posted
reward is a lot greater than the risk-jmo-if they win the court decision the 11th. today-back over 3.00 short term-if they loose the decision-a lot of downside is figured in the PPS already-jmo
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people are just panicking because one of the articles says that it has a 50% chance of going bankrupt if it loses this case. I don't think that will happen so i took the risk.
-------------------- I'm a genius at 16. Believe it.
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WILMINGTON, Del. (Dow Jones)--A judge pressed Calpine Corp. (CPN) Friday on key points in its legal fight with lenders to free up proceeds from the sales of its domestic gas assets.
Calpine Chief Financial Officer Robert Kelly was the first witness to take the stand as the San Jose energy company's dispute with holders of its debt continues in Delaware's Chancery Court.
Calpine wants the Court to rule that it did not violate debt covenants, as lenders allege, when it used proceeds of the sale of natural gas resources in connection with the spin-off to buy gas to power its plants. The Bank of New York, collateral trustee for Calpine's senior secured noteholders, withheld the proceeds when some lenders objected to its plan.
Just before the lunch break, Vice Chancellor Leo Strine pressed a Calpine expert to admit that the company's use of sale proceeds in a deal to acquire natural gas in storage was riskier than an outright purchase.
"This is just like a forward contract, right?" the judge queried Scott Jones of Lexecon, FTI Consulting's energy arm.
In debate with Jones, Strine did not seem inclined to take no for an answer.
That's a key point for bondholders, who say Calpine breached covenants in debt deals by improper use of $313 million of the cash it received by selling assets that were their collateral. Some attorneys observing for arbitrageurs told clients in morning hallway conversations that noteholders seem to have scored some telling blows in the first hours of testimony.
The company's stock recently shed 22 cents, or 11.2%, to $1.74.
Calpine brought the Delaware action, seeking a judgment establishing its hold on cash that is claimed as collateral by holders of $785 million, face amount, 9 5/8% first priority senior secured notes due 2014.
Holders of $2.5 billion in face amount of second lien debt are also being heard in the case, since they also claim the cash as collateral.
If Calpine fails to get the court on its side, both groups of noteholders will have heavy leverage in dealing with the energy company.
Calpine CFO Kelly said essentially all the company's assets are pledged as collateral on the debt.
Kelly also said he negotiated bond terms that would allow Calpine maximum freedom to sell its assets and reinvest proceeds.
The way Calpine reads its deal with bondholders, using sale proceeds to buy gas to fuel electric plants is not a breach, the financial chief said.
However, Kelly admitted, if Calpine's use of cash from the deal is not in keeping with bond covenants, the money will have to be used to buy back second lien notes at par.
Bank of New York and Wilmington Trust Co. (WL) are pressing the company on behalf of lenders.
A defeat in the Delaware court suit could mean more trouble for Calpine's effort to buy its way out of debt.
Since May, when Calpine said it wanted to shake about $3 billion from its debt load, the company has managed to pay down only about $1.1 billion.
Earlier this year, Calpine was stymied in its effort to use the proceeds to buy down $785 million in senior debt.
Only $139 million of the debt was tendered, Kelly said, leaving Calpine casting about for a way to reinvest the money.
Bondholder litigation has kept the company's cash tied up and dragged its credit rating down.
Earlier this month, Fitch Ratings lowered Calpine's rating, citing continued trouble with bondholders.
After senior debt holders rebuffed its offer to buy back top line loans, Calpine began buying unsecured debt.
Kelly said the unsecured debt, which trades at prices of 50 cents to 55 cents on the dollar, is a better deal for Calpine than the second lien notes, which have been trading around 70 cents on the dollar.
-By Peg Brickley, Dow Jones Newswires; 302-521-2266; peg.brickley*dowjones.com
-------------------- Raptor----Don't confuse bad luck with bad judgement
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UPDATE 1-Calpine sales proceeds, court hearing adjourns Fri Nov 11, 2005 06:02 PM ET (Recasts, adds details, background, byline, stock price) By Julie MacIntosh
WILMINGTON, Del., Nov 11 (Reuters) - A Delaware court judge adjourned a day-long hearing on Friday without issuing a ruling in a dispute between independent power producer Calpine Corp. (CPN.N: Quote, Profile, Research) and Bank of New York Co. (BK.N: Quote, Profile, Research) over $395 million in frozen asset sales proceeds.
The Delaware Chancery Court judge, Vice Chancellor Leo Strine, directed the two sides to file 10-page legal opinions by Tuesday and to be back in court on Nov. 17 for oral arguments.
The hearing before a spillover crowd was marked by dry, technical financial testimony given by Bob Kelly, Calpine chief financial officer; Janet Dietrich, senior vice president of subsidiary Calpine Energy Services; and a handful of expert witnesses.
Strine questioned the witnesses on a number of procedural points but gave no indication of how he might decide the case.
The legal tangle stems from Bank of New York's decision in September to withhold the proceeds from Calpine's $1.05 billion sale in July of oil and gas fields in the United States and Canada.
The bank, collateral trustee for Calpine senior secured noteholders, said some noteholders objected to the company spending $313 million of the proceeds to buy natural gas to run its power plants, and so the rest of the proceeds was frozen.
Calpine then sued Bank of New York and Wilmington Trust Co., another trustee, to force the release of the proceeds as well as a ruling that its purchases of natural gas are permitted under the terms of its notes.
The power company is struggling to take $3 billion of debt off its books by the end of the year through asset sales but it said last week it may not be able to meet that goal.
Further sales of California-based Calpine power plants and other assets are unlikely until its legal fights are resolved, analysts say.
Calpine shares fell 11.7 percent, of 23 cents, to close at $1.73 on the New York Stock Exchange on Friday.
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