Calpine Corp., which has dined heavily on debt for the past few years, has reversed course and announced a major restructuring that calls for its debt to be pared by $3 billion, or 16 percent of its total, by year-end.
This restructuring, which will come one year earlier than previously planned, will save Calpine $275 million in annual interest expense, according to the company .
The power generator, which has about $18 billion in long-term debt and other liabilities, was the largest U.S. issuer of junk bonds in 2004, according to Bloomberg. About $4.2 billion of its debt is slated to come due by the end of 2007, the wire service noted.
The debt-reduction and restructuring program is designed to improve the value of Calpine’s core power-plant assets and strengthen its balance sheet. “Calpine has set an aggressive and timely program to strengthen our financial and competitive position,” said Peter Cartwright, the company’s chairman, chief executive officer, and president.
As part of the program, the company would sell power and gas assets to reduce the debt. Besides potential asset sales Calpine previously announced, the company plans to sell as many as eight power plants.
“Our number one financial priority is de-levering the balance sheet to bring it in line with the current and future power markets,” said Calpine Chief Financial Officer Bob Kelly.
The program is the first step toward achieving the company’s long-term target of total debt equaling six times EBITDA (earnings before interest, taxes, depreciation, and amortization), according to the finance chief. “With the new financial focus and power initiative outlined today, we expect to significantly strengthen our balance sheet, lower our annual interest payments, and improve our debt-coverage ratios,” Kelly added.