Calpine Power Income Fund
TSX : CF.UN

Calpine Power Income Fund

August 02, 2006 18:51 ET

Calpine Power Income Fund Submits Claims in Calpine Insolvency Proceedings

CALGARY, ALBERTA--(CCNMatthews - Aug. 2, 2006) - Calpine Power Income Fund (the "Fund") (TSX:CF.UN) announces that it has submitted various claims in Canadian and US insolvency proceedings related to Calpine Corporation and its subsidiaries.

On December 20, 2005 Calpine Corporation ("Calpine") and certain subsidiaries and affiliates filed for voluntary reorganization under Chapter 11 of the US Bankruptcy Code (the "Chapter 11 Proceedings") and certain subsidiaries and affiliates of Calpine in Canada filed for voluntary reorganization under the Companies' Creditors Arrangement Act in Canada (the "CCAA Proceedings"). The claims bar date under both the Chapter 11 Proceedings and the CCAA Proceedings was August 1, 2006.

The Fund and certain of its subsidiaries have completed assessing claims to submit with respect to obligations owed to them by Calpine and its subsidiaries and filed claims under both proceedings prior to the claims bar date. Each of the claims is unproven and will be subject to proof proceedings in each of the CCAA and Chapter 11 Proceedings.

Tolling Agreement

Calpine Power L.P. ("CLP"), which is 70% owned by the Fund, submitted a claim under the CCAA Proceedings against Calpine Energy Services Canada Partnership ("CESCP") and its partners with respect to the repudiation on January 16, 2006 of the tolling agreement related to Calgary Energy Centre. The claim, for payments under the tolling agreement, is in the amount of $769 million, before giving effect to mitigation of the claim through short-term and any long-term retolling of the capacity of Calgary Energy Centre and discounting to provide for the net present value of the claim. The mitigation and discounting are expected to significantly reduce the claim by an amount that is currently undetermined but that is expected to be substantial. A claim for costs, expenses and legal fees was also filed. CLP also submitted a similar claim under the Chapter 11 Proceedings against Calpine with respect to Calpine's guarantee of CESCP's obligations under the tolling agreement plus costs, expenses and legal fees.

Manager Loan

Calpine Commercial Trust ("CCT") submitted a claim against Calpine Canada Power Limited, the manager of CLP and CCT and the administrator of the Fund (the "Manager") under the CCAA Proceedings demanding payment of the loan owing by the Manager to CCT (the "Manager Loan"). The claim is for principal and interest in the amount $33.9 million, yield protection in the amount of $3.8 million and legal and accounting fees and expenses.

The Manager Loan is a full recourse obligation of the Manager, and is secured by a pledge of the Manager's Class B Subordinated Units in CLP. Additionally, the subsidiary of Calpine which is the lessee of the King City Facility ("Calpine King City") has provided a subordinated guarantee of the Manager's obligations under the Manager Loan. Recourse under this guarantee is subordinated and is limited to Calpine King City's interest in distributions from the operation of the King City Facility. The Manager has previously indicated its belief that the Manager Loan is fully collectible based upon the Calpine King City guarantee and security subject to the lifting of the stay in the CCAA Proceedings to allow a formal demand to be made against the Manager. On July 25, 2006, the stay was temporarily lifted and a demand for payment was made.

Whitby Loan

The Fund, CCT and CLP submitted a claim against the Manager under the CCAA Proceedings seeking a declaration that a purported intercompany loan owing by Calpine Canada Whitby Holdings Company ("CCWH") to the Manager, is subordinated to the loan owing by CCWH to CLP (the "Whitby Loan"), which is CLP's participating loan interest in the Whitby power plant in Ontario. Certain other alternative relief including without limitation unliquidated damages, as well as related costs and expenses, is also sought.

The Fund has previously announced that the Manager has advised it that the amount of such intercompany loan is approximately $32.7 million. The Whitby Loan subsists in the principal amount of approximately $35 million, however an impairment charge of $16 million was accrued against the Whitby Loan in the CLP financial statements for the year ended December 31, 2005. The Manager has indicated that it considers such intercompany loan to be subordinated to the Whitby Loan, and has further indicated an intention to document this subordination through a written agreement, which would be subject to the approval of the Court in the CCAA Proceedings. To date, the Manager has not commenced the Court approval process.

Management Agreements

The Fund, CCT and CLP submitted a claim against the Manager under the CCAA Proceedings seeking a declaration the Manager has breached and repudiated the management agreement and the administrative services agreement (collectively, the "Management Agreements") relating to the Fund and its subsidiaries, seeking a declaration that the Fund, CCT and CLP are entitled to terminate the Management Agreements, and seeking related relief and costs and expenses of enforcement. No claim was filed with respect to the operating and maintenance agreements of the Fund, under which the Manager provides operational services relating to facilities of subsidiaries of the Fund.

The Manager disputes the allegations of breach and repudiation made by the Fund, CCT and CLP in relation to the Management Agreements. It is the Manager's view that it has acted, and continues to act, in compliance with its obligations under the Management Agreements. Further, the Manager disputes any allegation that its conduct could be construed as a repudiation of the Management Agreements. The Manager intends to continue to fulfill its obligations to the Fund, CCT and CLP under the Management Agreements.

Other Claims

CLP submitted contingent and unliquidated claims against the Manager, and Calpine as guarantor, under the CCAA Proceedings and the Chapter 11 Proceedings respectively with respect to the heat rate indemnity relating to CLP's Island co-generation facility and related costs and expenses. Under the contribution agreement whereby the Island Facility was contributed to CLP, a predecessor to the Manager agreed to indemnify CLP for heat rate penalties incurred under the Island Electricity Purchase Agreement above stipulated thresholds. Calpine guaranteed this obligation. As of the date hereof, no amount is owing under this indemnity.

The Fund and CLP submitted contingent and unliquidated claims against the Manager in the CCAA Proceedings with respect to the transfer fee relating to the Island co-generation facility and related costs and expenses, and CLP submitted a similar contingent and unliquidated claim against Calpine in the Chapter 11 Proceedings relating to its guarantee of such transfer fee and related costs and expenses. A future sale by the Manager of its Class B Subordinated Units of CLP could trigger an obligation to pay a transfer fee to BC Hydro.

Disclaimer

Pursuant to an order granted in the CCAA Proceedings, the Independent Trustees of CCT, on behalf of the Fund and CCT, and the directors of the general partner of CLP, on behalf of CLP, are authorized and responsible for filing and prosecuting claims against the Manager, Calpine and their affiliates in the respect to the claims discussed in this press release. This press release has been prepared by the Fund (but not the Manager). The Manager has prepared the description of its contrary view with respect to the claims against the Manager in relation to the Management Agreements. However, the Manager has not participated in the submission of the claims or the descriptions of the claims provided herein.

Calpine Power Income Fund is an unincorporated open-ended trust that invests in electrical power assets. The Fund indirectly owns interests in power generating facilities in British Columbia, Alberta and California. In addition, the Fund owns a participating loan interest in a power plant in Ontario and has made a loan to Calpine Canada Power Ltd. The Fund is managed by Calpine Canada Power Ltd., which is headquartered in Calgary, Alberta.

The Calpine Power Income Fund units are listed on the Toronto Stock Exchange under the symbol CF.UN.

Forward-Looking Information Disclaimer

This news release may contain forward-looking information as defined under applicable Canadian securities laws, including information regarding possible events, conditions or results with respect to Calpine Power Income Fund. This information is subject to a number of risks that may cause actual results to differ materially from the forward-looking information. Some of the factors that could cause such differences include the outcome of the voluntary reorganization filings by Calpine Corporation and applicable subsidiaries, including Calpine Canada Power Ltd., performance or non-performance by Calpine Corporation and applicable subsidiaries of contracts with Calpine Power Income Fund and its applicable subsidiaries or investees, legislative or regulatory developments, competition, general economic conditions and other risks identified in the management discussion and analysis of Calpine Power Income Fund for the fiscal year ended December 31, 2005 and the fiscal quarters ended March 31, 2006 and June 30, 2006, each of which is available on www.SEDAR.com and the Fund's website at www.calpinepif.com.


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