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April 4, 2006
NEW YORK/SAN FRANCISCO - Bankrupt Calpine Corp. said on Tuesday it plans to sell about one-fifth of its power plants in a bid to emerge as a leaner company focused on its profitable geothermal and gas-fired operations.
The company also said it plans to close three offices and cut about 775 jobs.
Without identifying the plants, Calpine said the sale of about 20 facilities would allow it to focus on core assets and key markets. The company's largest power markets are California and Texas.
Calpine needs to get rid of underperforming assets, but the sales may not raise enough cash or sufficiently reduce debt to satisfy the company's creditors, said BOSC Inc. debt analyst Jon Cartwright.
"I'd speculate that after this series of asset sales is completed that they may yet sell all of their geothermal assets as well," Cartwright said. "They need the money."
Calpine's 19 geothermal plants make up the company's prize asset, the Geysers power plant complex in northern California.
Earlier this year, the company said in bankruptcy court that it had received a letter from a major investment bank offering $2.5 billion to $3 billion cash to purchase the Geysers, although it did not express any intention to actually sell it.
Squeezed by a credit crunch and a weak merchant power market, Calpine filed for bankruptcy in December under the weight of more than $22 billion in debt. It said then that it owned 92 power plants and had interests in five more under construction.
It ended 2005 with 3,300 employees.
NOT EXPECTED TO SELL CALIF. OR TEXAS PLANTS
Calpine is not expected to sell power plants in its big home market of California or in Texas. Instead, likely candidates are generating stations in the U.S. Southeast, where the energy market has been slow to open to outside competitors, analysts said.
Calpine launched NewSouth Energy, a new affiliate in Atlanta last year, and recruited a staff with backgrounds and contacts with utilities and regulators in the region, where it operates about 7,000 megawatts of power.
"Probably most of the plants they intend to sell are in the Southeast," Daniele Seitz, an analyst at Dahlman Rose & Co., said. "It is a tough market and very regulated, so it was harder for them to carve a place there," Seitz said.
Utilities such as Southern Co. and FPL Group Inc. may be bidders as they seek more capacity for their service areas, Seitz added.
A Calpine spokeswoman said the sale of its 45 percent interest in a power plant under construction in Mexico, announced last week, counts as one of the 20 plants for sale.
Under the restructuring, Calpine plans to close three offices in Atlanta, Boston and Dublin, California, and run day-to-day operations out of its San Jose, California, headquarters.
The restructuring, on top of plans announced in February to cut 300 jobs and shed some businesses, are expected to bring total annual cost savings to about $150 million, the company said.
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