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Calpine Is Denied Access to Account

Times Staff Writer

Beleaguered Calpine Corp., a once-highflying power producer that has been selling assets to reduce debt, has confirmed new troubles: The company said Thursday that it was unable to withdraw $400 million from an escrow account because of a dispute with its bondholders.

Calpine said the Bank of New York, the bondholders’ trustee, froze access to the cash after bondholders complained about how Calpine was spending money from the account. Calpine Senior Vice President Rick Barraza said the San Jose company intended to pursue legal remedies to resolve the issue as soon as possible and was in no danger of running out of cash. He declined to specify what actions the company might take.

The conflict caused Morgan Stanley to postpone the sale of $400 million in Calpine equity that was to be offered this week, the New York Post reported Thursday, citing an unnamed source. Calpine refused to confirm the report.

The disagreement is the latest in a string of developments that have dogged Calpine’s volatile stock and bonds.

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On Tuesday and Wednesday, rumors of the trustee’s move sent Calpine shares down 60 cents, but the shares rebounded a penny Thursday to close at $2.66. The stock has ranged between $1.32 and $4.08 in the last year.

“The declines in the last couple of days have been way overdone,” said Craig K. Shere, an analyst at Calyon Securities Inc., a firm that rates the stock a “buy” and has done business with Calpine in the last year. “They have these fears because they don’t understand what’s going on. This is probably going to only take some weeks to work out.”

Jon Kyle Cartwright, who follows Calpine’s bonds as managing director of institutional investments at BOSC Inc., agreed with Shere.

“I think there’s much to-do about nothing,” said Cartwright, who has a “buy” rating on Calpine bonds. “I believe this is a smart and honest management team that is dedicated to turning this company around. I don’t believe there’s a lot of smoke and mirrors here.”

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The funds at issue are proceeds from the sale of Calpine’s oil and natural gas assets in July for $1.05 billion. The money from the sale was to be offered to holders of the company’s first lien notes, but also could be used to purchase natural gas and geothermal energy assets, the company said.

Shortly after the sale was complete, Calpine offered to buy back the $785 million in outstanding first lien debt. Only $139 million worth of the notes were tendered, with the remainder choosing to hold tight.

It subsequently used some of the leftover funds to buy natural gas for its power plants, according to the company. The remaining note holders questioned that use, prompting the Bank of New York, the escrow account trustee, to block further withdrawals until the matter was resolved.

The move spooked investors because Calpine’s cash flow remains weak compared with its debt load, which totaled $18.6 billion at the end of June. The company had assets of $27.8 billion, and cash on hand and restricted cash of $1.5 billion on June 30.

Calpine’s Barraza sought to allay cash flow worries Thursday, saying in a interview that “the withholding of the $400 million is not impacting our liquidity position at all.”

Calpine, the nation’s largest consumer of natural gas, also worried investors when it noted at an analyst meeting this week that it had not locked in gas prices to cover its entire portfolio of fixed-price power supply contracts for the rest of this year. Calpine sells 30% of its power under contracts that have no provision for adjusting the electricity rates to offset the rising cost of natural gas -- and prices for the commodity have been hovering around record highs in recent weeks.

But Shere, the analyst at Calyon, said the hit to Calpine’s bottom line would be less than many had feared: “We’re talking about some tens of millions of dollars, not hundreds of millions of dollars.”


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