Bankrupt Optim Dumps Plan to Sell Power Plants

Bankrupt energy supplier Optim Energy LLC said late Wednesday that it is dumping its strategy to sell its two remaining gas-fired plants after they didn’t attract “satisfactory” bids, and is going ahead with a Chapter 11 plan that hands them over to its parent, Bill Gates’ Cascade Investment LLC.

Optim had initially aimed to sell the plants for a minimum of $355 million, but announced in a third amended Chapter 11 plan disclosure statement that it is opting to simply restructure with a strategy that has Cascade, which is also a creditor through a subsidiary, seeing less than a full recovery on what was originally its more than $700 million claim.

“After running an extensive marketing campaign, the reorganizing debtors did not receive any bids for the gas plant portfolio on terms satisfactory to the reorganizing debtors and the consultation parties,” the disclosure statement stated. “The reorganizing debtors have now determined, in consultation with their advisors, independent directors and the consultation parties, that the best path forward is to terminate the sale process and instead seek confirmation of the plan.”

Under the plan, Cascade would not only ultimately get the gas-fired plants but also a second-lien note and certain residual cash and unclaimed undeliverable distributions.

Optim previously sold its coal-fired Twin Oaks plant to a unit of Blackstone Group LP for $126 million, after an auction in August pushed the stalking horse offer up more than $40 million and more than doubled an initial floor price of $60 million.

Proceeds were used to pay down some of the money owed to Gates’ firm, which paid off the entirety of a secured credit line from Wells Fargo Bank NA following an Optim default, and those numbers coaxed the debtor to try the market with the gas-fired facilities, both of which are in eastern Texas and dubbed the Altura Cogen and Cedar Bayou plants, according to the disclosure statement.

U.S. Bankruptcy Judge Brendan L. Shannon is scheduled to consider Optim’s disclosure statement at a hearing in Wilmington, Delaware, on Tuesday, but still unclear is what will come of a $190 million damages claim asserted by Blackstone unit Walnut Creek Mining Co.

Walnut Creek lodged its proof of claim in November for allegedly lost profits over Optim’s rejection of a 1987 agreement to supply coal to the Twin Oaks plant, but Optim countered that Blackstone manufactured the claim to disrupt the debtor's reorganization efforts.

Optim said that it doesn’t owe a thing and that Blackstone itself agreed to scrap the supply agreement as part of the plant purchase and can’t claim damages because it now indirectly owns the buyer and seller on both sides of the contract.

Walnut Creek has said in court papers that it rejects Optim’s position on the matter in its entirety, and the notion is set to be slugged out in court on May 27.

The fuel supply agreement in question was struck between Twin Oaks and Walnut Creek in 1987, and obligated the power plant to purchase a minimum amount of coal no matter the actual need, according to court records.

Optim has already gone toe-to-toe with Walnut Creek, when it tried to have the secured claim by Cascade’s subsidiary rescheduled as equity.

Judge Shannon rejected that bid, a decision that was upheld on appeal to the district court in Delaware.

Optim and several subsidiaries filed for Chapter 11 protection in February 2014, looking to reorganize after a decline in wholesale energy prices left the company with little cash and no ability to borrow more, according to a bankruptcy declaration from CEO Nick Rahn.

Optim is represented by Kurt A. Mayr, Mark E. Dendinger, Rachel B. Goldman and Robert G. Burns of Bracewell & Giuliani LLP and Robert J. Dehney, Eric D. Schwartz and William M. Alleman Jr. of Morris Nichols Arsht & Tunnell LLP.

Walnut Creek is represented by Paul M. Basta, Joshua A. Sussberg, Matthew Kapitanyan and James A. Stempel of Kirkland & Ellis LLP and Michael W. Yurkewicz of Klehr Harrison Harvey Branzburg LLP.

The case is In re: Optim Energy LLC et al., case number 1:14-bk-10262, in the U.S. Bankruptcy Court for the District of Delaware.

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