updated 12/21/2005 7:36:27 AM ET 2005-12-21T12:36:27

Struggling power generator Calpine Corp. filed for Chapter 11 bankruptcy protection late Tuesday as it grapples with more than $22 billion in debt.

The filing in U.S. Bankruptcy Court in New York will allow Calpine to continue normal operations at its power plants and facilities in the United States, Mexico and Canada, the company said in a news release. Calpine supplies electricity in 21 states and has steam and gas-fired plants nationwide.

Calpine, based in San Jose, has lost $926 million since the end of 2003.

Last week, the Delaware Supreme Court refused to throw out a ruling ordering Calpine to restore more than $300 million to an account that was frozen at the request of its creditors. The court sent the case back to the Delaware Chancery Court to impose new conditions to safeguard the rights of Calpine’s second-lien debt holders.

The justices said the lower court had failed to recognize contractual rights of Calpine’s top-priority debt holders. As a result, Calpine had until Jan. 22 to restore about $312 million in the escrow account. It also was told to make a tender offer to second-lien debt holders by Jan. 3.

The protracted fight with bondholders, which led to the ruling, was seen as a catalyst likely to tip the company into bankruptcy reorganization.

“We believe that Calpine needs to change its business model in light of the ongoing evolution of competitive power markets and our current financial condition,” new CEO Robert P. May said in a statement. “Although the company has taken numerous steps to reduce its debt and strengthen its balance sheet through asset sales and other means, these actions were not sufficient to offset the cost of Calpine’s substantial debt obligations.”

According to the petition, Calpine has assets of about $26.6 billion and total debts of about $22.5 billion. Three Calpine subsidiaries also filed for bankruptcy protection: Calpine Administrative Services Company Inc., Calpine Energy Holdings Inc. and Calpine Kennedy Operators Inc.

May took over earlier this month from Calpine director Kenneth Derr, who had been handling the chief executive’s job on an interim basis since the company ousted its founder, Peter Cartwright, late last month.

Calpine said it has arranged for $2 billion of secured financing from Deutsche Bank AG and Credit Suisse First Boston to operate during its reorganization. The financing includes a $1 billion revolving credit facility and a $1 billion term loan.

Investors had expected the company to file for bankruptcy. Reflecting Wall Street’s bleak outlook for the company, Calpine’s shares were suspended from trading on the New York Stock Exchange and are in the process of being de-listed.

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