Longview Power LLC is proposing to get out of bankruptcy by way of a Chapter 11 plan that drops $1 billion in debt from its balance sheet and provides money to cover the cost of fixing the problem-plagued plant.
Outlined in papers Wednesday in the U.S. Bankruptcy Court in Wilmington, Del., Longview's restructuring proposal has the support of senior lenders who have agreed to swap some of their debt for equity in a reorganized company. Some of them have signed up to provide a $150 million loan to fund Longview's exit from Chapter 11, as well as fix the plant and keep it running, saving some 650 jobs in the process.
The new loan and the Chapter 11 plan marks a way out for Longview not just from bankruptcy but from a looming cash crunch. With some $58 million worth of letter of credit borrowing power locked up in a dispute with contractors, and a plant running at partial capacity, Longview has warned of possible irreparable harm if the financing does not go through.
The company is pushing for a Feb. 10, 2014, confirmation hearing on the Chapter 11 exit plan. Terms of the turnaround financing call for Longview to emerge from bankruptcy in early March.
Built at a cost of more than $2 billion, Longview was launched with $1 billion from First Reserve Corp., a $23 billion energy-focused private equity firm in Greenwich, Conn., and with loans. Construction delays and technical trouble after the launch ate into the plant's revenue and ultimately led to the Aug. 30 bankruptcy filing.
Revenue for the year ended June 30, 2013, was about $255 million, with more money coming from coal mining, processing, waste disposal and sales than from the sale of electricity from the coal-fired plant.
While the lender-backed plan represents a successful ending to long negotiations with lenders, talks that preceded the Chapter 11 filing, a critical hot spot in Longview's financial picture remains. Fights with contractors over who is to blame for defects in the plant must be addressed in a compressed time frame, for Longview's plan to work out.
The restructuring plan provides for no recovery on $360 million worth of mechanics liens asserted by unhappy contractors, subsidiaries of Norwegian construction company Kvaerner ASA; Siemens Energy Inc., a unit of Siemens AG; and German engineering firm Foster Wheeler AG. Attorneys for the contractors, who have been battling Longview and each other, couldn't immediately be reached Wednesday to discuss their clients' position on the Chapter 11 plan.
Court papers say it is a condition of the Chapter 11 plan that Longview erase the mechanics liens claims or have them ruled to be junior in payment priority to the bank loans. The condition can be waived if Longview gets an answer on what those liens are worth that it is willing to pay, according to the plan papers. In other words, Longview's lenders want a determination on the contractor liens, and have reserved the right to walk away if the price of dealing with the liens is too high.
An arbitration proceeding that was in full swing before it was blocked by the bankruptcy filing will take too long to wind up, Longview contends. It is asking the bankruptcy court to weigh the value of the contractor mechanics liens in an "estimation proceeding" instead of waiting for the answer to emerge from the arbitration.