Calpine requests court OK of bid procedures for Russell City project, equity interest sale

By Caroline Salls

Pittsburgh, Aug. 2 - Calpine Corp. requested court approval of the bidding procedures for the proposed sale of debtor Russell City Energy Center, LLC's gas-fired combined cycle power plan project in Hayward, Calif., and the right to own a 35% interest in the buyer, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

According to the motion, the acquired assets will be used in the development and operation of a 600-megawatt gas-fired combined cycle power plant in Hayward, Calif., that is under development.

A special purpose entity will be formed to purchase the project.

Russell City Energy will own the remaining 65% membership interest in the purchasing entity.

Calpine said in order to preserve significant equity value in the Russell City project for the benefit of its estate and creditors, the purchasing entity must be created by Oct. 2.

As of the closing, the purchasing entity will be partially owned by the proposed partner or other successful bidder.

Power purchase agreement

According to the motion, a critical element of the Russell City project's ultimate viability and its timely start of operations is entry into a long-term power purchase agreement with PG&E, under which the Russell City project will provide PG&E with energy, capacity and ancillary services in exchange for payment and other services.

Without the power purchase agreement, the Russell City project's value will be dramatically impaired and Russell City could be left with no other alternative than to halt all development efforts and dispose of project for scrap value.

The transfer of the assets to a special purpose entity and the sale of at least 35% of the equity interest in the entity are conditions to the power purchase agreement, as is the Oct. 2 transaction deadline.

The proposed partner will make an initial commitment to fund the next $43 million of equity, whether during development or as mutually agreed with project lenders; will provide the $37 million letter of credit required by the power purchase agreement; and will provide 100% of any equity credit support mutually agreed with project lenders.

Russell City will have the right upon 180 days' notice to purchase the proposed partner's interest at any time following the second anniversary of the commercial operations date under the power purchase agreement, but not later than the fifth anniversary of the commercial operations date, at a price equal to the amount necessary to yield a 25% pre-tax internal rate of return to the proposed partner.

To facilitate the sale, the purchasing entity will be created by the proposed partner, to be operated under the terms of an interim limited liability company agreement between Russell City and the proposed partner.

Then, Russell City and the newly created purchasing entity will enter into an asset purchase agreement, which will provide for the asset transfer.

Upon closing of the asset purchase agreement, the proposed partner or the winning bidder will enter into an amended and restated LLC agreement with Russell City.

Auction details

The auction will be held Sept. 19.

If the proposed partner is not the high bidder at the auction, Russell City will pay it a $1 million break-up fee and $700,000 in expense reimbursement.

The initial overbid must be for at least $675,000 more than the break-up fee and expense reimbursement, and subsequent bids must be for at least $250,000 more than the previous bid.

A hearing on the bidding procedures is scheduled for Aug. 15.

Calpine, a San Jose, Calif., power company, filed for bankruptcy on Dec. 20, 2005. Its Chapter 11 case number is 05-60200.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.