Debt

At June 30, 2012 and December 31, 2011, our debt was as follows (in millions):



	June 30, 2012		December 31, 2011
First Lien Notes	$	5,892	$	5,892
Project financing, notes payable and other	1,865		1,691
First Lien Term Loans	1,638		1,646
CCFC Notes	975		972
Capital lease obligations	221		224
Total debt	10,591		10,425
Less: Current maturities	103		104
Debt, net of current portion	$	10,488	$	10,321

First Lien Notes

Our First Lien Notes are summarized in the table below (in millions):



	June 30, 2012		December 31, 2011
2017 First Lien Notes	$	1,200	$	1,200
2019 First Lien Notes	400		400
2020 First Lien Notes	1,092		1,092
2021 First Lien Notes	2,000		2,000
2023 First Lien Notes	1,200		1,200
Total First Lien Notes	$	5,892	$	5,892

Our First Lien Notes are secured equally and ratably with indebtedness incurred under our Corporate Revolving Facility and First Lien Term Loans, subject to certain exceptions and permitted liens, on substantially all of our and certain of the guarantors' existing and future assets. Additionally, our First Lien Notes rank equally in right of payment with all of our and the guarantors' other existing and future senior indebtedness, and will be effectively subordinated in right of payment to all existing and future liabilities of our subsidiaries that do not guarantee our First Lien Notes.

Subject to certain qualifications and exceptions, our First Lien Notes will, among other things, limit our ability and the ability of the guarantors to:


•	incur or guarantee additional first lien indebtedness;


•	enter into certain types of commodity hedge agreements that can be secured by first lien collateral;


•	enter into sale and leaseback transactions;


•	create or incur liens; and


•	consolidate, merge or transfer all or substantially all of our assets and the assets of our restricted subsidiaries on a combined basis.

First Lien Term Loans

Our First Lien Term Loans provide for a senior secured term loan facility and bear interest, at our option, at either (i) the base rate, equal to the higher of the Federal Funds effective rate plus 0.5% per annum or the Prime Rate (as such terms are defined in the First Lien Term Loans credit agreements), plus an applicable margin of 2.25%, or (ii) LIBOR plus 3.25% per annum subject to a LIBOR floor of 1.25%.

An aggregate amount equal to 0.25% of the aggregate principal amount of the First Lien Term Loans will be payable at the end of each quarter with the remaining balance payable on the maturity date (April 1, 2018). We may elect from time to time to convert all or a portion of the First Lien Term Loans from initial LIBOR rate loans to base rate loans or vice versa. In addition, we may at any time, and from time to time, prepay the First Lien Term Loans, in whole or in part, without premium or penalty, upon irrevocable notice to the administrative agent. We may elect to extend the maturity of any term loans under the First Lien Term Loans, in whole or in part subject to approval from those lenders holding such term loans. The First Lien Term Loans are subject to certain qualifications and exceptions, similar to our First Lien Notes.

If a change of control triggering event occurs, the Company shall notify the administrative agent in writing and shall make an offer to prepay the entire principal amount of the First Lien Term Loans outstanding within thirty days after the date of such change of control triggering event.

In connection with the First Lien Term Loans, the Company and its subsidiaries (subject to certain exceptions) have made certain representations and warranties and are required to comply with various affirmative and negative covenants. The First Lien Term Loans are subject to customary events of default included in financing transactions, including, among others, failure to make payments when due, certain defaults under other material indebtedness, breach of certain covenants, breach of certain representations and warranties, involuntary or voluntary bankruptcy, and material judgments. If an event of default arises from certain events of bankruptcy or insolvency, all amounts outstanding under the First Lien Term Loans will become due and payable immediately without further action or notice. If other events of default arise (as defined in the Credit Agreement) and are continuing, the lenders holding more than 50% of the outstanding First Lien Term Loans (as defined in the Credit Agreement) may declare all the First Lien Term Loans outstanding to be due and payable immediately.

Russell City Project Debt

On June 24, 2011, we, through our indirect, partially owned subsidiary Russell City Energy Company, LLC, closed on our approximately $845 million Russell City Project Debt to finance construction of Russell City Energy Center, a 619 MW natural gas-fired, combined-cycle power plant under construction located in Hayward, California. The Russell City Project Debt is comprised of a $700 million construction loan facility, an approximately $77 million project letter of credit facility and a $68 million debt service reserve letter of credit facility. The construction loan converts to a ten year term loan when commercial operations commence. Borrowings bear interest initially at LIBOR plus 2.25%. At June 30, 2012, approximately $414 million had been drawn under the construction loan and approximately $61 million of letters of credit were issued under the letter of credit facilities. Calpine's pro rata share would be 75% and the pro rata share related to the noncontrolling interest would be 25%.

Los Esteros Project Debt

On August 23, 2011, we, through our indirect, wholly owned subsidiary Los Esteros Critical Energy Facility, LLC, closed on our $373 million Los Esteros Project Debt to finance the upgrade of our Los Esteros Critical Energy Facility from a 188 MW simple-cycle power plant to a 309 MW combined-cycle generation power plant. The upgrade will also increase the efficiency and environmental performance of the power plant by lowering the Heat Rate. The Los Esteros Project Debt is comprised of a $305 million construction loan facility, an approximately $38 million project letter of credit facility and an approximately $30 million debt service reserve letter of credit facility. The construction loan converts to a ten year term loan when commercial operations commence. Borrowings bear interest initially at LIBOR plus 2.25%. At June 30, 2012, approximately $139 million had been drawn under the construction loan and approximately $30 million of letters of credit were issued under the letter of credit facilities.

Corporate Revolving Facility and Other Letters of Credit Facilities

The table below represents amounts issued under our letter of credit facilities at June 30, 2012 and December 31, 2011 (in millions):



	June 30, 2012		December 31, 2011
Corporate Revolving Facility	$	385	$	440
CDHI	256		193
Various project financing facilities	130		130
Total	$	771	$	763

The Corporate Revolving Facility represents our primary revolving facility. Borrowings under the Corporate Revolving Facility bear interest, at our option, at either a base rate or LIBOR rate. Base rate borrowings shall be at the base rate, plus an applicable margin ranging from 2.00% to 2.25% as provided in the Corporate Revolving Facility credit agreement. Base rate is defined as the higher of (i) the Federal Funds Effective Rate, as published by the Federal Reserve Bank of New York, plus 0.50% and (ii) the rate the administrative agent announces from time to time as its prime per annum rate. LIBOR rate borrowings shall be at the British Bankers' Association Interest Settlement Rates for the interest period as selected by us as a one, two, three, six or, if agreed by all relevant lenders, nine or twelve month interest period, plus an applicable margin ranging from 3.00% to 3.25%. Interest payments are due on the last business day of each calendar quarter for base rate loans and the earlier of (i) the last day of the interest period selected or (ii) each day that is three months (or a whole multiple thereof) after the first day for the interest period selected for LIBOR rate loans. Letter of credit fees for issuances of letters of credit include fronting fees equal to that percentage per annum as may be separately agreed upon between us and the issuing lenders and a participation fee for the lenders equal to the applicable interest margin for LIBOR rate borrowings. Drawings under letters of credit shall be repaid within two business days or be converted into borrowings as provided in the Corporate Revolving Facility credit agreement. We incur an unused commitment fee ranging from 0.50% to 0.75% on the unused amount of commitments under the Corporate Revolving Facility.

The Corporate Revolving Facility does not contain any requirements for mandatory prepayments, except in the case of certain designated asset sales in excess of $3 billion in the aggregate. However, we may voluntarily repay, in whole or in part, the Corporate Revolving Facility, together with any accrued but unpaid interest, with prior notice and without premium or penalty. Amounts repaid may be reborrowed, and we may also voluntarily reduce the commitments under the Corporate Revolving Facility without premium or penalty. The Corporate Revolving Facility matures December 10, 2015.

The Corporate Revolving Facility is guaranteed and secured by each of our current domestic subsidiaries that was a guarantor under the First Lien Credit Facility and will also be additionally guaranteed by our future domestic subsidiaries that are required to provide such a guarantee in accordance with the terms of the Corporate Revolving Facility. The Corporate Revolving Facility ranks equally in right of payment with all of our and the guarantors' other existing and future senior indebtedness and will be effectively subordinated in right of payment to all existing and future liabilities of our subsidiaries that do not guarantee the Corporate Revolving Facility. The Corporate Revolving Facility also requires compliance with financial covenants that include a minimum cash interest coverage ratio and a maximum net leverage ratio.

CDHI

We also have a letter of credit facility related to CDHI. On January 10, 2012, we increased the CDHI letter of credit facility to $300 million and extended the maturity date to January 2, 2016.

Fair Value of Debt

We record our debt instruments based on contractual terms, net of any applicable premium or discount. We did not elect to apply the alternative U.S. GAAP provisions of the fair value option for recording financial assets and financial liabilities. The following table details the fair values and carrying values of our debt instruments at June 30, 2012 and December 31, 2011 (in millions):



	June 30, 2012				December 31, 2011
	Fair Value		Carrying Value		Fair Value		Carrying Value
First Lien Notes	$	6,340	$	5,892	$	6,219	$	5,892
Project financing, notes payable and other⁽¹⁾	1,667		1,705		1,467		1,504
First Lien Term Loans	1,630		1,638		1,615		1,646
CCFC Notes	1,085		975		1,070		972
Total	$	10,722	$	10,210	$	10,371	$	10,014

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(1)	Excludes a lease that is accounted for as a failed sale-leaseback transaction under U.S. GAAP.

On January 1, 2012, we adopted Accounting Standards Update 2011-04 "Fair Value Measurement" which requires the categorization by level of the fair value hierarchy for items not measured at fair value on our Consolidated Condensed Balance Sheets but for which fair value is required to be disclosed. We measure the fair value of our First Lien Notes, First Lien Term Loans and CCFC Notes using market information, including quoted market prices or dealer quotes for the identical liability when traded as an asset (categorized as level 2). We measure the fair value of our project financing, notes payable and other debt instruments using discounted cash flow analyses based on our current borrowing rates for similar types of borrowing arrangements (categorized as level 3). We do not have any debt instruments with fair value measurements categorized as level 1 within the fair value hierarchy.