Debt-Ridden Calpine Files for Bankruptcy

Embattled power producer Calpine Corp. filed for bankruptcy late on Tuesday, weighed down by $17 billion in debt and court battles with creditors over how to use its cash.

Calpine, squeezed by a credit crunch and a weak merchant power market that resulted from the collapse of Enron and the California energy crisis in 2000-2001, said it filed petitions to restructure under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan.

Calpine, which listed assets of $26.6 billion, said many of its subsidiaries also filed for bankruptcy.

Of the creditors holding the 80 largest unsecured claims, Wilmington Trust is trustee for the six largest positions -- notes worth more than $4.5 billion.

Analysts said a bankruptcy filing had been likely after a Delaware court ordered Calpine to repay $312 million to creditors who challenged the company's use of proceeds from assets sales to buy natural gas to fuel its power plants. Calpine had said it was able to pay the money by a January 22 deadline.

Calpine said it received commitments for up to $2 billion of secured debtor-in-possession financing from Deutsche Bank and Credit Suisse First Boston.

California energy market experts have suggested Calpine's bankruptcy would look in many ways like an airline insolvency -- its 3,300 workers would keep working, power plants would keep running, and operations would not be disrupted.

"Our plan calls for power plants to remain available for operation to provide reliable supplies of electricity," Chief Executive Robert May said in a statement. May, who helped steer recoveries at HealthSouth Corp. and Charter Communications Inc. , took over the reins at Calpine December 12.

But the company also said it asked the court to reject some of its contracts, including power sales agreements under which Calpine must sell electricity significantly below its cost or market prices.

Calpine, based in San Jose, Calif., is a major supplier to the California electricity grid, providing 5,250 megawatts or about 10 percent of the grid's capacity.

Gregg Fishman, a spokesman for the California Independent System Operator, which manages most of the power network, said in response to the Calpine bankruptcy filing late Tuesday that the ISO "is hopeful Calpine's power remains available to California. We rely on it for a significant part of our power portfolio."

Fishman said power company Mirant Corp. continued to generate power at its California plants during its bankruptcy, as did PG&E Corp.'s Pacific Gas & Electric Co. subsidiary during its three-year bankruptcy in the wake of the California energy crisis.

On Monday, California Attorney General Bill Lockyer filed an emergency petition with the Federal Energy Regulatory Commission seeking to force Calpine to continue supplying electricity under long-term contracts with the state if Calpine goes bankrupt.

Calpine said it will continue to evaluate all opportunities to strengthen its balance sheet and improve its cash flow, including asset sales and reductions in operating and overhead costs.

Calpine went on a credit-fuelled power plant building spree in the late 1990s, putting together one of the largest independent power systems in the U.S. But when electricity markets collapsed after the California power crisis and the Enron scandal, merchant generators like Calpine were hit with rising credit costs and declining prices for their electricity.

Investor focus now seems likely to turn quickly to some of Calpine's prized assets, such as the Geysers geothermal plant in Northern California, one of the world's largest geothermal fields. The 750 MW plant could fetch $2.5 billion in a sale, Calpine executives said last summer.

Other parts of Calpine's generating portfolio will be in focus, although it was not immediately clear how much of the company's roughly 26,500 MW of generating capacity will survive a corporate restructuring.

Late last month, Calpine's directors ousted company founder and chief executive Peter Cartwright after 21 years in the job, and chief financial officer Robert Kelly -- moves the stock market took as signals that insolvency was possible.

Calpine shares shed much of their value on that news, and the company's already-distressed debt plummeted further.