Calpine Faces Backlash from Bondholders Amidst Debt Issues

Strategic Insights -

Calpine, one of the largest high-yield bond issuers, is caught in a delicate situation. To pay off creditors and potentially attract a takeover bid, the energy company is risking alienating bondholders. The situation is exemplified by a letter sent to Calpine's board by Harbert Distressed Investment Master Fund, a major bondholder, accusing the company of diluting bond value and prioritizing creditors and shareholders over bondholders.

Key Takeaways:

  • Calpine is facing a backlash from bondholders, particularly Harbert Distressed Investment Master Fund, which accuses the company of diluting bond value and prioritizing creditors and shareholders.
  • The issue revolves around Calpine's intention to sell a UK-based power generating facility, which could lead to trouble repaying bonds for its subsidiary, Calpine European Funding Ltd.
  • Calpine has responded by stating it is in full compliance with all legal obligations and will distribute proceeds from the sale as permitted by bond indentures.
  • Other junk bond investors are taking notice, with some stating they will stay away from Calpine's bonds.
  • Calpine has been struggling for four years, ever since the Enron scandal affected the energy market, and has been trying to clean up its operations and reduce its debt load.

Statistics:

  • $18 billion: the value of Calpine's debt.
  • $785 million: the value of Calpine's most recent bond issue.
  • $2.5 billion: the value of Calpine's 2003 bond offering underwritten by Goldman Sachs, TD, ING, and Scotia Capital.
  • 4 years: the duration of Calpine's struggle since the Enron scandal.
  • 15%: the threshold above which Calpine's "poison pill" provision would have triggered.
  • 1997: the year Calpine installed its "poison pill" provision.
  • 1996: the year Calpine went public.
  • 2004: the year Calpine recorded a loss for the first time since going public.
  • 2003: the year Calpine offered $2.5 billion in bonds.

Sources:

  • Thomson Media Inc.
  • High Yield Report
  • Credit Suisse First Boston
  • Scotia Capital
  • TD Securities
  • Thomson