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Case Study: Calpines Restructuring
Company Overview
Founded in 1984, Calpine Corporation is an independent power
producer engaged inowning, operating and developing power
generation facilities and selling electricity
andelectricity-related products and services. Calpine sells
electricity generated from naturalgas-fired combustion and
renewable geothermal facilities to wholesale and
industrialcustomers in 16 states in the U.S. and Canada. As of
September 2008, the Companyowned or leased 61 active,
clean-burning, natural gas-fired power plants and 17
activegeothermal power plants with an aggregate capacity of 24,000
megawatts.
Bankruptcy Filing
In 2005, a combination of weak power markets and increases in
natural gas prices due toHurricane Katrina and Rita pushed Calpines
cost significantly above the locked in pricestipulated in its
long-term sales agreements. This decline in profitability combined
withthe substantial debt Calpine incurred to add power generation
capacity put a significantstrain on Calpines liquidity. In order to
avoid financial distress, Calpine divested $2 billionin assets,
which included the sale of its 550-megawatt Ontelaunee Energy
Center to LSPower Equity Partners for $225 million. However, with
$22.5 billion in debt, Calpine wasunable to meet its interest
obligations and filed a voluntary petition to restructure
underChapter 11 of the U.S. Bankruptcy code on December 20, 2005.
In connection with thebankruptcy filing, Calpine obtained $2
billion in debtor-in possession financing fromDeutsche Bank and
Credit Suisse First Boston.
Calpine was the first major debtor to file for reorganization
under the new bankruptcylaws implemented in 2005. The Company
retained Miller Buckfire & Co. LLC as its
financial advisor and Kirkland & Ellis LLP as its legal
advisor. In December 2005, RobertMay replaced Pete Cartwright, one
Calpines founders, as CEO.
Restructuring Plan
With the help of its advisors, Calpine set up a restructuring
plan which includedstreamlining its power generation business,
divesting non-core assets and restructuring itsbalance sheet. The
Company successfully retired $7.2 billion in debt and secured
$7.3billion in exit financing two years later. Calpines recognized
$8.7 billion equity value wasdistributed to creditors generating an
estimated 100% recovery for Senior Note holders,85% recovery for
general unsecured creditors and 42% recovery for holders of
itsSubordinated Notes at the time of the first stock distribution.
Pre-bankruptcy stock wascanceled and exchanged for warrants.
Post-Bankruptcy
On January 31, 2008, Calpine emerged from bankruptcy protection
and resumed tradingon the NYSE under the ticker CPN. Currently,
many of the parties involved in therestructuring hold large stakes
in Calpine, including LS Power Equity Partners. RecentlyCalpine
reported strong financial results, with third quarter operating
revenue up 37%year-over-year and adjusted EBITDA up 17%
year-over-year, though its stock price hasfallen 70% since its
post-bankruptcy high in June.
