Capital Markets

Judge Nixes Calpine Purchases

The Bank of New York has been withholding about $400 million from the $1.05 billion sale of Calpine's domestic oil and gas assets in July because a...
Stephen TaubNovember 22, 2005

A federal judge has ruled that power company Calpine Corp. cannot use $313 million of proceeds from the sale of its domestic gas assets to purchase certain gas-storage inventory since the company violated certain bond indentures, according to a Calpine statement.

Vice Chancellor Leo E. Strine Jr. of the Delaware Court of Chancery made the ruling in favor of The Bank of New York (BONY), as collateral trustee for Calpine’s senior-secured-note holders, and Wilmington Trust Co., as indenture trustee for Calpine’s first-lien and second-lien notes. Strine has not ruled on the appropriate remedy.

“The mere fact that Calpine restructured the recent contracts in order to take ‘title’ to the purchased gas upon contracting and before delivery does not suffice to make those contracts anything other than what they are plainly labeled and obviously are: ‘contracts for the sale or purchase of natural gas and the gas supplied under such contracts,’ ” Strine ruled, according to the Associated Press. “Calpine’s use of the [proceeds] r this purpose was therefore impermissible and it may not proceed to make further purchases of this kind.”

BONY has been 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 weren’t happy with the company’s plans to reinvest the money. The $400 million remains in a BONY account.

Calpine had insisted that it is permitted to use the proceeds from the sale of its gas assets to acquire eligible natural gas or geothermal-energy assets, and it had used about $360 million of the proceeds in that manner. In today’s statement, Calpine asserted that it is still permitted to use the proceeds of natural-gas asset sales to purchase certain natural-gas assets or repurchase certain secured debt in accordance with the company’s indentures.