Judge denies request to appoint Calpine Generating Chapter 11 trustee

By Reshmi Basu

New York, Sept. 25 - A request by a group of bondholders for the appointment of a Chapter 11 trustee to oversee two units of Calpine Corp. was denied Tuesday by the U.S. Bankruptcy Court for the Southern District of New York.

Noteholders of second-lien notes issued by Calpine Generating Co. and CalGen Financing Co. said their interests have been undermined by the parent company, which they say has made untrue and conflicting statements about the units' finances.

In court Tuesday, the counsel for HSBC Bank USA, NA, the indenture trustee for Calpine Generating's $640 million second-priority secured floating-rate notes due 2010, questioned Calpine's assertions that its intercompany accounts are "hopelessly entangled," which has led them to consolidate CalGen's assets into the same pool that will be used to pay off creditors.

If that was the case, then the unit's 2004 prospectus, in which CalGen sold $2.6 billion in bonds, was fraudulent, argued the attorney for the indenture trustee.

Moreover, the lawyer pointed out that CalGen has also filed its own financial statements with the Securities and Exchange Commission.

However, judge Burton R. Lifland refused to appoint an independent fiduciary, noting that a "motion coming at this time appears as a collateral attack."

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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