Calpine first-lien trustee objects to proposed debt repayment without make-whole premium

By Caroline Salls

Pittsburgh, May 8 - Calpine Corp. first-lien trustee Law Debenture Trust Co. of New York objected to the company's motion to repay its first-lien debt, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Law Debenture said that since filing for Chapter 11 bankruptcy, Calpine has been attempting use its bankruptcy debtor status to "circumvent [its] unambiguous contractual obligations under the Calpine first-lien indenture and voluntarily prepay the first-lien notes without paying the applicable premium" triggered by the payment under the indenture.

According to the objection, Calpine has failed to demonstrate its authority to unilaterally treat the first-lien noteholders' claims outside of a plan of reorganization and redeem the first-lien notes without paying the make whole premium, or to enjoin the first-lien trustee from litigation over payment of the premium until a much later date in the case.

On April 19, Calpine requested court approval to repay up to $646.11 million in first-lien debt principal, which constitutes the entire amount of outstanding principal of its first-lien debt.

According to the motion, 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.

In addition, the company may seek approval to borrow up to an additional $233.70 million from its debtor-in-possession facility to pay the rest of the first-lien debt principal, which would save it $77,500 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.

A hearing is scheduled for May 10.

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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