The rating downgrade on Calpine Corp. is directly attributable to the company's deteriorating financial performance in the face of its growing debt burden and persistently weak electricity margins. In addition, Calpine's business risk continues to worsen as it continues to build new power plants and shift its portfolio toward the more volatile merchant power sales and away from the more predictable contracted power sales. The 'B' corporate credit rating reflects the following risks: Calpine's credit statistics have significantly deteriorated. For example, adjusted funds from operations (FFO) interest coverage dropped from 2.2x in 2001 to 1.5x in 2002, significantly below expectations. The deterioration is due to lower power prices on the merchant portfolio and higher levels of debt than anticipated. In
