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Bankruptcy: Longview Power exclusivity extension faces objection from contractor

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Bankruptcy: Longview Power exclusivity extension faces objection from contractor

longviewOne of the contractors that has been battling with Longview Power over alleged negligent construction work on the company’s Maidsville, W. Va., power plant, has asked the bankruptcy court to block a further extension of the company’s plan-filing exclusivity period, unless the company agrees to withdraw its current proposed reorganization plan from consideration.

Kvaerner North American Construction argued in a March 26 objection to the company’s bid to extend its exclusivity period through June 4 that the requested extension is “at odds” with the company’s previous position that the case must be resolved as quickly as possible. Indeed, according to Kvaerner, the requested exclusivity extension would push the timetable for the case well beyond the company’s own milestone deadlines set forth in its DIP facility – milestones that have driven the company’s legal strategy up to this point.

The alleged inconsistency is significant from Kvaerner’s perspective because Longview has argued in bankruptcy court that its need for a quick resolution to its Chapter 11 case requires, among other things, that the mechanics’ lien claims asserted in the case by Kvaerner and two other contractors for work on the Maidsville plant – claims about which there is an arbitration proceeding slated for next year – should be estimated at zero for purposes of the company’s proposed reorganization plan.

As reported, Longview filed for Chapter 11 on Aug. 30, 2013, stating among other things that the Maidsville plant had “been plagued by design, construction, and equipment defects and failures that have prevented the facility from operating at full capacity.” The company cited alleged shoddy work as a primary reason behind its Chapter 11 filing, saying, “These issues have prevented the debtors … from selling electricity on anything other than a day-ahead basis” and “limiting the debtors’ sales and ability to sell higher-margin energy services, and reducing the revenue stream from power facility operations while increasing volatility around their cash flows.”

As also reported, Longview has resolved its dispute with one of the three contractors that worked on the plant – Foster Wheeler (see “Longview Power settles with one contractor, two more to go,” LCD News, Feb. 12, 2014) – while it is scheduled to begin mediation today with the other two, Kvaerner and Siemens Power Generation (see “Longview Power enters mediation with contractors,” LCD, March 7, 2014).

Against that backdrop, the company’s proposed reorganization plan, filed late last year, would convert about $1 billion of pre-petition debt into 85-90% of the equity in the reorganized company, with the remaining equity distributed to lenders behind the company’s $150 million debtor-in-possession credit facility. The bankruptcy court approved the adequacy of the disclosure statement on Dec. 19, 2013.

The plan provides for the Maidsville mechanics’ lien claims to be estimated at zero for plan purposes. The company has said that the plant has a sufficient equity cushion in case the company is ultimately held liable for payments to the contractors.

According to Kvaerner, however, the company’s reorganization plan “has proved unworkable,” and as a result, Kvaerner argues, the company’s exclusivity should be terminated to allow other parties to propose plans.

But Kvaerner’s objection also said that if the company were willing to withdraw its current proposed reorganization plan and “agree to propose a realistic plan which does not include their failed disputed mechanics’ lien claims resolution procedure,” then an exclusivity extension would be warranted.

It is worth noting that while Kvaerner argues that other parties should be freed up to propose alternative reorganization plans if the company insists on pursuing its current proposal, Kvaerner doesn’t state, or even suggest, that it would file an alternative reorganization plan, or even that it is aware of any other party that is interested in doing so.

A hearing on the company’s exclusivity extension is scheduled for April 28. Under Delaware court rules, exclusivity is automatically extended until the bankruptcy court issues a decision on the extension motion. – Alan Zimmerman