Fitch: Calpine's Ratings Unaffected by the Announced Asset Sale

NEW YORK--()--On April 18, 2014, Calpine Corporation (Calpine) announced the sale of six power plants with 3,498 MWs of capacity to LS Power for $1.57 billion in cash. Use of net operating losses minimizes the cash impact from the sale, netting $1.53 billion in cash proceeds for Calpine. Management's public comments indicate a balanced allocation of these proceeds across debt pay down, reinvestment opportunities and share repurchases. Calpine's Issuer Default Rating (IDR) of 'B+' and Stable Rating Outlook is currently unaffected by this transaction. Fitch Ratings expects the debt pay down to be commensurate with the loss of EBITDA from the plants being sold, management's stated leverage targets and higher business risk at the margin with relatively less contracted portfolio after the sale. There are no debt maturities until 2019.

The sale is in line with management's stated strategy of monetizing its Southeast portfolio either through long-term contracts or outright sale. The transaction price implies $450/kw or 15.7x EV/EBITDA, which is significantly higher than Fitch's expectation of the value for these plants.

The assets being sold are located in Oklahoma, Louisiana, Alabama, Florida and South Carolina and are outside what Calpine perceives to be its core regions (i.e. Texas, West primarily California and East primarily the Mid-Atlantic). Calpine will continue to own four natural gas power plants in the Southeast with 1,738 MWs of generating capacity. One of the generating plants, Osprey Energy Center, is part of its subsidiary, Calpine Construction Finance Company, L.P. (IDR: 'B+'). The company will continue to pursue monetization opportunities for these assets (either through contract or sale).

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', Aug. 5, 2013;

--'Parent and Subsidiary Rating Linkage', Aug. 5, 2013;

--'Recovery Ratings and Notching Criteria for Utilities', Nov. 19, 2013;

--'Rating U.S. Utilities, Power and Gas Companies', March 11, 2014.

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Parent and Subsidiary Rating Linkage Fitch's Approach to Rating Entities within a Corporate Group Structure

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714476

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085

Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155

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Contacts

Fitch Ratings
Primary Analyst
Shalini Mahajan, CFA, +1-212-908-0351
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Philip Smyth, CFA, +1-212-908-0531
Senior Director
or
Media Relations, New York
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Shalini Mahajan, CFA, +1-212-908-0351
Senior Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Philip Smyth, CFA, +1-212-908-0531
Senior Director
or
Media Relations, New York
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com