Calpine Corp.’s restructuring plan and accompanying disclosure statement offer hope the independent power plant developer/operator will return to profitability fairly quickly, company officials said Wednesday. However, it won’t be known if creditor claims will exceed the company’s value until it emerges from bankruptcy, and in the meantime the independent power plant developer has to quickly address major creditor claims and possible lawsuits.

On a conference call after the company’s bankruptcy court filing, Calpine Chief Counsel Gregory Doody talked positively about the future. But sobering news in the details identified projected net operating losses (NOL) for Calpine at the time of emergence from Chapter 11 in excess of $5 billion, said Doody, adding the silver lining that the “usable annual tax savings from the NOLs will be substantial.”

Calpine also filed a motion with the U.S. Bankruptcy Court for the Southern District of New York to pursue a re-priced exit financing facility of up to $8 billion, some $3 billion more than the current debtor-in-possession (DIP) financing facility that is convertible to an exit financing package at the time the company leaves Chapter 11. Calpine is seeking the added financing from Credit Suisse First Boston, Deutsche Bank and Morgan Stanley, Doody said.

Standard & Poor’s Ratings Services said Friday that Calpine’s ultimate credit rating upon emergence from Chapter 11 will depend on the financial structure it is able to put together between now and that time, but over the past two years the company has gained what S&P called a “significant increase in asset values” from a tightening of reserve margins by grid operators around the nation.

For now there will be no changes by S&P in Calpine’s current ratings: “D” for the Chapter 11 entity and “CCC-” for Calpine Construction Finance Co. (CCFC), which is not in bankruptcy. Senior secured and bank loan debt at CCFC is rated “CCC+,” said S&P, which liked the fact that the restructuring plan calls for most creditors and common shareholders to recover all or part of their investments, but it noted that a lot still hinged and getting the final accepted claims in the range of $20.1 billion to $22.3 billion.

“The process of claims objection, reconciliation and resolution is incomplete and there are claims totaling more than $90 billion as of June 13, 2007, much of which the company has challenged,” S&P said in its analysis. “Creditors may also file a competing plan or reorganization”

Another challenge Calpine said it would mount relates to the sale two years ago of its extensive natural gas reserves to Rosetta Resources. Calpine’s legal counsel said the company plans to sue Rosetta, alleging the assets’ valuation was improperly handled to short-change Calpine by about $400 million, according to the disclosure statement filed as part of its bankruptcy proceeding.

As part of its restructuring plan, Calpine said its internal investigation found “the price obtained [for its oil/gas assets] was substantially below fair market value,” and the power plant developer/operator estimates the sales price was about $400 million too low.

However, a report by analyst John Gerdes of the SunTrust Robinson Humphrey/Gerdes Group disagreed. Gerdes wrote that based on its analysis of the deal “Rosetta did indeed pay full and fair value for [the Calpine] assets.” It added the caveat that news of the pending litigation is “likely to have a material negative impact” on Rosetta. Its NASDAQ-traded stock closed at $22.20, down $2.03, or 8.38%, the first day after Calpine’s allegation were made public (June 21).

“The filing of our Plan of Reorganization is a significant milestone on our road to recovery and takes us one giant step closer to successfully reorganizing Calpine for the benefit of our stakeholders, employees and customers,” said CEO Robert P. May, admitting the company still has a lot to do to complete the process. “This proposed plan provides a clear path for Calpine to emerge as a stronger, more financially stable company with an improved competitive position in the energy industry.”

In the future, Calpine will be in a growth pattern in terms of employees and business, and while it has entertained offers to sell the whole company and those talks continue, that is not a likely outcome, according to Calpine’s Doody. No additional assets need to be sold, according to the restructuring plan filed Thursday, and the senior management would like to keep all current assets in place, the chief counsel said.

After entering Chapter 11 Dec. 21, 2005 with more than $18 billion in debt on its books, Calpine will emerge from Chapter 11 by this coming December with $11 billion of debt, Doody said in response to a question from NGI. He said the overall restructuring plan represents a potential “exceptional outcome for our stakeholders.” Still, he acknowledged that both Calpine’s total enterprise value and the still multi-billion-dollar disputed claims have not been fully resolved.

The key creditor committees and stakeholders have not endorsed the restructuring plan, and could file a competing plan, as S&P pointed out. They must concur with the plan before the bankruptcy judge can confirm it and order Calpine’s exit from bankruptcy. “Thus, both the plan and disclosure statement could be materially modified before the [court] hearing on the legal adequacy of the disclosure statement,” Doody said. (The legal adequacy of the plan must be affirmed before the judge can approve the voting among creditors and stakeholders.)

Responding to another question, Doody said Calpine in the past has had discussions with potential buyers of the whole business, which is one of the largest national portfolios of generating plants in the United States. “Are those discussions still alive and active?” Doody’s response: “We can’t really comment on what’s ongoing now.” He added later that the restructuring plan “contemplates Calpine coming out of bankruptcy as a stand-alone entity.”

The disclosure statement outlines a national power plant fleet of 72 facilities, totaling 22,511 MW, broken into four broad regions across the 48 contiguous states — West (40 plants, 7,200 MW), Texas (13 plants, 7,180 MW), Northeast/Midwest (nine plants, 2,296 MW), and Southeast (10 plants, 5,835 MW).

The filing identifies four regional market drivers that Calpine must juggle in attempting to make its plants as profitable as possible: supply/demand dynamics, generation technology and fuel mix, natural gas prices and environmental regulations.

“Much of Calpine’s generating capacity is in California and Texas, which are regional markets where gas-fired units set prices during most hours,” the disclosure statement said. “Because natural gas prices generally are higher than most other input fuels, these regions generally have higher power prices than regions in which coal-fired units set prices.”

In response to another question, Doody said seven of eight long-term power supply contracts with various California entities that Calpine had requested at the start of bankruptcy be canceled as being unprofitable have been settled. The one remaining — with the California Department of Water Resources — is being appealed.

Calpine’s restructuring plan contends that if it is successful, the once over-leveraged company would emerge with an estimated $21.7 billion midpoint reorganization value after two years in Chapter 11. Calpine said it estimated its total enterprise value at exit from Chapter 11 would be between $19.2 billion and $21.3 billion, with a midpoint of $20.3 billion, and it estimated that distributable cash would be approximately $1.4 billion.

On the other side of the ledger, Calpine estimated that allowed claims will range from $20.1 billion to $22.3 billion after completion of the company’s claims objection, reconciliation and resolution process.

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