Calpine Seeks OK to Sell Solutia Claim

In papers filed with the U.S. Bankruptcy Court in Manhattan Monday, the power company said claims in Solutia's Chapter 11 case have been trading at levels higher than what unsecured creditors are expected to recover under the company's plan.

Calpine said it's been contacted by more than a dozen potential buyers interested in purchasing the claim, which stems from a dispute over Solutia's decision to stop buying power from Calpine three years ago.

Solutia's Chapter 11 reorganization plan calls for unsecured creditors to recover as much as 83 cents for every dollar they are owed. Under the plan, Calpine's claim for $140 million would be worth, at most, about $116 million.

Solutia plans to repay unsecured creditors with new stock issued post-bankruptcy. Calpine said owning stock in a chemical company is both "outside the scope" of its business operations and reorganization efforts.

Calpine will seek bankruptcy-court approval Thursday to sell the claim through a Chapter 11 auction process. If more than one bidder steps forward, an auction would be held on Nov. 5, followed the next day by a court hearing to review the auction results.

Solutia and Calpine reached a settlement in August that turned a batch of claims worth $500 million against Solutia into the $140 million unsecured claim. The deal ended an 18-month quarrel over Solutia's decision to scrap its contracts to buy electricity and steam from Calpine.

The contracts involved a 1999 pact under which Calpine built a 700-megawatt power plant in Decatur, Ala., on a site leased from Solutia. The agreement was expanded in 2001, and the new terms called for Solutia to buy its steam exclusively from Calpine.

In 2004, after it filed for Chapter 11 protection, Solutia decided it would be cheaper to buy its steam from the Tennessee Valley Authority and to produce its own steam from its coal-fired boilers. The St. Louis company rejected some of the leases, spurring Calpine to assert $500 million in claims.

Calpine, based in San Jose, Calif., filed for Chapter 11 protection in December 2005 to restructure more than $22 billion in debt. The company, which supplies electricity to 27 million U.S. households, operates natural gas-fired power plants.