Longview Power Reaches $18 Million Settlement with FirstEnergy Daily Bankruptcy Review
Brickley, Peg
Longview Power LLC's coal-mining affiliate, Mepco Holdings LLC, is lined up to receive $18 million under a settlement involving the closure of a Pennsylvania plant by FirstEnergy Corp. (FE) The deal was announced Monday in a status conference with Judge Brendan Shannon, who is presiding over Longview and Mepco's Chapter 11 bankruptcy proceedings. The companies filed for protection from creditors last year, weighed down with debt after the flawed launch of the $2 billion Longview electric plant. Kirkland & Ellis LLP's Ray Schrock, attorney for Longview and Mepco, said the agreement was "critical to the future of Mepco," which has two major customers, Longview and FirstEnergy.
Last year, FirstEnergy closed its Hatfield's Ferry Power Station in Pennsylvania, a coal-fired facility that was suffering due to low electricity prices. The loss of a customer posed a threat to Mepco and could have translated into higher prices for Longview, Mr. Schrock said. Early cancellation of the contract also raised the possibility of damage claims against FirstEnergy.
The settlement allows FirstEnergy a way out of its supply contract with Mepco at the Hatfield's Ferry plant, but assures business through 2018 with FirstEnergy's Fort Martin plant in West Virginia, Mr. Schrock said. Ready cash has been an issue for Longview throughout much of its restructuring effort, which has been marked by a fight with contractors over who's to blame for the operational issues that have plagued Longview's coal-fired electric plant.
Some $58 million worth of borrowing power was tied up in the dispute, pushing Longview toward a cash shortage that would have limited its options in bankruptcy. Existing lenders stepped up with a lifeline and an offer to fund Longview's emergence from Chapter 11. Whether that happens, however, may depend on the outcome of a hearing next week where Longview will debate an affiliate of Norwegian construction company Kvaerner ASA (KVAER.OS), Siemens Energy Inc., a unit of Siemens AG (SI, SIE.XE), and German engineering firm Foster Wheeler AG (FWLT) over the status of their claims in its bankruptcy case. Longview and the contractors have been pointing fingers at each other since before the plant's 2011 launch over the delays and operational troubles that have kept it from operating at full capacity. The contractors are asserting a combined $360 million worth of claims against Longview, claims which, if recognized by the court, could be enough to trip up the company's bid to exit bankruptcy.
Longview has rescheduled its Chapter 11 plan confirmation hearing for March 10 in the U.S. Bankruptcy Court in Wilmington, Del. The month's delay was calculated in part to give Judge Shannon time to sort through the contractor disputes.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go tohttp://dbr.dowjones.com) Write to Peg Brickley at peg.brickley@wsj.com