Essay about Calpine Case

1936 Words Nov 23rd, 2013 8 Pages
Case Assignment: Calpine Corporation Restructuring
This case illustrates how bargaining among bankruptcy stakeholders over enterprise value functions inside the confines of a Chapter 11 case. Calpine is a leading independent provider of energy that filed for Chapter 11 protection in December 2005. This case picks up in early November 2007, just prior to a November 15, 2007 deadline set by the bankruptcy judge for submission of expert reports on the enterprise valuation of the restructured Calpine.

1 If the parties to the case cannot agree on a valuation, the judge will select his own valuation at the “confirmation” hearing on December 17, 2007.

2 The judge has made it clear to the parties that a cram-down solution will be less than
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We decide not to use the comparable method.
2 because after we get the TEV of calpine, it seems that the company has a capital structure quite different from its comparable, because of this, we are wondering if these comparable companies can give a proper estimation of calpine

Why not use APV model
1 the reason we do not use APV is that APV will ignore the potential tax benefit generated by NOL carry forward.

Our project team evaluates Capline using the FCF discounted by cost of capital.

Assumption of beta: The estimated Beta for Capline is derived using the average unlevered beta from all comparable companies listed inside the exhibition.

Assumption of cost of debt: we decided to use 10 year B corporate bond rate as the cost of debt for capline after restructure.

Assumption of the terminal growth rate: We assume that under the worst case, the terminal growth of the company is the same as the GDP growth 2.5 percent, and under the best case the terminal growth rate will be 3(the upper bond of the GDP growth).

Assumption of the working capital : we assume there will be no change in the working capital throughout the projection years.

Assumption of market position of capline: we assume that capline will operate as expected and price of the nature gas in the

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