Delaware judge gives Calpine until Jan. 22 to restore funds | VailDaily.com
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Delaware judge gives Calpine until Jan. 22 to restore funds

WILMINGTON, Del. – A Delaware judge on Friday gave struggling power merchant Calpine Corp. until Jan. 22 to restore $313.6 million in improperly spent proceeds from the sale of its natural gas supplies back into an escrow account, a decision that could bring the company one step closer to bankruptcy.Court of Chancery Judge Leo Strine rejected Calpine’s offer to restore $199 million into the account within 90 days and ordered the company to come up with all of the $313 million, plus interest, but he also refused a request by trustees for the bondholders to restore the money sooner.”There’s no perfect equitable solution to this,” said Strine, adding that he was sensitive to the concerns of all Calpine stakeholders, and aware that the company this week replaced its longtime chief executive officer and chief financial officer.”Calpine ought to be getting on its horse,” the judge said. ” … This gives them time to plan.”Calpine issued a statement Friday afternoon saying it expects to appeal Strine’s decision and would ask the Delaware Supreme Court for expedited treatment.Shares of Calpine fell 9 cents, or 24 percent, to 29 cents in late afternoon trading on the New York Stock Exchange.In a ruling 10 days ago, Strine agreed with Calpine’s bondholders that using proceeds from the $1 billion sale of its remaining natural gas supplies to buy natural gas in storage for operating purposes was not allowed under its indenture agreements.Calpine said Thursday that it is continuing to evaluate its options after Strine’s decision, “including the possibility of filing for bankruptcy.”In a memorandum filed with the court Wednesday, Calpine said “an avalanche of negative economic events” since Strine’s Nov. 22 ruling had “severely undermined” its ability to do business and make enough money to satisfy a judgment in the case.Strine said Friday that he was “rankled” by the company’s suggestion that he is responsible for its problems.”I had not known that I was managing Calpine for many years,” the judge said, adding that reading the company’s briefs had made him “a little less sympathetic.”Calpine attorney Robert Haney Jr. apologized to Strine for the tone of the briefs, saying it was not the company’s intention to blame him for its difficulties.”I know your client is in a pickle, and I don’t think it’s of anyone’s interest to exacerbate that,” the judge replied.Strine’s ruling came in a lawsuit in which San Jose, Calif.-based Calpine sought to force the Bank of New York to release up to $400 million from the escrow account, which was frozen because of the dispute with bondholders.The company maintained that buying more natural gas is one of the options permitted under its agreements with lenders. The bondholders argued that Calpine purchased the equivalent of a futures contract that was not allowed under restrictions imposed on the company.The sale of its natural gas supplies was part of Calpine’s attempt to lighten its heavy debt load.Calpine’s agreement with bondholders allowed it to use the sale proceeds either to lower its debt or to purchase other “designated assets,” which specifically excluded contracts for the purchase or sale of natural gas, and natural gas supplied under such contracts.Calpine used $139 million in sale proceeds to buy back some of its top-priority debt at face value of the notes, but other bondholders refused to sell at that price. Calpine, which claims some bondholders want a “speculative premium,” then withdrew more than $300 million from the account to buy natural gas in storage, a move that angered some bondholders.While giving the company until Jan. 22 to restore the $313 million, Strine said he was not changing the timeline for the funds still in the escrow account.”There’s going to be two pots of money,” he said.Calpine announced Thursday that it had made another tender offer to first-priority bondholders, but under terms of its indenture agreements, the company may be required to extend a tender offer to second-priority bondholders no later than Jan. 3.Moody’s Investors Service downgraded the debt ratings of Calpine and several of its subsidiaries on Friday to reflect “deterioration in the company’s liquidity position and expectations that poor results will continue in the near term ….”—On the Net:Calpine: http://www.calpine.comVail, Colorado


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