Moody's cuts Calpine

Moody's Investors Service downgraded Calpine Corp., including cutting its senior unsecured notes and convertible senior unsecured notes to Caa1 from B1, Calpine Canada Energy Finance's senior unsecured notes to Caa1 from B1, the passthrough certificates of South Point Energy Center, LLC, Broad River Energy LLC and RockGen Energy LLC to B2 from B1, the passthrough certificates of Tiverton Power Associates LP and Rumford Power Associates LP to B3 from B1 and the convertible trust preferreds to Caa3 from B2. The outlook is stable.

Moody's said the action reflects weak operating cash flow relative to Calpine's substantial debt leverage, Moody's belief that financial performance will continue to be weak in the near term, the company's growing reliance upon non-contracted merchant energy revenues and cash flows to meet future obligations, the expected continuation of unfavorable spark spreads for non-contracted wholesale energy sales due to over-capacity in the wholesale power market and high natural gas prices, and reduced financial flexibility as the company has pledged or securitized a number of assets, reducing the assets and cash flow that are available to support its corporate debt, while facing refinancing that totals approximately $3.3 billion in late 2004.

Financial performance through the six months of 2003 remains weak, with funds from operations coverage of fixed charges averaging about 1.7x and funds from operations amounting to about 6% of total adjusted debt. Moody's does not expect meaningful improvement before 2005.

Liquidity has strengthened in the past year as the company completed $6.4 billion of financings, contract monetizations, or asset sales in 2003. Calpine expects to end 2003 with liquidity of around $2 billion.

However, Calpine will face another large refinancing bulge in late 2004, when $3.3 billion of debt either matures or can be put to the company, Moody's added.

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