Calpine's 8.5% '11 bonds dropped four points to 20 on news that the company is close to filing for bankruptcy because of a default notice served to Calpine by Wilmington Trust Corp. Its credit default swaps also widened five points, according to a trader.
Wilmington Trust, which represents Calpine's second-lien debt holders, reportedly served Calpine with a notice saying that if it defaulted on the $312 million payment that it was recently ordered by a court to pay the debt holders, $3 billion of second-lien notes could become immediately due. Calpine has asked a Delaware court to issue a temporary restraining order to prevent the trustee from enforcing the default notice, saying it would cause other defaults and damage the company.
The Delaware Court of Chancery ruled that Calpine misspent the $312 million to buy natural gas instead of buying back debt. It gave Calpine until January 22 to repay the money. Calpine has appealed the court decision. Meanwhile, Wilmington has sought an acceleration of this payment date. A Wilmington spokesman would not comment on when it is seeking payment. A Calpine spokeswoman did not return calls by press time.
In a release, Wilmington said it is exercising its fiduciary responsibilities on behalf of its second priority bondholders and is seeking to preserve all the rights of those bondholders pending the scheduled appeals of the Delaware Chancery Court's decision.