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Calpine Credit Rating 2005: A Somber Picture of Corporate Credit

Calpine Corp. is a power company with headquarters in San Jose, California, that has been having some financial problems lately, to put it mildly. The Calpine credit rating 2005 leaves much to be desired, and along with other issues, does not inspire optimism in investors. Even the company’s top executives themselves do not seem to have faith in the company, given the fact that founder and chief executive officer Peter Cartwright has decided to unload or sell at least$10 million worth of his stocks.

Simply put, a corporate credit rating indicates the ability or willingness of a company to pay back its loans or debts to its creditors. The low Calpine credit rating 2005 suggests that the company is unable to give back what it owes. And that’s not surprising, considering it has filed for bankruptcy. Fitch Ratings, one of the top agencies that rates corporate credit, has downloaded Calpine’s long term issuer default rating to a D in December 2005. Take note, though, that this doesn’t mean that Fitch is recommending that investors buy or sell Calpine shares; as mentioned earlier, this corporate credit rating only pertains to Calpine’s ability (or lack thereof) to pay its debt.

The “D” corporate credit rating of Calpine also implies that it has defaulted on its junk bond status. Junk bonds are high-risk investments, meaning you could lose a lot of money if you decide to buy them. This is because they are often unsecured or are barely supported by company assets. And since Calpine has filed for bankruptcy, an investor would probably want to think twice about investing in them. For some investors, however, junk bonds can be an appealing prospect since they can pay higher yields than investment-grade bonds.

Another reason for Calpine’s poor corporate credit is the way the company handles its books, or its accounting practices. Some years ago, energy giant Enron collapsed in large part because of their fraudulent accounting methods. A number of financial experts are suggesting that Calpine is doing some accounting hocus-pocus to disguise the fact that it won’t be able to pay off its estimated debt of $14 billion. Indeed, some analysts are speculating that Calpine is another Enron in the making.

The Calpine credit rating 2005 picture is a disheartening topic for many, and not only for Calpine investors. But it can also be a lesson in the importance of good corporate credit, as well as the basic principles of financial management and business ethics.