Calpine Corp.'s bank debt last week moved up a couple of points, trading as high as 91-92, after the company announced that restructured agreements with its turbine manufacturers will allow the company to avoid $3.4 billion in future capital expenditure commitments. The restructuring will enable Calpine to deal with its capital expenditure issues, as well as reduce its off-balance sheet commitments, noted one buysider. Following the company's earnings announcement on Thursday, the market for Calpine's paper settled in the 90-91 context.
The expenditure commitments stem from existing orders for 87 gas turbines and 44 steam turbines. Under the terms of the agreement, Calpine will pay $109 million to the turbine manufacturers to cancel the orders. To date, approximately $91 million has been paid. The company will take a charge of $207 million in its latest quarter to reflect the costs associated with the potential order cancellations. While Calpine will not receive any cash back from the cancellation of the contracts, it does have credits with the manufacturers if it decides to move forward with turbine production at a later date, a company spokeswoman explained.
With only $594 million in current capital commitments, the company is now in a position to deal with the May maturity on its 364-day revolver. It could have cost an "arm and a leg" to get the deal refinanced with all the outstanding capital commitments in place, one trader speculated. Calls to Michael Thomas, Calpine's senior v.p. of treasury, were referred to the spokeswoman.