Calpine Shareholders May Be Wiped Out by Creditors (Update4)
By Bill Rochelle and Christopher Scinta
bloomberg.com
Dec. 4 (Bloomberg) -- A federal judge may award nothing to shareholders of Calpine Corp., including the California Public Employees' Retirement System, in their struggle with Hess Corp. and other creditors who are owed at least $20.7 billion.
U. S. Bankruptcy Judge Burton Lifland will determine the company's value before it emerges from bankruptcy. Using that value, Calpine will pay off creditor and investor claims with new shares, ignoring their initial market price. If the judge's estimate is wrong, there will be no way to reallocate the stock.
``Whatever Judge Lifland says is going to be the economic reality,'' said Elizabeth Warren, a Harvard University professor specializing in bankruptcy law. ``There is a very high likelihood that whatever Judge Lifland rules will be the final statement from any court in the U.S.''
Lifland's decision after a trial this month will make the difference between equity holders' being wiped out or receiving as much as $11.46 apiece for their 482.2 million existing shares.
Shareholders are willing to avoid the valuation fight by agreeing to take warrants -- rights to buy stock at a set price over a specified period of time -- said Brad Scheler, a lawyer for the stockholders' committee in the bankruptcy case.
The investors would ``consider warrants for a percentage of the company based on the value advocated'' by their expert, Scheler said. The exercise price would be determined by taking into consideration what's required to pay creditors in full with interest plus anything else authorized by the judge, he said.
Warrants' Value
Scheler's formula means the warrants would have value only if the new Calpine stock traded at a price high enough to cover payment of creditors' claims in full.
The lawyer said he had ``no doubt'' stockholders would also be willing to buy all the new equity at the low end of the value proposed by the creditors' expert.
Calpine is committed to its plan as proposed and will move forward with it, company spokeswoman Norma Dunn said when asked about issuing warrants.
Michael Stamer, attorney for the creditors' committee co- chaired by SPO Partners & Co. and Hess, the fifth-largest U.S. oil company, declined to comment.
The California pension system, called Calpers, owned 2.76 million Calpine shares as of Sept. 30, according to a regulatory filing. Steelhead Partners LLC owned 10 million shares on the same date, a filing said.
Creditors' Claims
On the creditor side, Harbinger Capital Partners, of New York, owns $1.6 billion in claims against Calpine and expects to own at least 18 percent of the new shares, according to court papers.
Calpine dropped money-losing projects after its December 2005 Chapter 11 filing. The company's financial adviser, Miller Buckfire & Co., estimates it will distribute $19.35 billion in stock and $1.5 billion in cash to creditors.
Under Calpine's highest estimates of claims against it, the distribution would equal 97 cents on the dollar for unsecured creditors, including post-filing interest, Calpine attorney Richard Cieri of Kirkland & Ellis said Nov. 27. In that case, stockholders would get nothing.
Unsecured creditors, who by law must be paid in full before stockholders get any return, say Calpine's figure is about $3.1 billion too high, according to their value expert, Barry Ridings of Lazard Ltd.
Shareholders and their adviser, Perella Weinberg Partners LP, argue Calpine's estimate is $4.9 billion too low and more shares than necessary will go to pay debts, leaving them with nothing.
Shareholder Payments
Calpine, which generates enough electricity for about 19.2 million homes, says if claims are at the low end of its estimates, 41 cents a share is the most its current stockholders will recover. This is down from an estimate of $3.01 in June. Existing shareholders say they should get about $10.42.
Reflecting pessimism over chances for a return, Calpine shares have fallen 76 percent from $3.08 to 75 cents since Aug. 8 in over-the-counter trading as of 3:59 p.m. Earlier today they fell as low as 72 cents.
``If you're looking at the long term, the equity committee's value isn't bad,'' said Daniele Seitz, an analyst for Dahlman Rose & Co. She rates Calpine shares ``buy'' and owns none.
The stockholders' estimate accounts for the rising value of independent power producers broadly and Calpine's geothermal plants in particular, she said. Demand for geothermal power is rising as states mandate the use of more renewable energy.
The company says it must emerge from bankruptcy by Jan. 31 to preserve an $8 billion loan commitment from Goldman Sachs Group Inc.
Deciding True Value
The easiest way to prove Calpine's value would be to get a purchase offer, said Martin Bienenstock, a lawyer representing secured bondholders of Calpine Generating Co.
``If I were representing equity and I really believed my number, I would find someone to come in and make an offer at that number,'' said Bienenstock, co-head of restructuring at Weil Gotshal & Manges. ``That's the way to prove it.''
The case is In re Calpine Corp., 05-60200, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Bill Rochelle in New York at wrochelle@bloomberg.net ; Christopher Scinta in New York at cscinta@bloomberg.net .
Last Updated: December 4, 2007 16:42 EST |
