Calpine Corporation Harvard Case Solution & Analysis


The corporate seniors of finance at the Calpine Corporation, Bob Kelly (SVP) and Rohn Crabtree (VP) believed that the company had three options to finance the growth strategy. They are as follows:

  • Finance at the subsidiary level
  • Corporate debt at the parent level
  • Hybrid option both project and corporate finance


Financing at the subsidiary level comprises of the project finance initiative, where the financing is conducted for a particular project on the bases of the future cash flows of the project rather than on the value of the assets of the company. Moreover, the financing is provided for long-term industrial projects focused on developing infrastructure.

The finance is either provided by a number of equity investors, who are known as sponsors of the project through a combination of banks or institutions, which are willing to provide the loan. This type of financing is usually conducted through a non-recourse loan that is the assets of the project are pledged against the finance amount and if the company defaults on the payments then, the financers hold the entire assets of the project that includes the revenue generating assets and hold the right to assume control of them if the company is unable to comply with the loan terms due to any change.


Corporate debt at Parent level comprises of the Corporate Bond initiative. A corporation is able to raise finance by issuing bonds in the local market to be able to expand its operations. This process comprises of long-term debt, which has a specific maturity data with a minimum time period of a year.

Bonds are often listed on the stock market; these types of bonds are called listed bonds. Corporate bonds are too often listed on the stock markets, the company pays a fixed coupon rate over the bond, which is taxable but sometimes the company offers a high redemption value rather than a coupon rate.

Some of the corporate bonds also provide the right of a call option that the company issuing the bond holds the right to call the bonds back from the market before the maturity.


The third option derived for the financing the power plant projects of Calpine by Kelly and Crabtree was a hybrid of both the options 1 and 2. Under this plan, a new subsidiary will be formed that will be named as Calpine Construction Finance Company through which finance of $1billion will be taken under a secured revolving facility with a four-year maturity whereas the company will inject $430 million.

Secured Revolving Facility is a facility that is provided to a individual or a corporation where a set amount of finance is made available and finance in availed as well as repaid according to the convenience of the company by keeping the finance revolving through which multiple projects can be financed at a time, the loan has a fixed maturity where interest expense along with commitment fees is charged along with carry forward charges.



Project financing has been the preferred choice for raising finance for new operations for the company and the option had shown positive results when even it was availed by making the company’s officials and seniors more reluctant towards it as this would be a more comfortable option; considering the fact that it has been done previously. Moreover, terms of such projects are well-known and negotiated among the bank and the company; the management team of the company is well-versed in such a plan’s implementation.

Yet questions were raised by the senior finance executives about such a project’s feasibility and flexibility; considering the fact that the company required $300 million each for 4 projects. As for now, the company is working towards a growth strategy, seeking quick growth to be able to dominate the market and hold dominance before this technology and tactics are availed by every competitor.

Creating and negotiating such a deal for 4 projects individually will be costly and time-consuming; however, it is a fact that the company does not have time for such a deal.

Considering the fact that the company requires $6 billion in total over a period of 5 years and there are only 50 or so banks that provide project loans where each bank holds a per customer limit, which will stand at a $100 per bank making it practically impossible for such a strategy be implemented.


The company is also familiar with the financing option of issuance of bonds since the corporation was able to achieve Ba2/BB rating when it had issued bonds in 1999 and was able to raise $350 million, which has raised the sub-investment grade of the corporation at an upper end..................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Calpine Corporation Case Solution Other Similar Case Solutions like

Calpine Corporation

Share This