Calpine Corporation

Group 4

5-year Target

To become one of the largest and most profitable power generators in the USA

35 30 25 20 15 10 5 0 1.7 1999 3 4 15

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No. Of Plants

Capacity (GW)
Investments ($ bn.)

2004 (Target)

2004 (Revised)

Strategy of Calpine for next 5-years

Move away from its IPP roots to unexplored world Operate large, new and efficient plants To extract maximum advantage of the First Mover Speed of execution: site acquisition, ordering, construction

Steps of Setting-up a Power Plant

Step IPP PPA Merchant PP

Site location
Marketing the power Construction and equipment procurement Fuel supply Operation and maintenance Statutory approvals

First Mover
Retail Speedy ordering Not a constraint In-house, can be developed Not a constraint Non-recourse Limited Slower growth Repayment after four years Financing for multiple projects Should not hamper equity raising capability

Financing

Limitations of Project Finance

Lengthy approval and financing procedures Cross-financing between projects not possible Lenders have invasive controls Higher rates due to non-recourse nature Certain compulsions including PPAs Earlier repayments / intermittent payments less IRR

Features of Conventional Corporate Finance

Late repayments: 7-10 years Reduced legal fees as no collateral is required: moreover flexibility of financing between projects Project finance option was open for subsidiaries

Restrictions on EBIDTA : Interest Expense ratio High-yield, long-term market lacked depth: unsure stream Question on ratings for subsequent debt-raising

Revolving Construction Facility

Modified Project + Corporate Finance Four-year maturity, revolving $1 billion secured loan with equity infusion obligation of $430 million and guarantee of plant completion Money can be invested in 8-12 projects instead of just 4-5: increased velocity of money Intermediate effect of markets are not felt Non-recourse finance Less legal charges

Epilogue
Calpine announces plans for $ 1 bn revolving construction credit facility with CSFB & The Bank of Nova Scotia in July, 1999 2001: 13,000 MW 2004: 22,000 MW Subsequent to 2001 California Energy Crisis and Enron collapse, Calpine scaled back 50% financing, unable to either generate enough cash or get refinance. Lehman shorts its shares. December, 2005: Filled Bankruptcy 2008: Emerges from bankruptcy Today: A Fortune 500 company
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THANK YOU
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