Why has CALPINE POWER INCOME FUND (TSX: CF.UN, OTC: CLWIF) rallied so much in the last week?
I think that investors will be surprised just how hard the Calpine Corp Chapter 11 will be on Calpine Power. Although, for example, the loan is secured, it can take years for Calpine Power to get its hands on the security. Has the market adequately factored in the risks and the length of time (potentially measured in years) to get it all resolved? Answer: The Income Fund has rallied in large part because the initial panic has subsided about the impact of the Calpine Corp bankruptcy. You may be right that the Chapter 11 will take several years to resolve, given the company’s attempt to overturn so many power sales contracts. Resolving the Mirant (NYSE: MIR) bankruptcy, for example, also took several years. But the obligations of Calpine Corp to the Income Fund are secured by assets that generate strong cash flows; and my understanding is that the agreements therein ensure it will get the cash flows if Calpine Corp defaults–creditors have no claim on the assets, either. The Income Fund
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