Calpine Stock, Bonds Fall on Default Rumors

Calpine Corp. stock and bond prices fell Tuesday on speculation it was considering a default after the New York Post reported that the power company had hired bankruptcy and restructuring lawyers from Kirkland & Ellis.

The hiring of Kirkland & Ellis’ restructuring team, led by Richard Cieri and James Sprayregen, was attributed by the newspaper to lawyers for people suing San Jose-based Calpine. The law firm is “a longtime advisor” on matters that include a suit against holders of secured debt, Calpine said in a statement. Sprayregen, based in Chicago, and Cieri, based in New York, didn’t respond to phone messages.

Calpine’s shares fell 38 cents, or 13.4%, to $2.45. Calpine Canada’s 8.5% notes maturing in May 2008 fell 4.3 cents to 58.5 cents on the dollar, according to Trace, the bond-price reporting service of the NASD. The yield rose to 34.2%.

“They have not been acting like a company that’s about to file for bankruptcy,” said Hugh Welton of Fitch Inc. in New York, which rates Calpine’s unsecured debt at CCC-plus, signifying high risk of default. “They’ve been using cash to pay down debt, not hoarding it.”

The energy company probably hired the specialists to explore legal options in case it loses a lawsuit set to begin Nov. 11 in Delaware Chancery Court, the newspaper said. Calpine spokeswoman Katherine Potter confirmed that a hearing in the case was scheduled for Nov. 11.

The company sued Bank of New York last month to free up about $400 million in proceeds from the sale of gas-production assets. The bank froze the proceeds after bondholders complained that Calpine had violated loan agreements by using some of the money to buy natural gas for plant fuel.