Calpine Warns of Dire Cash Shortage
Power producer Calpine Corp. said Thursday that it might consider filing for bankruptcy protection and that there was a “substantial risk” it might not have enough money to pay its debts or keep operating.
The announcement came after the company earlier asked a Delaware court to give it at least 90 days to repay millions of dollars it spent to buy fuel for its plants, saying anything less could be “potentially ruinous.”
Calpine shares fell 11 cents, or 22%, to 40 cents, and its bonds slid further.
“Regardless of how the court rules in this case, there is a substantial risk that Calpine will not have sufficient cash to satisfy the restorative remedy ordered by the court and its ongoing debt service obligations and operating expenses,” the San Jose-based company said in a statement.
“As a consequence, Calpine continues to evaluate its options, including the possibility of filing for bankruptcy.”
In documents filed with the Delaware court Wednesday night, Calpine argued that it shouldn’t have to repay the full $313 million in asset sale proceeds that the court found it had spent improperly. Instead, the company said it should have to pay only $199 million to the sale proceeds account, which is intended to be used only for the purchase of certain kinds of assets and the repurchase of outstanding debt.
“An order from this court granting Calpine the requested 90 days would send a strong signal to the markets that Calpine will have sufficient breathing room to work through and stabilize this difficult financial situation,” the company said in the filing. “Rarely does so much hang in the balance of this court’s discretion.”
Vice Chancellor Leo Strine of the Chancery Court ruled last week that Calpine violated the terms of certain indentures when it used the proceeds from the sale of oil and gas production assets to buy natural gas to fire its power plants.
Wilmington Trust, as trustee for certain debt holders, froze the asset sale proceeds this year after some note holders complained about the way Calpine was using the money. The power producer subsequently sued Wilmington, leading to last week’s ruling.
In its proposal, also filed with the court late Wednesday, Wilmington asked the court to order Calpine to repay the misspent proceeds by Dec. 9. Wilmington cited a cash balance of $800 million as of Sept. 30 as evidence that the company had the ability to pay.
