Calpine 6% noteholders want company to establish reserve for claims on appeal

By Reshmi Basu

New York, Nov. 5 - Calpine Corp.'s 6% convertible noteholders asked the court to order the company to establish a reserve in the event that their claims are reinstated, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of New York.

In August, the 6% noteholders appealed a decision by judge Burton R. Lifland, who ruled that they could not assert claims for breach of their conversion rights.

As the parties await the appellate court decision, the noteholders contend that Calpine should keep a reserve in the event that they are triumphant and their claims are allowed.

By Calpine not keeping anything on reserve for those claims on appeal, the noteholders argue that unsecured creditors are receiving disparate treatment and, furthermore, they are being denied their statutory right of appeal.

Under the 6% convertible notes indenture, there was a provision that allowed for holders to receive a cash repayment of principal and interest or holders could elect to convert the notes for a combination of cash and Calpine stock.

But the conversion rights were terminated when the notes were automatically accelerated upon Calpine's Chapter 11 filing.

The noteholders claimed that Calpine violated the indenture and they sought hundreds of millions in damages, but judge Lifland disagreed.

The noteholders are comprised of Aristeia Capital, LLC, Aurelius Capital Management, LP, Drawbridge Special Opportunities Advisors LLC, Ore Hill Hub Fund Ltd., Nisswa Master Fund Ltd., Pines 2 Edge Value Investors Ltd., Pines Edge Value Investors LP, Silver Sands Fund LLC, Stark Master Fund Ltd. and 3V Capital Management, LLC.

A hearing is scheduled for Nov. 27.

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

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