Calpine’s CEO and CFO Depart

The company, a large issuer of debt in the past few years, has been sparring with its creditors and is the target of regulatory investigations.
Stephen TaubNovember 29, 2005

Embattled Calpine Corp.’s chairman, president, and chief executive officer, Peter Cartwright, and its CFO and executive vice president, Robert Kelly, have abruptly stepped down.

The company gave no reason for the departures. But it did say in a press release that Calpine’s board “believes that these management changes are essential to better address Calpine’s financial challenges and to provide a new direction for the company.” The electric utility also said it expects to announce a new CEO “in the very near future.”

Calpine’s lead director, Kenneth Derr, has been named chairman and acting CEO. He retired from Chevron Corp. in 1999, having served 11 years as that company’s chairman and CEO. Eric Pryor, the company’s deputy CFO and an executive vice president, will serve as interim finance chief.

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Concerning Cartwright, Derr said: “Pete founded Calpine and has been the driving force behind the company’s tremendous growth in the North American power industry,” according to the release. “His 20 plus years of leadership have culminated in Calpine becoming one of North America’s largest power producers.”

Following the news of the management changes, Calpine’s stock plunged about 30 percent in premarket trading. The company, a large issuer of debt in the past few years, has been sparring with its creditors and is the target of regulatory investigations.

Last week, a federal judge ruled that Calpine cannot use $313 million of proceeds from the sale of its domestic gas assets to buy certain gas-storage inventory because the company violated certain bond indentures. Vice Chancellor Leo E. Strine Jr. of the Delaware Court of Chancery issued the ruling in favor of The Bank of New York (BONY), as collateral trustee for Calpine’s senior-secured-note holders, and Wilmington Trust Co., as indenture trustee for Calpine’s first-lien and second-lien notes. Strine hasn’t yet ruled on the remedy.

BONY has been withholding about $400 million from the $1.05 billion sale of Calpine’s domestic oil and gas assets in July because some bondholders weren’t happy with the company’s plans to reinvest the money. The $400 million remains in a BONY account.

The ruling was the latest in a series of woes at Calpine. In June, the Securities and Exchange Commission’s division of enforcement requested documents from the company related to previous revisions of its reserves and financial statements.

In a regulatory filing, Calpine reported at the time that the SEC was seeking information related to its downward revision of proved oil and gas reserve estimates at year-end 2004, compared with year-end 2003. The commission also sought facts about the company’s corresponding impairment of the value of certain assets, which it previously disclosed.

A former employee also accused Calpine of violating the whistle-blower provision of Sarbanes-Oxley. Later, however, the company announced that federal regulators dismissed the claim after an investigation found no reasonable cause to believe that Calpine violated the provision.

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