Harbinger Capital Partners

January 09, 2007 17:48 ET

Harbinger Responds to Calpine Power Income Fund Trustees' Circular and Related Comments Underscores Full Value of Offer and Risks and Uncertainties of Fund's Activities

CALGARY, ALBERTA--(CCNMatthews - Jan. 9, 2007) -


Harbinger Capital Partners today responded to the press release and Trustees' circular issued by The Trustees of Calpine Power Income Fund (the "Fund") on January 4, 2007.

On December 20, 2006, HCP Acquisition Inc. (the "Offeror"), an indirect subsidiary of Harbinger Capital Partners' Master Fund I and Special Situations Fund (together with the Offeror, "Harbinger"), commenced its take-over bid to acquire all of the outstanding units of the Fund that they do not already own at a price of Cdn$12.25 cash per unit (the "Offer"). The Offer price per unit represents a premium of approximately 17.2% over the Cdn$10.45 closing price of the units on the Toronto Stock Exchange on December 19, 2006 (the last trading day prior to the announcement by Harbinger Capital Partners of its intention to make the Offer) and a premium of approximately 17.6% over the volume weighted average trading price of the units for the previous 60 calendar days.

Mr. Howard Kagan, a Managing Director of Harbinger Capital Partners, stated, "Given the myriad of complex disputes that the Fund has with its manager and the uncertainties regarding the Calpine CCAA proceedings, we are confident that our Offer represents full and fair value for the Fund and its subsidiary assets, as well as the various claims the Fund has against Calpine Corporation, its affiliates and its manager.

"Our professional analysis, based only on publicly available information, highlights that the risks associated with the Fund are significant and unitholders should understand that recovery on any claims that the trustees describe may be subject to significant continued delay and negatively impacted by actions taken in the past or in the future by the Fund's own manager.

"For example, in the context of CCAA, it took almost one year to complete the retolling agreement related to Calgary Energy Centre, a relatively simple process compared to the complexity involved in terminating the Fund's various management contracts and recovering on the repudiation claims. These efforts have only just begun and are likely to be highly contested by the Fund's manager and all other CCAA creditors.

"Also, the Fund has been in contentious litigation with its manager for over one year for, among other things, the scope of the manager's authority over the Fund and whether the B units of the Fund's subsidiary partnership currently owned by the manager should be sold. The conflicts and risks of this relationship were illustrated again a few weeks ago, when the trustees filed a motion accusing key employees of the manager of secretly and fraudulently transferring assets beyond the Fund's reach. One of these employees also serves as Interim Chief Financial Officer and one of the principal investor relations contacts for the Fund. The trustees say that they only recently discovered these transactions.

"Furthermore, the Fund's own financial advisor, BMO Nesbitt Burns Inc., underscores the uncertainty of realizations in CCAA proceedings generally in their opinion in the Trustees' circular. BMO Nesbitt Burns emphasizes that its opinion was based on forecasts, projections and estimates prepared by the Fund and its manager and that, as the Fund has made claims against its manager, the manager may have a conflict with respect to the Fund. Moreover, the Fund's Trustees' circular advises that the manager has not provided to the trustees or BMO Nesbitt Burns information typically received in similar circumstances, which significantly undermines the conclusions of the trustees and BMO Nesbitt Burns on value in relation to the Offer. We encourage unitholders to review the trustees' statements with reference to their lack of access to information from the manager and its impact on the quality of the data provided to other potential bidders and the ability of other potential bidders to confidently value the assets.

"As a result of our professional due diligence, Harbinger estimates the value of the Fund's assets and the likely timing and range of outcomes from the CCAA case, all of which is subject to a great deal of speculation. There may also be significant tax implications for the Fund and/or unitholders, including capital gains or other taxes for unitholders. Our Offer eliminates this tax and valuation uncertainty as well. This analysis is based solely on publicly available information and numerous exploratory preliminary discussions with other creditors.

"We note that we know of no specific or viable settlement offers to date from Calpine. Their filings in court to date indicate that they will attempt to collect claims from their Canadian affiliate instead of making payment to Calpine," Mr. Kagan said.

"We have outlined a number of clear reasons why we strongly believe that our Offer represents the best possible opportunity for unitholders. Unitholders now have an alternative to waiting for a potential realization of this speculative asset through a cash sale of their units to Harbinger, which is attributing a realizable value to these claims in addition to the power generating assets of the Fund," Mr. Kagan said.

Harbinger has delivered its Offer to the Fund and its unitholders. The Offer has also been filed with Canadian securities regulators and is available online from the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. The Offer is open for acceptance until 9:00 p.m. (Calgary time) on January 25, 2007, unless withdrawn, varied or extended.

Cautionary Statements

This news release contains forward-looking statements, which reflect the Offeror's and Harbinger Capital Partners' current beliefs and expectations. These forward-looking statements are subject to risks and uncertainties. Many factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Undue reliance should not be placed on forward-looking statements.

This announcement does not constitute or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security. The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions. The Offer is not being made to, nor will deposits be accepted from, or on behalf of, unitholders in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. However, the Offeror or its agents may, in the sole discretion of the Offeror, take such action as the Offeror may deem necessary to extend the Offer to unitholders in any such jurisdiction.

This announcement contains certain information relating to the Fund and its subsidiary entities. Neither the Offeror nor Harbinger Capital Partners have had any due diligence access to the Fund or its subsidiary entities. The information in this announcement relating to the Fund and its subsidiary entities has been compiled from information included in public documents filed by the Fund only and has not been commented on or verified by the Fund, its Trustees, or Harbinger Capital Partners or Offeror. The Offeror and Harbinger Capital Partners believe that they are not in possession of any material non-public financial or other information in respect of the Fund or its subsidiary entities.

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