Calpine seeks to amend cash collateral order for project loan, second-lien protection payments

By Caroline Salls

Pittsburgh, Dec. 11 - Calpine Corp. requested court approval to amend its cash collateral order to allow project intercompany loan transfers and to pay adequate protection to second-lien debtholders, according to Friday filings with the U.S. Bankruptcy Court for the Southern District of New York.

Under the first amendment, the company is seeking the immediate release of $258 million for transfer as a loan to Calpine from a project debtor and to facilitate future requests.

Calpine said the cash collateral order addresses project debtors' ability to distribute excess cash flow to their parent entities via project intercompany loans.

In this case, Calpine Generating Co., LLC, one of Calpine's largest subsidiaries, has $258 million in excess cash flow available to transfer to Calpine.

However, the CalGen collateral agent disagreed with the company's interpretation of the cash collateral order's authorization of transfers and indicated that it would not grant Calpine's transfer request. Calpine said the parties have crafted an agreement to provide for the immediate and future transfer of project intercompany loans, with the provision of additional security to CalGen's noteholders.

According to the second amendment motion, under the cash collateral order, Calpine, the official committee of unsecured creditors and the unofficial committee of second-lien debtholders have until Dec. 31 to agree on future adequate protection payments to the second-lien debtholders.

Calpine said a negotiated agreement has been reached by the parties, also including the official committee of equity security holders.

Specifically, Calpine will not be required to draw on its $1 billion revolving credit facility to make adequate protection payments to the Calpine second-lien debtholders, but will be required to use its unrestricted cash to make the payments, subject to a $10 million cushion.

Provided there has been no default or event of default under the company's debtor-in-possession facility, Calpine will pay the debtholders $100.26 million in four equal installments of $25.065 million on March 31, June 30, 2007, Sept. 30, 2007 and Dec. 31, 2007 for 2006 adequate protection payments.

In addition, Calpine will make 2007 adequate protection payments according to an agreed-upon schedule.

In exchange for these payments, the second-lien debtholders will waive some claims for or entitlement to default interest or interest on interest.

If the adequate protection payments are ultimately recharacterized as a payment of principal, the second-lien debtholders have agreed to waive any claim for or entitlement to any make-whole amount or any prepayment penalty on the recharacterized payments.

If Calpine fails to pay the 2006 or 2007 adequate protection amount when due, the second-lien committee can terminate the adequate protection arrangement under the cash collateral order.

A hearing is scheduled for Dec. 20.

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

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