allegations of fraud by the oil and gas producer. The one-time owner of Rosetta oil/gas reserves, Calpine made the charges as part of its ongoing Chapter 11 bankruptcy proceeding. A trial is now expected in December.

The two companies in early August reached a partial settlement on many of the issues that have divided them since Calpine sold its gas assets to Rosetta in 2005. Calpine originally alleged that it was cheated out of about $400 million, according to a disclosure statement filed June 20 as part of its bankruptcy proceeding, and at that time said it was suing Rosetta.

Nevertheless, since then, Calpine has filed a second amended reorganization plan in September and gained court acceptance of it, including an amended disclosure statement, whose earlier versions had been challenged in the bankruptcy court by several parties. It also gained the court's rejection of Rosetta request for it to dismiss Calpine's allegation against Rosetta.

The latest valuation update, prepared with the assistance of financial advisor Miller Buckfire & Co. LLC, estimates that "total enterprise value of the reorganized Calpine will range from $18.3 billion to $20.4 billion, with a midpoint of $19.35 billion," which is the figure that Calpine will tell the bankruptcy court it estimates its value would be if the court approves a Dec. 31 emergence from Chapter 11.

The approximately $900 million reduction of the estimated value since the June 20 estimate is due, among other things, to "a general decrease in the market enterprise value of the selected companies and a general increase in market volatility -- both partially offset by the increases in Calpine's updated cash projections."

Calpine released a six-year estimate of revenues, gross margins and distributable cash as part of the revised valuation, showing estimated revenues increasing from 2008 through 2013 by $2.5 billion, for revenues of $7.2 billion in 2008 and $9.7 billion in 2013, and gross margins increasing about $1.7 billion over that same period (from $2.5 billion next year to $4.2 billion in 2013). During the same period, however, fuel costs jump by about $800 million ($4.6-5.4 billion) and operations/maintenance costs are projected to triple ($299-935 million).

"Despite these estimates, no assurances can be made regarding the actual recoveries to creditors and shareholders because among other things, the bankruptcy court has not finally adjudicated all of the claims asserted against Calpine and has yet to determine [a reorganized] Calpine's enterprise value," Calpine said.

A drop in the value of the San Jose, CA-based company generally must be absorbed by the shareholders before any of the bondholders take a hit. After rising to a 52-week high of $4.15/share last July, Calpine's stock has dropped steadily since the subprime mortgage crisis began impacting the global financial markets in late summer. The share price fell 45.9% to 50 cents/share in over-the-counter trading Tuesday.

U.S. Bankruptcy Judge Burton Lifland ultimately will decide Calpine's post-bankruptcy value, but he will rely a lot on the third-party assessment pulled together by the company

Still seeking to leave Chapter 11 by the end of the year, and facing creditors' assessments before the end of November and Judge Lifland's confirmation hearing starting in mid-December, Calpine has indicated it thinks its shares are worth "anywhere from zero to 41 cents/share," according to the Dow Jones/AP report. That is down from an earlier estimate of zero to $3.28/share.

Ultimately, Calpine's value will depend on the outcome of ongoing litigation with creditors.

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