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Moody's revises Calpine to stable on market improvements

Moody's revised Calpine Corp.'s outlook to stable from negative based on favorable wholesale power market conditions in Texas and California.

The rating agency affirmed Calpine's Ba3 corporate family rating, Ba2 senior secured rating and B2 senior unsecured rating.

The company is benefiting from market improvements in Texas and California that will improve its cash flow to debt ratio to 14%, Moody's Vice President and Senior Credit Officer Toby Shea said in a Sept. 30 rating action.

"This will offset the risk of a contract rejection by its bankrupt counterparty, Pacific Gas & Electric Co., which we think has been reduced since PG&E's recent filing of its restructuring plan, and the soft wholesale market conditions that exist today in PJM," Shea said.

Calpine's fundamental credit profile continues to reflect the inherent volatility exhibited by its large and geographically diversified merchant power generation portfolio and is leveraged with a run rate debt to EBITDA of about 5x and a CFO pre-WC to debt ratio of about 14% this year, Moody's said.

The company operates primarily in the PJM Interconnection, Electric Reliability Council of Texas Inc. and California ISO markets. Its portfolio of high-efficiency gas plants will be economically attractive in the current gas price environment because their production cost is below that of coal and nuclear power plants, Moody's said.

Calpine is owned by private equity firm Energy Capital Partners.