Five-year credit-default swap spreads on embattled independent power producer Calpine started trading upfront after its management shakeup Tuesday. The price of protection on Calpine traded Wednesday at a spread of 45 basis points upfront plus 500 bps running. "Usually when it gets this bad, it stops trading," one trader said early in the day. "It's interesting that there's still liquidity--it's something that's been noted." By the afternoon, though, traders said they weren't seeing any trades and some said they expected the San Jose, Calif., company to file for bankruptcy protection within hours or days. Others said it could hold out until Jan. 3, the date the court ordered it to return USD300 million to Bank of New York, the trustee for its bondholders.
The shakeup saw Peter Cartwright, Calpine founder, chairman, president and chief executive, and Bob Kelly, cfo, head out the door.
Traders and analysts interpreted the announcement to mean Calpine is planning to restructure and likely under bankruptcy. "The removal of [the ceo and cfo] signals a greater willingness to pursue restructuring," said Jeffrey Wolinsky, analyst at Standard & Poor's in New York. "Those two individuals had been opposed to restructuring."
S&P cut Calpine's rating two notches Tuesday to CCC from B minus, with negative outlook. Moody's Investor Service dropped its rating Tuesday to Caa3 from Caa1. Fitch Ratings maintained its CCC minus rating and negative outlook, which was lowered two notches Nov. 4 from CCC plus.
