Optim Energy LLC will pay Blackstone Group LP $5 million to settle their fight in the Texas power-plant operator's bankruptcy case in exchange for Blackstone dropping its appeal of Optim's court-approved plan to exit bankruptcy.

In a Wednesday filing with U.S. Bankruptcy Court in Wilmington, Del., Optim said the deal will stop all litigation between the sides and will serve as the backbone to a liquidation plan for the six bankrupt Optim entities that weren't included in a broader reorganization plan approved by a judge late last month. That proposal kept Optim in the hands of Bill Gates's private investment firm, Cascade Investment.

Crucially, Blackstone will drop a $190 million claim it had made for so-called rejection damages. A hearing on the settlement had been scheduled for Aug. 19. Blackstone won't officially drop its appeal to the broader restructuring until the approval of the liquidation plan for the six entities.

Walnut Creek Mining, a Blackstone unit that supplied fuel to Optim's power plants, argued it was being shortchanged under Optim's recently approved reorganization plan, recovering only about 1% of what it is owed while general unsecured creditors were expected to see a recovery of up to 95%.

Blackstone bought an Optim power plant in August 2014 at a bankruptcy auction with a $126 million offer—a price that more than doubled earlier offers. The private-equity firm had been expected to bid on Optim's two remaining plants, and the energy company's lawyers had claimed Blackstone was using Walnut Creek to undermine the plan to pick up the assets on the cheap, an idea Walnut Creek rejected.

Optim ended up scrapping the sale of the other two plants when it realized it couldn't fetch its $355 million asking price.

In approving the restructuring last month, Brendan Linehan Shannon had called the Cascade fight with Blackstone "a bit of a brawl," but he didn't find that Optim's conduct "rises to the level of sham or chicanery" that would have prompted him to reject the plan.

The plan gives Cascade substantially less than a full recovery on its $713 million in secured claims. However, the firm agreed to distribute some of the power plant sale proceeds to lower-ranking creditors, in return for those creditors agreeing not to sue Cascade and other Optim lenders for anything tied to the bankruptcy.

Giving up the right to sue boosted the lower-ranking creditors' recoveries to 95 cents on the dollar from 75 cents. The reorganized Optim will be led by a board comprising Cascade Investment's Quinn Cornelius, John Erickson, and Alan Heuberger, plus current director Richard Fleming. Chief Executive Nick Rahn would remain at the helm of the new company.

Founded in 2007, Optim filed for bankruptcy in February 2014. It blamed the filing on cheap electricity prices, which it said made it difficult for the company to repay the money it borrowed to buy one plant in Texas and to build another.

Write to Joseph Checkler at joseph.checkler@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Blackstone (NYSE:BX)
Historical Stock Chart
From Aug 2024 to Sep 2024 Click Here for more Blackstone Charts.
Blackstone (NYSE:BX)
Historical Stock Chart
From Sep 2023 to Sep 2024 Click Here for more Blackstone Charts.