Lee Ainslie and Maverick Capital's 4Q13 positions (Part 5 of 7)
Maverick Capital and Calpine
Lee Ainslie’s Maverick Capital initiated positions in eBay (EBAY), Valeant Pharmaceuticals International, Inc. (VRX), Catamaran Corp. (CTRX), Calpine Corp. (CPN), and F5 Networks Inc. (FFIV). The fund exited a position in Express Scripts Holding Co. (ESRX).
Maverick Capital started a new position in Calpine Corp., (CPN). The wholesaler of power generation accounts for 2.37% of the fund’s portfolio.
Calpine is one of the largest power generators in the U.S. measured by power produced. It owns and operates primarily natural gas-fired and geothermal power plants in North America and has a significant presence in major competitive wholesale power markets in California, Texas, and the Mid-Atlantic region of the U.S. The company sells wholesale power, steam, capacity, renewable energy credits, and ancillary services to its customers, which include utilities, independent electric system operators, industrial and agricultural companies, retail power providers, municipalities, power marketers, and others. Calpine purchases natural gas and fuel oil as fuel for its power plants and engages in related natural gas transportation and storage transactions. It also purchases electric transmission rights to deliver power to its customers. As a clean energy provider, Calpine believes it’s well positioned for almost any increase in environmental rule stringency.
Calpine’s portfolio, including partnership interests, consists of 93 power plants, including three under construction (one new power plant and two expansions of existing power plants), located throughout 20 states in the U.S. and Canada, with an aggregate generation capacity of 28,104 MW and 699 MW under construction. The company’s plants, including projects under construction, consist of 75 combustion turbine-based plants, two fossil steam-based plants, 15 geothermal turbine-based plants, and one photovoltaic solar plant. In 2013, Calpine’s fleet of power plants produced approximately 104 billion KWh of electric power for its customers.
The power industry in the U.S. has an estimated end-user market of approximately $369 billion in power sales in 2013, according to the EIA.
Calpine reported a fourth-quarter net loss of $97 million or $0.23 per share, compared to profit of $100 million or $0.22 per share, last year. On an adjusted basis, Calpine saw a profit of $5 million from a loss of $86 million a year ago, driven primarily by higher commodity margins resulting from portfolio changes, higher regulatory capacity payments, and new contracts. Operating revenues were up to $1.44 billion from $1.37 billion a year ago. Calpine posted a full-year adjusted EBITDA of $1.83 billion, adjusted free cash flow of $677 million, and adjusted free cash flow per share of $1.52, up 27% versus the prior year. The company benefited from severe weather recently and its “versatile Mid-Atlantic and Northeast dual-fueled fleet performed exceptionally well, providing essential power to the grid during times of scarcity and extreme price volatility.”
On December 2, 2013, Calpine announced an agreement to purchase a natural gas-fired, combined-cycle power plant with a nameplate capacity of 1,050 MW located in Guadalupe County, Texas, for approximately $625 million, which will increase capacity in its Texas segment. Management said it sees price volatility in Texas power markets due to a “tighter supply environment with unprecedented price caps.” Power producers such as NRG Energy and Calpine have been advocating for the introduction of capacity payments where power generators are paid to keep enough capacity available for the summers, when power demand peaks. However, a new forecast on Texas electricity use by the state’s largest power grid said demand could grow considerably more slowly than previously forecast.
The company raised its guidance for 2014 and now projects adjusted EBITDA of$1,900 million to $2,000 million and adjusted free cash flow of $785 million to $885 million.
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