Court should reject Calpine's reorganization plan, says second-lien bondholders, 6% convertible noteholders

By Reshmi Basu

New York, Nov. 30 - Two separate groups of bondholders from Calpine Corp. asked the court to reject the company's fourth amended plan of organization, saying that the plan provides an unfair and disparate treatment among creditors, according to a court papers filed Friday with the U.S. Bankruptcy Court for the Southern District of New York.

In one objection, the official committee of second-lien bondholders said the proposed plan classified their claims as "unimpaired," but failed to provide for payments in full, such as post-petition default and compound interest while "simultaneously stripping the second-lien debtholders of the protections granted to them in the underlying loan agreements," which they said makes the plan unconfirmable.

In addition, the plan does not pay for fees associated with the indenture trustee, administrative agent and their advisors.

Moreover, Calpine may be a solvent company, the noteholders said in the objection. But regardless of its solvency, multiple billions of dollars of value will be distributed to junior unsecured creditors, who will have their claims paid in full.

The default and compound interest owed to noteholders is "less than 1% of the amount being distributed to junior creditors...surely not a reason to deny senior secured creditors their contractual rights," they added.

6% noteholders calls plan unfair

In another filing, a group of the company's 6% convertible noteholders contended that they had been misclassified and that the plan lumps dissimilar claims into the same class, a violation of the bankruptcy code.

The noteholders argued that they are placed in the same class as general note claims (Class C-2). However, according to the indenture governing the 6% convertible notes, there are certain contractual subordination provisions, which are lacking in the Class C-2 indenture. In addition, the noteholders have the right to convert the notes into cash and common stock, which is a right not held by Class-2 creditors.

Currently, the noteholders are appealing a decision by the U.S. Bankruptcy Court, which ruled that they are not entitled to claims arising from Calpine's alleged breach of conversion rights and certain make-whole claims.

The noteholders noted that the plan should allow for a reserve for the disputed claims in the event that they prevail in district court.

"Clearly, a plan cannot operate unilaterally to deny creditors of their right to appeal while simultaneously foreclosing any opportunity for reserves to be set for claims that are the subject of an appeal, regardless of whether this court orders otherwise," the noteholders said in the objection.

The confirmation hearing is scheduled for Dec. 17.

Calpine, a San Jose, Calif., power company, filed for bankruptcy on Dec. 20, 2005. Its Chapter 11 case number is 05-60200.

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