Calpine Gets Approval to Borrow Up to $2 Billion

Power generator Calpine Corp. won Bankruptcy Court approval Wednesday to borrow as much as $2 billion to pay employees and buy natural gas.

Lawyers for San Jose-based Calpine said the loan was essential to the company’s business operations and would be used to pay expenses including some payroll and the purchase of natural gas.

“This financing allows Calpine to continue to buy natural gas, and that is of inestimable value to this company,” Kenneth Buckfire, a managing director at Miller Buckfire Lewis Ying & Co., Calpine’s financial advisor, said in U.S. Bankruptcy Court in New York. “If it cannot buy natural gas, it cannot generate electricity and therefore cannot generate revenue and would have to cease operations.”

Bankruptcy Judge Burton Lifland authorized Calpine to borrow the money from Deutsche Bank, Credit Suisse First Boston Corp. and other lenders. Lifland previously authorized Calpine to borrow as much as $500 million from the lenders.

The financing includes a $1-billion revolving credit line, a $350-million term loan and second-lien term loan of $650 million. The second-lien loan will rank behind the $1.35 billion of loans for repayment, according to court filings.

Calpine filed for Chapter 11 bankruptcy protection Dec. 20 with $26.6 billion in assets and more than $22.5 billion in debt. The filing followed the ouster of top executives after they lost a three-month fight with bondholders to use proceeds from asset sales to buy fuel.

Lifland overruled objection from several creditors who said the loans cost too much and would deter other banks from offering better deals.

The $1.35 billion in loans will accrue interest at 2.25 percentage points above the three-month London interbank offered rate. The London rate, the most widely used benchmark for short-term interest rates, is the interest at which banks borrow funds in marketable size from one another in the London interbank market. Wednesday’s three-month rate is 4.6%. In addition, Calpine will pay the lenders a 1.75% commitment fee.

The interest may change before the transaction is completed. All the loans will mature in two years.

Several creditors with interests in some of Calpine’s power plants also objected to the financing agreements. The creditors said the plants shouldn’t be saddled with debt before the company determined whether it would continue to operate them.