Capital Markets

Calpine Bondholders Irked By Investments

The company's trustee for senior secured bondholders is withholding about $400 million from asset sales due to a disagreement over reinvestment plans.
Stephen TaubSeptember 23, 2005

Calpine Corp., the embattled power-generating company, is embroiled in a dispute with its creditors over the use of proceeds from a recent asset sale.

The Bank of New York is withholding about $400 million from the $1.05 billion sale of Calpine’s domestic oil and gas assets in July because a number of bondholders aren’t happy with the way the company plans to reinvest the money, the company confirmed in a press release. BONY is the collateral trustee for Calpine’s senior secured note holders.

Calpine stated in its release that it is permitted to use the proceeds from the sale of its gas assets to acquire eligible natural gas or geothermal-energy assets. It has used about $360 million of the proceeds to acquire natural gas assets. Following those acquisitions, about $400 million remains in the gas sale proceeds account with BONY.

Under the company’s existing bond indentures, the proceeds from the sale of the gas assets were offered to holders of the company’s first-lien notes. The aggregate principal amount of the outstanding first-lien notes was $785 million, of which bondholders tendered about $139 million to Calpine in response to its offer.

To be sure, the dispute hasn’t been settled. But Calpine spokesperson Rick Barraza told The Wall Street Journal that the flap has “not affected our ability to buy gas” for the company’s power plants. For the past few years, Calpine has been on a borrowing binge, and now has $17 billion in debt.

The company also stated that it is evaluating its options in response to the bank’s action and intends to pursue all of its legal rights and remedies to resolve the dispute as soon as possible.