Interview: Calpine Corp--Cartwright, Peter--Chief Executive Officer
>> calpine was the largest u.s.% -issuer of junk bonds in 2004. today, the company said it would sell as many as eight power stations and idle money losing plants to accelerate $3 billion in debt reduction, sending the stock soaring 31%, the biggest gain of any u.s. equity, let me correct myself, 33% gain today. the debt cuts are projected to be done by 2006. instead, the company said they would be finished this year. joining us to talk about the reorganization is calpine chief executive, peter cartwright,% -joining us from mountain view, california. i think i should call it a reorganization of a reorganization. why the change in plans?
>> well, yeah, hi, ellen. what we’ve done and this is not in response to any market conditions but we’ve been finishing up what’s really the largest construction program in the power industry history and it’s given us an opportunity to look at the market as it exists now, take a look at very, very large portfolio, 30,000 mega-watts, 100 power plants or so. and it’s a changed market and one of the things that we decided early on is that opportunities in north america are so good and the opportunities we have not been able to develop in the united kingdom and europe so we decided to focus our effort on north america. we won a big project in ontario, a 1,000-megawatt project and we decided we would look to sell a 1200-megawatt plant in the united kingdom. the market was attractive, prices are good and we selected a winner and we’re in negotiations with them now.
>> let me jump in so i can focus a little bit. i think it’s important for investors and viewers, you had resistance selling or idling plants. explain to people why the change right now.
>> a couple of things have happened. as i say, we’ve had a chance to look at our total portfolio, identify projects that we can sell profitably, the prices and demand for power plants sup and for natural gas and we have -- we raised a great deal of debt to build our fleet of power plants so we’re in a point in our corporate career where we want to reduce that debt.
>> who are the buyers going to be and how quickly will it be announced?
>> we’re in the final stages on the biggest one, which is the plant in the united kingdom. the plants in the united states―let me, if i may, just finish that. we plan to reduce debt this year by $3 billion or more. and that will cut our interest, direct cash interest payment by $275 million. that doesn’t include selling eight power plants that we’re in negotiations with various buyers now. these power plants are―we’ve identified as non-strategic, not in markets where we have a strong presence, as we do in california and texas, southeast. and so we are in negotiations to sell those plants. we’re also, and i think you mentioned in the lead, that we’re looking at a portfolio and deciding which plants are not currently profitable so we can―we would be wise to moth ball, shut down and put that a standby state until the market recovers.
>> i do want to adjust the balance sheet. you have about $800 million in cash, $4.2 in debt due by 2007. you said you would reduce the debt in the plan by $3 billion. what would the cash position look like? there were concerns you would be forced into bankruptcy.
>> those concerns were ill-founded. there were rumors that ran around wall street a couple of weeks ago. we tried to find out where they started and we asked the new york stock exchange and they are investigating but there is no basis. we’ve been on track this year to roll out our business plan so we haven’t been on the edge of bankruptcy.%
>> so in terms of the balance sheet, what are you hoping the cash and debt positions will look like?
>> let me say the debt is really in a couple of places. we have about $7 billion of nonrecourse project debt that’s very solid and we do not intend to reduce that debt soon. it will be paid out in time. then we have the balance of our $18 billion of debt is corporate debt and that is what we’ll reduce. so our program this year will be to accelerate debt-repayment. we are targeting in excess of $3 billion a year, which will cut our interest expense by $275 million.
>> peter, i’m so sorry, we are out of time. we hope to have you on soon again. have a great afternoon.
>> thank you.
>> taking that quick break.
在线播报
Listen Market briefing --- Ellen (slow)
NYSE --- Deb (fast)
Oil price --- Su (fast)
The Atlanta Fed President --- June (slow)
welcome to news, i’m ellen braitman. first off, let’s get you the settling numbers for the stock market today where there were declines across the board as oil prices moved above $50 a barrel. eight of 10 broad economic groups that make up the s&p declined today, led by financial as well as industrial shares. in the nasdaq, the decline of .6% snapping the decade’s longest winning streak for the nasdaq. all of this happening on the new york stock exchange, with 18% less volume than the three-month daily average. federal reserve president jack wynn of atlanta said inflation is showing a distinct upward tilt. first off, let’s look at the shorter end of the yield curve, the two-year unchanged -- more on the stock market declines today with a report from deborah kostroun.
>> oil taking the spotlight again in today’s session as we saw crude oil inching higher. the stock market going lower. in fact, energy, that was the biggest gainer in the s&p 500 in the 24 industry groups, only telecom was higher and third best gainer actually lower, that was utilities. crude oil higher for the third straight day closing near $51 a barrel and last friday we closed at a three-month low and so far this week, crude oil up 10%, on pace for the biggest weekly gain this year. exxon-mobil with their shareholder meeting in dallas, voting down resolutions calling on the company to take steps towards reducing emissions linked to global warming. all three initiatives on the ballot at exxon’s meeting in dallas received less than 30% support. we also saw oil service it’s plus side. the laggards in the s&p 500, consumer durables, real estate and material stocks. raw material stocks declining, hurt by u.b.s. cutting earnings estimates for a host of steelmakers. asbestos shares rising again. shares of the largest insulation company, owens, and other companies with asbestos-related costs gained today. a u.s. senate panel inching closer towards approving a proposed $140 billion asbestos exposure fund for victims to end litigation that has bankrupt 77 companies so far. in addition, hundreds of airline pilots asking congress to raise their mandatory retirement age to 65, saying the change wouldn’t threaten safety and would give workers more time to recover money lost to pension cuts. the f.a.a., since 1959, required that airline pilots retire at age 60. southwest and jetblue and pilots at other carriers want to extend that limit. however, larger airlines and pilot unions oppose the change. i’m deborah kostroun at the new york stock exchange.
>> now, let’s get details on the three-day rally for oil, certainly a factor for stocks today. the latest government report shows a decline in supply instead of the gain that had been forecast. so far this week, oil prices up almost 10% and that would be the biggest weekly gain of the year. we’ll get more from su keenan.
>> the big turnaround from the recent trend, although some would argue it’s temporary. the latest energy department survey of the nation’s oil, gasoline and distillate fuels caught many investors by surprise. we learned the nation’s crude oil stockpiles fell 1.6 million barrels. analysts forecast a gain of almost the same amount. the distillate inventories, including heating oil and diesel fuel, surged by nearly two million barrels and a gain in gasoline, which rose by 600,000 barrels last week. john kilduff with fimat u.s.a. says the latest supply levels show refiners are working hard to make gasoline for the summer driving season and he views this week’s rally as a pause.
>> i think the prices will fall and fall precipitously before the opec meeting. we’ll probably be around $45, maybe $42, by june 15, by the time of the meeting, for the natural gaming of the market on opec to get them to react.
>> he mentioned gaining of the market , a lot of focus, now, on the next opec meeting set for mid june. u.s. crude stockpiles, roughly 8% higher than the five-year average, have been helped by a boost in production from opec. industry estimates show they are producing in excess of 30 million barrels per day. one analyst predicts crude oil prices will fall to around $45 a barrel by midsummer and stay within a range of $45 to $55 by winter.
>> which, by the way, i think opec is also looking to maintain. about a $44 to $54 equivalent in w.t.i. i think we’ll stay in that range for maybe six months to a year but the fixture big move will have to be upward.
>> we’ll talk about his prediction on upward moves. maxwell says that crude oil will trade at never-before-seen prices in the next three to five years and sees oil reaching $70 a barrel within three years and $100 in about five years as he says demand rises faster than global supply can be added. a big push for the next couple of weeks, opec.
>> thanks so much, su. another market focus today was the treasury market where the 10-year yield reached the psychologically important 4% level. then, however, yields turned around and moved higher on comments from the atlanta fed president. let’s bring in june grasso with the latest.
>> hi, ellen. part of this morning’s gains were driven by merrill lynch’s chief economist david rosenberg who cut his forecast for the 10-year treasury note’s yield at year end to 3.8% from 4.4%. he says there are signs inflation may slow. rosenberg cut his yields forecast after a report this month showed consumer confidence and manufacturing are deteriorating. merrill’s report says the latest inflation readings are encouraging and reinforce our view that the peak in inflation is either here or near. rosenburg joins bill gross with pimco in predicting the federal reserve is near the end of a string of interest rate increases that began last june. merrill predicts the central bank will start cutting rates again early next year putting the fed funds rate at 3% by the end of june next year. james grant says the treasury market may have a decisive low in yields at 3.1% in june of 2003 and may retest that level.
>> i think that’s meandering now and retest both the patience and metal and if you’re on margin, the financial capacity of people to return to something like those levels, i do believe we are embarked in a long bear market environment.
>> what changed the tone of the bond market today were comments from bank of atlanta fed president jack wynn who says there is an upward tilt to inflation and the economy is strong enough to absorb higher interest rates.
>> thanks so much. in the meantime, there were a couple of reports showing more evidence of strength in the economy. durable goods orders rose 1.9% last month, more than forecast, also the first increase in four months. demand for machinery, computers and aircraft led the advance. lower defense bookings led to an unexpected decline of .2% in orders if you exclude transportation. in the meantime, job gains and historically low mortgage rates pushed new home sales in the u.s. to a record pace in april. sales rose .2%. prices rose, as well, reflecting an increase in purchases of more expensive homes. mortgage applications rose for a fourth week in five on cheaper borrowing costs. the mortgage bankers association said the average rate on a 30-year fixed rate declined to 5.63% and that is the lowest level we’ve seen since february 11. later in the hour, we’ll replay our interview with chief executive of d.r. horton, largest homebuilder by market cap. to see how it’s playing out for him. in the meantime, calpine was the most actively traded stock in the u.s. after announcing it would sell plants to cut debt. we’ll speak with chief executive peter cartwright when we return. michael farrell
