Calpine Imploding

Where does Calpine go from here?

Unfortunately, I don't believe even Calpine knows yet. As it tries to digest this morning's ruling, Calpine is in court today in New York in a case related to a suit filed by convertible note holders. Harbert Management and Wilmington Trust are suing Calpine for violating a term of its debt indenture that requires Calpine to tender for its convertible notes if they trade below 95% of parity for a five-day period.

Parity is the price of the stock multiplied by the number of shares into which a bond converts. Harbert claims the bonds fell below 95% of parity earlier this summer, and Calpine failed to take appropriate action per the terms of the debt indenture. As I wrote here, a negative ruling in this case could require Calpine to spend $400 million to buy back the bonds.

I've been negative on the stock for three months now, and even after today's steep selloff, I see no reason to speculate on Calpine's stock here.