Harbert says Calpine's Saltend sale hurts bondholders, threatens legal action

New York, April 13 - Calpine Corp.'s sale of the Saltend Power Generating Facility and the issuance of $260 million of redeemable preferred shares hurts bondholders, Harbert Distressed Investment Master Fund, Ltd. said in a letter to the directors of Calpine Corp.

And the special situation and distressed fund manager warned that it has instructed its lawyers to begin legal action if Calpine does not take requested measures by April 26.

Calpine's sale of the Saltend plant and the issuance of the preferreds by Calpine European Funding (Jersey) Ltd. impairs the rights of holders of Calpine Canada Energy Finance II ULC's 8 7/8% bonds due October 2011 and 8¾% bonds due October 2008, Harbert claimed. Harbert added that it holds a "significant" amount of both issues.

Harbert described Calpine's Saltend announcements as "evidence of an effort to strip the value of the Saltend Facility out of Calpine Jersey and, indirectly, its parent, Calpine Canada Resources Ltd. to the prejudice of Finance II's bondholders."

It warned that without the Saltend facility Calpine Canada Resources Ltd. will be unable to meet its €275 million obligation to Finance II, which supports the bonds.

Harbert added: "We strongly suspect that the proceeds are intended to be used to repurchase or refinance Calpine debt, and that these transactions are part of an ongoing de facto liquidation and reorganization of Calpine in contravention of these representations [in the prospectus]."

"We have serious and growing concerns over Calpine's solvency," Harbert commented.

The fund added that it wants public written confirmation that the cash proceeds of any sale or financing of the Saltend Facility will be held in cash at Calpine Canada Resources until the maturity of the bonds.

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