Calpine proposes clarified first-lien debt repayment order; objectors ordered to prove case against payment

By Caroline Salls

Pittsburgh, May 16 - Calpine Corp. was granted a hearing to be held Wednesday for parties opposed to its approved repayment of its first-lien debt principal to show why the debt should not be repaid amid controversy surrounding the repayment order that the company said leaves it unable to repay the debt, according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to Calpine's motion for the show cause hearing and for an order clarifying the first-lien debt repayment order, "despite the clear and unambiguous import of the repayment order - i.e., [Calpine is] permitted to repay immediately up to $642.11 in first-lien debt principal - [the company is] presently caught in the crossfire (and untenably so) between parties who disagree about the scope of the relief granted."

Calpine said it has drafted a proposed order clarifying the repayment order.

The company said after the order was entered, it asked collateral trustee The Bank of New York to instruct Union Bank of California, NA to release the $412 million in asset sale proceeds it held in Calpine's control account to the first-lien trustee as repayment of the first-lien debt principal.

The Bank of New York said it could not release the proceeds until Calpine met procedural requirements under the collateral trust agreement, which Calpine said Tuesday it could not do for a variety of reasons.

On Monday, first-lien trustee Law Debenture Trust Co. of New York appealed the repayment order.

In addition, the first-lien noteholders objected to the original request for repayment because they said the company does not intend to satisfy the lenders' demand for a make-whole premium payment.

As previously reported, Calpine said the proposed repayment does not trigger any make-whole obligation and allowing immediate repayment of the first-lien debt and postponing any litigation related to the make-whole issue would significantly benefit the company.

The company said it would benefit by stopping its continued losses arising from the negative interest rate spreads between its various capital sources and obligations.

Specifically, Calpine said the $412 million in proceeds from its July 2005 sale of all of its domestic oil and natural gas reserves that it plans to use to repay the first-lien debt principal is earning interest in a designated control account at an average rate of 4.42%, but the interest on the debt is 9.625%, for a loss of $413,000 per week.

Calpine said repaying the debt would also reduce the $350,000 incurred in administrative expenses each month in paying the first-lien noteholders' professional fees.

Calpine issued $785 million of 9 5/8% first-priority senior secured notes due 2014 on Sept. 30, 2004.

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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