UPDATE - S&P rates Calpine's USD 1.5bn of senior unsecured notes at 'B'

S&P Global Ratings assigned on Monday 'B' issue-level rating and '5' recovery rating to the USD 1.5 billion (EUR 1.28bn) of senior unsecured notes of US natural gas and geothermal power producer Calpine Corporation.

The credit rating agency referred to the Houston-based company’s USD 650 million of senior unsecured notes due 2029 and USD 850 million senior unsecured notes due 2031.

“Our ratings on Calpine reflect our fair assessment of its business risk profile and our highly leveraged assessment of its financial risk profile, which lead us to assign a 'b' anchor rating. We then apply a positive one-notch comparable ratings analysis (CRA) adjustment to our anchor to arrive at our 'B+' issuer credit rating on the company,” S&P Global Ratings said.

The CRA adjustment is the result of the company’s ability to generate substantial free cash flow and its high cash flow conversion rate, the agency said, adding that it expects Calpine to continue to grow its retail power operations and wholesale core markets, whilst tackling modest new builds and expansions.

“We expect Calpine's performance in the Electric Reliability Council of Texas (ERCOT) to be strong relative to our assumptions in 2020 and note that it has reported some upside in its resource adequacy payments in California. In our view, the company's financial performance may improve as it limits its downside risk with a high level of hedging through 2022,” the agency went on to say.

Last but not least, the positive outlook takes into consideration Calpine's planned corporate-level debt reduction efforts and expectations for an improvement in its adjusted debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio to improve to below 5.00x and moderate to about 4.75x through 2021.

Calpine is to use the proceeds from the above-mentioned notes issue, alongside some USD 230 million from an earlier issuance involving its Geysers unit, to retire around USD 1.7 billion of existing senior debt.

(USD 1.0 = EUR 0.851)

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