Calpine reaches deal with lenders, withdraws request to court

New York (Platts)--8Dec2005

Calpine Corp Thursday withdrew its motion for a temporary restraining
order in the Court of Chancery of Delaware and reached an agreement with the
group of creditors under which the holders of Calpine's second lien notes
would not seek immediate payment of $312-mil as requested of Calpine earlier
this week. 

     Under the agreement, the noteholders further agreed they would "not
directly or indirectly encourage" any other second lien noteholders to
accelerate any of the second lien notes on or before Jan 22, 2006. 

     On Monday Willington Trust Co., the trustee for the noteholders, notified
Calpine that it was in default on the notes and requested full payment of the
$312-mil from the San Jose, California-based merchant generator by Dec 7.
Calpine responded Dec 6, seeking a temporary restraining order from the Court
of Chancery. 

     Calpine withdrew its request for a TRO after it reached an agreement with
an Unofficial Steering Committee of second lien debtholders under which
payment of the $312-mil would not be required before the court-ordered
deadline of Jan 22. 

     The Unofficial Steering Committee includes the holders of over 50% of
each of the second lien notes due 2010, the second lien notes due 2011, and
the second lien notes due 2013, and the holders of over 30% of the second lien
notes due 2007.

     Payment of the $312-mil arose out of a final order from Vice Chancellor
Leo Strine of the Court of Chancery, who on Dec 5 ruled against Calpine's
request to reduce and delay the payment. 

     Strine Nov 22 ordered Calpine to make the payment as a remedy for what he
determined was the company's inappropriate use of about $850-mil in proceeds
from its sale of remaining natural gas assets to Rosetta Resources Inc in
July. 

     Calpine used $313-mil to buy natural gas contracts, as opposed to
"designated assets" such as gas reserves that were meant to replace the
collateral behind the first and second lien notes. 

     Bank trustees, acting for the noteholders, froze the remaining $400
million of proceeds. 

     Strine's ruling was a severe blow to Calpine and has precipitated a chain
of events, including the ouster of the company's CEO, Peter Cartwright, and
CFO, Robert Kelly, and widespread expectations that Calpine will soon file for
bankruptcy court protection. 

                                  ---Peter Maloney, peter_maloney@platts.com

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