S&P rates Calpine notes B+

Standard & Poor's said it assigned its B+ rating to Calpine Corp.'s $785 million first-priority senior secured notes due in 2014, which is one notch higher than the company's corporate credit rating. S&P also assigned its 1 recovery rating to the notes.

The rating on Calpine (B/Negative/--) reflects the following risks: Calpine's weak credit statistics; S&P's expectation over the next five years that minimum and average adjusted FFO interest coverage ratios will not exceed 1.3x and 1.9x, respectively, assuming no additional development; S&P, however, expects FFO interest coverage to remain near 1.0x, even under stress scenarios.

In addition, overall business risks have increased. And Calpine has limited opportunities to reduce its debt burden and has taken on more debt to fund its construction program, the agency said.

S&P said the following strengths somewhat offset the high level of risk: Calpine's contractual revenue base offsets some of the cash flow volatility caused by merchant power sales; Calpine has proven its ability to efficiently operate its power plants, with average availabilities of more than 90% for the six months ended June 30, including multiple, newly constructed units; and Calpine has proven its ability to manage and build multiple plants in a timely and efficient manner.

S&P rates Calpine's corporate credit B, senior unsecured debt CCC+, senior secured debt B and preferred stock CCC.

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