December 21, 2005

Calpine Corp. files for Chapter 11 bankruptcy

By Leonard Anderson and Michael Erman

SAN FRANCISCO/NEW YORK (Reuters) - 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

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, California, 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

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

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.