December 17, 2005

Delaware top court upholds Calpine ruling

NEW YORK (Reuters) - The Delaware Supreme Court has upheld
a lower-court ruling that embattled power producer Calpine
Corp. misspent $312 million in asset-sale proceeds to buy fuel
for its power plants.

In a 10-page opinion issued late on Friday, Justice Jack
Jacobs also upheld the Court of Chancery's ruling that Calpine
had until January 22, 2006, to repay the funds to a designated
bank account, plus interest.

On Thursday, the court heard arguments from Calpine, one of
the biggest U.S. power generators, and Wilmington Trust as
trustees for Calpine's first and second lien note holders.

The Chancery Court had ruled that Calpine violated the
terms of some of its debt when it spent money from asset sales
to buy gas to fuel its plants, which Calpine sought to reverse
on the grounds the Chancery Court misinterpreted the debt

Wilmington Trust asked the state Supreme Court to uphold
the Chancery Court's ruling and to accelerate Calpine's
repayment to January 3. Last week, Calpine and Wilmington Trust
struck a deal that avoided putting Calpine in default on $3
billion in second-lien notes until it repaid the $312 million
in misspent proceeds.

Calpine told the Supreme Court on Thursday it had the funds
to repay the $312 million that it misspent on fuel earlier than
the January 22 deadline if ordered to do so. Calpine said
previously it was not sure it could repay the money by the
deadline and was at risk of bankruptcy.

Analysts said Calpine's ability to repay suggested the
company was not as close to filing for bankruptcy as it had
previously suggested.

Calpine, struggling under a $17 billion debt burden and
weak power markets in the wake of the California energy crisis
and the collapse of Enron, has warned in recent weeks
bankruptcy was an option.