Calpine in Talks Over Default Dispute
Calpine Corp., a San Jose-based power plant operator, avoided the immediate repayment of $3 billion in debt Wednesday after trustees said it had defaulted on terms of some notes but indicated that they would not call the obligations immediately.
Calpine told a Delaware court in a letter late Wednesday that the sides planned to negotiate overnight toward an agreement to resolve the default dispute, and said they would report back to the court today.
“While we do not yet have an agreement Calpine believes that since significant progress has been made the parties should continue the negotiations in an attempt to hammer out a definitive agreement overnight,” lawyers for Calpine said in the letter.
Wilmington Trust Corp., as trustees for Calpine’s second-lien holders, had served Calpine with a notice saying the company faced having to pay off all $3 billion of the second-lien notes unless it immediately repaid the $313 million that a court found it improperly spent to buy fuel.
Calpine asked a Delaware court to issue a temporary restraining order preventing Wilmington Trust from enforcing the default notice, saying it would trigger other defaults and irreversibly damage the company.
Analysts and legal experts agree that a default would lead to an almost immediate bankruptcy filing by Calpine, one of the biggest U.S. power generators, which has been struggling under $17 billion in debt and weak power markets since the California energy crisis of 2000-01.
Calpine’s common stock fell 1.5 cents to 20.2 cents in over-the-counter trading. The stock was suspended Monday from the New York Stock Exchange because of its low price and concerns about its liquidity.
Credit experts said Calpine’s natural gas suppliers would be watching the situation closely and would be unlikely, given the circumstances, to sell Calpine more gas on credit.
“That’s why many companies, when they’re in this position, they’re better off filing [for bankruptcy protection] so that can be sorted out, so that the suppliers don’t have to worry about getting paid,” said Sean Egan, managing director of Egan-Jones Ratings Co.
