By Patrick Fitzgerald
A bankruptcy judge said Longview Power, LLC--a
private-equity-backed West Virginia power plant that filed for
Chapter 11 protection Friday--can use its lenders' cash to fund its
bankruptcy case--setting up showdown between the company and a
group of contractors over disputed letters of credit.
Judge Brendan Linehan Shannon said Tuesday that he'd give
Longview interim approval to use its lenders' cash pay its
employees and vendors over objections from a trio of contractors
over the company's intention to draw on $59 million in disputed
letters of credit at hearing in U.S. Bankruptcy Court in
Wilmington, Del.
Much of the first-day hearing was given over to the contractors'
concerns about whether the bankruptcy court has jurisdiction to
rule on whether the letters of credit are property of Longview's
estate and whether company can draw down on them. At issue are
letters of credit provided by German engineering firm Foster
Wheeler AG (FWLT).
Contractors Siemens Energy Inc., a unit of Siemens AG (SI), and
the North American arm of Norwegian construction firm Kvaerner ASA
(KVAER.OS), and Foster Wheeler (FWLT) claim the letters of credit
were assigned to them, and that Longview is trying to circumvent
the arbitration proceedings by finding a safe haven in bankruptcy
court.
Lawyers for Longview said the company would likely breach
cash-balance covenants with its lenders if it is unable to draw on
the letters of credit.
Judge Shannon said he wanted to "provide Longview with enough
cash to stay open but that preserves the status quo with respect to
contractors' concerns over the letters of credit and the
arbitration proceeding."
To that end the judge said he'd approve an order that barred
Longview Power from drawing down on the letters of credit absent an
order of the court. He scheduled a hearing on the letter of credit
and arbitration dispute for October 7.
Longview, a $2 billion coal-powered plant located in Maidsville,
W. Va., began operations in December 2011, providing power to the
Pennsylvania, New Jersey and Maryland markets.
But the plant has been plagued extended outages forcing it to
operate at about two-thirds of capacity. Longview has blamed its
problems arising from the plant's design and construction on the
contractors. Longview has also been hurt by a drop in wholesale
electricity prices caused by the growth in liquid natural gas,
which has made it impossible for the company to service its $1.2
billion in debt.
"This company needs both an operational and financial
restructuring," said Longview's bankruptcy lawyer Paul Basta of
Kirkland & Ellis. "The first step is to fix the plant. If the
plant is fixed, it will make more money and more people will be
paid."
First Reserve, a $23 billion energy-focused private equity firm
based in Greenwich, Conn., pumped about $1 billion in equity into
the project. Longview Power owes lenders, led by Citigroup (C),
about $1.2 billion, including $557 million of debt that matures in
February 2014.
Legal and financial advisers had been working on an out-of-court
restructuring since November with a group of more than 50 lenders,
according to Akin Gump Strauss Hauer & Feld's Ira S. Dizengoff,
a lawyer for the so-called steering committee.
But Longview wasn't able to strike a deal before an interest
payment was due last Friday., forcing the plant and its West
Virginia coal-mining partner Mepco Holdings LLC to file for
bankruptcy. The company says it's confident that it can reach a
deal with its lenders on the terms of a Chapter 11 plan in the near
future.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
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