San Francisco Chronicle
Calpine battles creditors
Energy firm tries to avoid forced bankruptcy filing
Bernadette Tansey, Chronicle Staff Writer
Thursday, December 8, 2005
Calpine Corp. struggled to avoid a forced bankruptcy filing Wednesday, sparring in a flurry of court actions with bondholder trustees who threatened to declare the San Jose energy firm in default on $3 billion in debt if it did not restore $312 million to an escrow account by day's end.
The company appealed to a Delaware judge for a temporary restraining order preventing Wilmington Trust Co., the bondholders' representative, from moving for immediate repayment. A default on these securities, Calpine said in court papers, could "irreversibly damage Calpine's already precarious financial situation and immeasurably injure Calpine's other stake holders."
"Such a declaration could trigger cross defaults on other Calpine debt," Calpine said in its motion for a restraining order, obtained by the Associated Press. (Bond contracts often require the debtor to be making timely payments on its other obligations.) "Calpine will be unable to calm roiled markets, address the company's continuing cash-flow demands and generate the additional cash necessary to redeposit the restoration amount."
Negotiations and court arguments had not settled the issue by late Wednesday. Even if Calpine wins a delay, it remains perilously close to bankruptcy.
The firm, which launched a program of rapid power plant construction in the late 1990s, was a Wall Street darling during the California energy crisis. But it faced a staggering cash-flow crunch once demand for electricity faded and prices rose for the natural gas that fuels many of its generators.
According to its latest reports, Calpine's debt burden is about $17 billion.
Calpine's position was dire enough last week, when a Delaware court ordered the firm to return $312 million to a Bank of New York trust account by Jan. 22. The ruling said the company had improperly used proceeds of an asset sale to buy natural gas to keep its power plants running, instead of paying its debt.
But that timetable wasn't quick enough for Wilmington Trust, which appealed to the Delaware Supreme Court.
Then, in a move outside the court process, the bondholder trustee informed Calpine that it would be held in default under bond-contract terms if the millions were not returned Wednesday.
Calpine has also appealed the lower court ruling, and the Delaware Supreme Court is set to hear arguments on the expedited appeals by all parties Dec. 15.
Sources close to the case said Wilmington Trust could be trying to make sure Calpine redeposits the money in the Bank of New York account before it files for bankruptcy protection, when the assets would be open to claims by all creditors.
If the millions are returned to the account, they cannot be spent by Calpine while the bondholders have an objection pending.
Wilmington Trust declined to comment in detail but issued a prepared statement. "Wilmington Trust, as indentured trustee for Calpine Corp.'s second priority bondholders, is exercising its fiduciary responsibilities on behalf of those bondholders and is seeking to preserve all of the rights of those bondholders pending the scheduled appeals of the Delaware Chancery Court's decision,'' the company said.
Calpine shares closed at 20 cents in over-the-counter trading. The New York Stock Exchange last week suspended trading in the stock Tuesday and is moving to delist the securities.
Chronicle news services contributed to this report. E-mail Bernadette Tansey at btansey@sfchronicle.com.
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