Calpine Geysers debtors granted crucial interim OK to enter DIP agreement as guarantors to avoid default

By Caroline Salls

Pittsburgh, Feb. 6 - Calpine Corp.'s Geysers debtors, Geysers Power Co., LLC and Silverado Geothermal Resources, Inc., obtained interim approval to enter into a debtor-in-possession credit agreement as guarantors and pledge their assets in support of the Calpine's repayment obligations under its $2 billion DIP, according to Monday filings with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, the order was necessary to avoid an event of default under the DIP agreement, "with potentially devastating consequences for [Calpine] and the Geysers debtors."

When it granted Calpine final approval of its DIP on Jan. 25, the court determined that some debtors immediately required proceeds of the DIP financing in order to continue their operations.

The court also said that the DIP lenders would not have agreed to provide the financing unless the Geysers debtors and Silverado subsequently entered into the DIP agreement as guarantors and granted super-priority interests in their assets.

If an event of default occurs, the lenders could accelerate payment on the DIP, which "would have a catastrophic effect on [Calpine] and foreclose the possibility of a successful restructuring."

Also, the Geysers debtors said failure to allow them to enter into the DIP agreement as guarantors would also have a devastating effect on them because they depend upon critical power marketing, administrative services and operations and maintenance services provided by Calpine entities.

In addition, creditor Celanese Ltd. appealed the bankruptcy court's final approval of the $2 billion DIP. The appeal will be heard in the U.S. District Court for the Southern District of New York.

A hearing on final approval to allow the Geysers debtors to be guarantors on the DIP is scheduled for Feb. 23.

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

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