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
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