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Disclaimer: the following is personal opinion, and anybody reading it should perform his/her own due diligence before taking any action.

With that said, here's what I would do if I had ANY Calpine stock right now: ***SELL***.

Why? What about the Barron's article quoted by kirakat the other day? "Craig Shere, an analyst at Calyon Securities... thinks the stock can get to 5, based on an options-based valuation that presumes Calpine will be viable at least through 2009 -- which will require meeting almost $4 billion in debt maturities in 2007 and 2008."

Because there's a WHOLE LOT OF BAD NEWS already on the wire, and there's a WHOLE LOT MORE BAD NEWS that nobody has yet reported.

Among those things being reported is the fact that a big bank has finally turned off the endless flow of refinancing, preferring instead to wait until Calpine clarifies its accounting and reduces its debt:
"Morgan Stanley (MWD) has temporarily shelved a $400 million equity offering for debt-ridden Calpine Corp., (CPN) the giant West Coast power producer that is running out of cash, The New York Post reported in its Thursday editions."

Already, some bondholders represented by the Bank of New York raised questions about how Calpine intended to recycle money raised from its natgas sales:

There are several pieces in the subscription-only part of that I don't have access to, but which point to some really scary stuff, like board members quitting and so on. All this stuff would be enough, it seems to me.


I have already mentioned here the issues related to UNREPORTED Calpine power plant outages, as well as decreased demand due to infrastructure damage in the Southeast, caused by Hurricane Katrina. The impact of those events is the kind of thing I expected Calpine to spring on unsuspecting investors at its 3Q earnings report. Frankly, I'm surprised that nobody has mentioned it in the press.


Take a look at the map that I mentioned in an earlier message. Calpine has a LOT of power plants in Texas. You know, Texas, the state that will soon be hosting a Category 5 Hurricane named Rita.

There will be about one week left in the third quarter after Rita makes landfall, but my guess is that power consumption in Texas is already down, since a couple million people have evacuated the area in the past few days. Once the storm hits, it seems improbable that all those power plants will go unscathed, or that power distribution systems will survive intact.

In short, there will be *yet another* week, out of the 12-13 weeks in the quarter, during which power consumption will take a major hit. And those hits are occurring in areas where Calpine is highly concentrated.


The underlying financials were already problematic. The addition of the Bear Stearns trading deal is not enough to calm the fears of other big banks like BONY and Morgan Stanley, and I think one should take note of those attitudes. Liquidity was already scary enough. Just think how bad it will be when the company reports ANOTHER negative earnings surprise, this time for the quarter in which every energy company hopes to make its biggest profits of the year.

Yeah, the weather is bad luck, but good companies aren't damaged that much by bad luck. Concentrating the portfolio into one region that way was a *management* decision. The financial quagmire is the result of *management* decisions. And that is why Calpine is an absolute SELL right now, in my opinion.

For skeptics or other doubters: Note that two weeks ago, I still thought it worth waiting at least until the earnings report, in hopes of an uptick. The latest news just makes that seem unlikely. And it really, really makes one wonder about the people at Calyon and their sunny analyst opinions.

For the record: No, I have no investment interest in CPN, long, short, or medium. I previously owned the stock, long enough to have done tons of research into it, and in that process I got to know the company and its management, and acquired a lot of experience. All I'm doing here is trying to share the outlook gained from that experience. And like I said, other investors should make up their own minds what to do. I just wanted to put this information here in case it helps, because I don't see it being reported quite this way anywhere else.

Good luck!
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