Calpine Case Essay

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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…show more content…
As such, Calpine is very much a case about determining the reorganization value, and you will be able to use each of the valuation methods we have talked about in class to value the firm. For the DCF, as in any cases, you are constrained by what information is available to you. While you are given a pro forma description of the debt structure for the emerging firm, you do not have projections of the future debt scheduled payments and the projected actual cash tax payments of the firm. Thinking about which DCF approach to use, generally an APV or CCF approach makes sense in this setting. Here, however, you are still able to use a FCF / WACC approach ; in doing this, you will need to separately value the NOLs and can add this to the DCF value you would get from a FCF / WACC approach. This is in fact what the various financial advisors did at the time (so that the projected information you are given can be used in this way). Let me know if you have any questions as you work on the case. Also, I have separately emailed to you copies of your HMH writeup, in case this is of help for you to review prior to the Calpine case. 1. As the representative of your stakeholder group, what range of value would you propose (presume you are making your case in the negotiations or in court) for Calpine? Explain your choice of valuation method(s), and provide enough supporting information for your input assumptions. Note that you may be
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