In re Calpine Reorganization

In a decision allowing Analysis Group client Calpine Corp. to avoid a protracted battle over a massive restructuring plan, the United States Bankruptcy Court for the Southern District of New York ruled that the electricity wholesaler may substantively consolidate the debt obligations of its myriad entities. The ruling, which was covered widely in major news outlets, came after Analysis Group academic affiliate Jerry Arnold, Professor Emeritus of Accounting at the University of Southern California Marshall School of Business, showed that substantive consolidation would not disadvantage any of the company's creditors. 

Substantive consolidation is the pooling of the assets and liabilities of separate legal entities for the purpose of calculating creditor distribution; it is rarely permitted in bankruptcy proceedings. In this matter, Calpine (the petitioner) bore the burden of proving that the multi-pronged tests to support substantive consolidation were met.

An Analysis Group team including Manager Peter Rybolt supported our affiliate in an examination of the documents filed by Calpine's 274 bankrupt legal entities. More than 1.2 million line items related to Calpine's inter-company transactions were reviewed in order to determine whether the various entities' accounts were entangled and, if so, whether they could be separated in a cost-effective and timely manner. A report was then submitted to the Court in support of Calpine's Sixth Amended Joint Plan of Reorganization demonstrating that Calpine met the requirements for substantive consolidation as a matter of accounting.

In approving Calpine's reorganization plan, Judge Burton R. Lifland stated that our expert's report "without contradiction, fully support[ed] findings…that…requirements [for substantive consolidation] have been met in this case." The Court's approval of the plan enabled Calpine to keep $7.6 billion in exit financing in what the company's General Counsel Gregory L. Doody characterized as "the largest and most complex reorganization conducted under the new bankruptcy laws."