Troubled California energy giant Calpine Corp. is preparing to file for bankruptcy protection possibly today, sources told The Post.
Calpine, with $17.5 billion in junk bonds sitting in portfolios across Wall Street, is expected to file in the Southern District of New York’s U.S. Bankruptcy Court, according to Sparkspread.com, the Web site that first reported the possible filing.
A banker who spoke yesterday with Calpine officers confirmed that the comoany was seeking to file for bankruptcy protection. Several calls to Calpine representatives were not returned.
A bankruptcy filing would be painfully expensive for hedge funds and proprietary trading desks because special insurance instruments – called Credit Default Swaps – which are meant to protect creditors, expired last night.
That’s “the final indignity,” said one trader of Calpine loans. “Everything this company did was designed to disadvantage their creditors. Now we can’t even protect ourselves,” he said.
Recently, traders were buying the complex instruments to protect themselves from a Calpine default for as much as 27.5 cents on the dollar. If the bankruptcy filing were to come after the CDSs expire, holders would be without any insurance and will lose their premiums.