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It seems hard to imagine that bankrupt Calpine Corporation (OTC:CPNLQ) could become the greatest turnaround of 2007. But based on how the debt is trading and the speculative activity of the stock in the pink sheets, Calpine is looking like another K-mart.

This independent power producer could have an outcome vastly different from Enron, given our demand for electricity and power and the fact that Calpine has real assets which generate real cash flow. Calpine's assets include 84 "natural gas-fired and geothermal power plants, which have a capacity of nearly 25,000 megawatts."

Calpine announced its bankruptcy and intention to restructure under Chapter 11 in December, 2005. The company today has numerous assets and customer supply contracts that are of interest to buyers of its bonds and tits pink sheet equity. But there is an additional and unique asset that has attracted attention as an even greater value-added for Calpine.

An hour north of San Francisco, in the Mayacamas, there are natural steam field reservoirs below the earth's surface that Calpine is harnessing to make "clean, green, renewable energy for homes and businesses" in California. The Geysers satisfies nearly 60% of the average electricity demand in the North Coast region from the Golden Gate Bridge to the Oregon border. According to Calpine, these Geysers are one of "the most reliable energy sources in California delivering extremely high availability and on-line performance and accounts for one-fourth of the green power produced in California."

Now, this represents not just energy potential but an incremental earnings opportunity for the future owners of Calpine, since clean energy tends to receive special subsidies, assistance and taxation status.

On Thursday, March 29, the company released a statement saying that "Calpine has received $5 billion of debtor-in-possession funding to refinance much of its debt at lower interest rates, which will save the independent power producer about $100 million a year." Combined with the private equity buyout rumors, this has put Calpine's stock in motion.

Type of company: A speculator's party right now. A company that is in Chapter 11 which means that there is significant risk and unknowns regarding the equity holder's ultimate outcome. This is an extremely risky bet and you have to assume you could lose your money if you invest.

Price target: The stock has risen from $0.21 to more than $2 (reaching a high of $2.19) on rumors of a private equity firm buyout. Although it is impossible to know what the stockholders will end up owning when Calpine comes out of bankruptcy (bond holders have precedence over equity owners), there will be significant upside -- potentially a ten times increase in value -- to $20 within 18 to 24 months.

CPNLQ.PK 1-yr chart:

calpine chart

Source: Calpine May Be The Turnaround Story of 2007