Calpine Corporation (NYSE:CPN) announced today that it has
agreed to purchase 4,490 MW of power generation assets from Pepco
Holdings, Inc. (PHI) for $1.65 billion plus adjustments. The
purchase of the Conectiv Energy fleet, which includes 18 operating
power plants and one plant under construction, is expected to close
by June 30, 2010.
“The Conectiv acquisition represents a unique opportunity to
transform our company by expanding our portfolio with scale in one
of the most robust competitive markets in the country, giving us
even greater geographic diversity that we expect will enhance value
for our shareholders,” said Jack A. Fusco, Calpine’s President and
Chief Executive Officer. “This adjusted free cash flow and EBITDA
accretive transaction meets the criteria we established last year
for financially disciplined growth and achieves our stated
strategic goal of expanding with scale into an Eastern market.
“Calpine has long been a leader in generating clean energy at
our natural gas-fired and geothermal plants. The Conectiv fleet of
primarily natural gas-fired plants and renewable generation,” Fusco
said, “coupled with our decision to operate the two coal plants in
the fleet on natural gas, reaffirms our strong sense of
environmental stewardship. This transaction also reaffirms our view
that natural gas-fired and renewable generation are the core
components of the energy solution for our country’s future and our
commitment to that business model.”
Financial and Strategic Benefits
Acquisition of clean fleet (with our decision to switch the two
coal plants to natural gas) at an attractive price
- Accretive to Adjusted EBITDA and
Adjusted Free Cash Flow per share
Sizeable entry into strategically targeted Mid-Atlantic
region
- PJM East market features
distinct market advantages, including a robust capacity market and
a strong likelihood that increasingly stringent environmental
regulation will result in the retirement of aging, inefficient coal
units, creating new opportunities for our natural gas-fired
fleet
Stable cash flows from contracted capacity revenues and new 565
MW contracted CCGT
- Addition of long-term capacity
revenues improves risk profile of overall portfolio
- Conectiv’s capacity-driven cash
flows reduce Calpine’s sensitivity to gas prices
Portfolio of growth opportunities
- New, fully contracted 565 MW
combined-cycle plant currently under construction, to be completed
mid 2011
- Additional expansion
capabilities imbedded within portfolio
Transaction Summary
As a result of the transaction, Calpine will significantly
increase its operating capacity in the PJM market, adding 4,490
MW.
Table 1: Asset Profile
Late-model combined-cycle 2,260 MW
Simple-cycle 771 MW Conventional gas 868 MW Internal combustion 22
MW Solar 4 MW New combined-cycle (under construction) 565 MW
PJM-E Capacity
4,490 MW
The capacities shown above include 3,860 MW of capacity expected
to be in operation as of the close of the transaction and 65 MW of
upgrades to be completed after the close of the transaction.
Although Calpine is purchasing Conectiv’s electrical generation
business, it will not acquire Conectiv’s trading book, collateral
requirements or load-serving auction obligations. In addition,
Calpine will assume no off-site environmental liabilities or
pre-close pension liabilities.
Funding
Calpine expects to fund the transaction with a combination of
subsidiary-level debt and corporate cash. Though final financing
terms are subject to change, Calpine has received a commitment from
Credit Suisse as lead arranger, along with Citi and Deutsche Bank,
for a $1.3 billion amortizing term loan at attractive rates and
terms. This seven-year term loan allows Calpine to take advantage
of the lower cost of capital of subsidiary-level financing without
sacrificing flexibility.
Approvals and Time to Close
Under the contract, the parties are targeting a close of June
30, 2010. The transaction is subject to customary closing
conditions, approval from the Federal Energy Regulatory Commission
and antitrust review under the Hart-Scott-Rodino Act. No
shareholder approval is required.
Advisors
Calpine’s financial advisors were Citi and Deutsche Bank, and
its legal advisor was White and Case LLP.
Investor Conference Call and Webcast
Management will discuss the transaction during a conference call
for investors at 9 a.m. EDT / 8 a.m. CDT on Wednesday, April 21.
Management also intends to update Calpine’s 2010 guidance and issue
2011 guidance for the first time. Presentation materials will be
made available on the Company’s Web site prior to the call. A
listen-only webcast of the call may be accessed through the
Company’s Web site at www.calpine.com or by dialing 877-397-0286
(or 719-325-4942 for international listeners) at least 10 minutes
prior to the beginning of the call. An archived recording of the
call will be made available on the Web site and can also be
accessed by dialing 888-203-1112 (or 719-457-0820 for international
listeners) and providing confirmation code 4987312.
About Calpine Corporation
Founded in 1984, Calpine Corporation is a major U.S. power
company, currently capable of delivering nearly 25,000 megawatts of
clean, cost-effective, reliable and fuel-efficient power from its
76 operating plants to customers and communities in 16 states in
the United States and Canada. Calpine Corporation is committed to
helping meet the needs of an economy that demands more and cleaner
sources of electricity. Calpine owns, leases and operates
low-carbon, natural gas-fired and renewable geothermal power
plants. Using advanced technologies, Calpine generates power in a
reliable and environmentally responsible manner for the customers
and communities it serves. Please visit our Web site at
www.calpine.com for more information.
About Pepco Holdings, Inc.
Pepco Holdings, Inc., headquartered in Washington, D.C.,
delivers electricity and natural gas to about 1.9 million customers
in Delaware, the District of Columbia, Maryland, and New Jersey,
through its subsidiaries Pepco, Delmarva Power and Atlantic City
Electric. PHI also provides retail energy products and services
through Pepco Energy Services.
Forward-Looking Information
In addition to historical information, this release contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Words such as
"believe," "intend," "expect," "anticipate," "plan," "may," "will"
and similar expressions identify forward-looking statements. Such
statements include, among others, those concerning expected
financial performance and strategic and operational plans, as well
as assumptions, expectations, predictions, intentions or beliefs
about future events. You are cautioned that any such
forward-looking statements are not guarantees of future performance
and that a number of risks and uncertainties could cause actual
results to differ materially from those anticipated in the
forward-looking statements. Please see the risks identified in this
release or in Calpine's reports and registration statements filed
with the Securities and Exchange Commission, including, without
limitation, the risk factors identified in its Annual Report on
Form 10-K for the year ended Dec. 31, 2009. These filings are
available by visiting the Securities and Exchange Commission's Web
site at www.sec.gov or Calpine's Web site at www.calpine.com.
Actual results or developments may differ materially from the
expectations expressed or implied in the forward-looking
statements, and Calpine undertakes no obligation to update any such
statements.
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