Calpine Bankruptcy Filing Comes As No Surprise To Rapid Ratings

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Rapid Ratings indicated Calpine was in poor financial health and exhibited signs of a severely distressed credit condition well in advance of traditional credit rating agencies.

Calpine, the power company, has been rated by global rating agency Rapid Ratings as E1 (19). The rating is sub investment grade and infers high risk, unlikely to improve with better market conditions, and assets of exceptionally poor quality. The rating is down one notch from the previous rating of D4 (20).

Calpine, this week, filed for Chapter 11 bankruptcy protection, one of the ten biggest bankruptcy filings in US history. It joins Enron as another major US power company to collapse.

The company, which has 3,000 staff and runs power plants in the US, Canada and Mexico, has debts of more than $22bn.

It filed bankruptcy papers in the Southern District of New York and has assets valued at $26.6bn. A number of its subsidiaries have also filed for bankruptcy protection.

Rapid Ratings, which successfully anticipated the collapse of Enron years ahead of the market, has rated the company in the high risk “D” and “E” categories since 2002.

Rapid Ratings has not rated Calpine as investment grade - B3 (65) or above - since 1998 when it was rated at B3 (67). From 1999 to 2001 the company was rated at borderline investment grade.

For the last four quarters, Calpine has reported net income losses of between $150m and $300m, despite seeing its revenues grow from $2.33bn, for the quarter ending 31 December 2004, to $3.23bn, for the quarter ending 30 September 2005. For the last financial year, Calpine had revenues of $9.22bn, but made a net loss of $242m. On the balance sheet, its $22bn worth of debt includes more than $11bn in long-term debts.

The Rapid Ratings quantitative rating system has again demonstrated its predictive capability as an early warning indicator of collapse of a major global company years ahead of its traditional credit rating rivals – one traditional rating agency has only recently downgraded its rating of Calpine to default status.

Rapid Ratings uses only publicly available financial data (income statement, balance sheet and cash flow statement) benchmarked against global industry peers using 25 - 30 years of financial data to determine its rating.

Rapid Ratings has an excellent track record in being able to predict distress and failure far in advance of the market, including companies like Enron, Delphi, HIH and Parmalat.

Rapid Ratings provides debt and equity ratings on over 5,500 US and international companies.


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James Mccallum
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