Calpine Sues Bank of New York Over Freezing of Escrow Account

Calpine Corp. said it was suing the Bank of New York for the right to withdraw as much as $400 million from an escrow account that had been frozen because of a dispute with the struggling power merchant’s bondholders.

The lawsuit, filed in the Delaware Chancery Court, seeks an injunction that would require the Bank of New York, as the account trustee, to release the money to San Jose-based Calpine so it can buy more natural gas.

In a letter to Calpine last week, the Bank of New York said it had imposed the freeze because bondholders were questioning how the money should be used.

Calpine has already withdrawn $360 million from the account to buy natural gas, a move that incensed some bondholders who believed that the money should have been held to ensure they are repaid.