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Optim Taps PE Group as $75M Coal Plant Stalking Horse

Power plant operator Optim Energy LLC named a new $75 million stalking horse bidder for its coal-fired plant Wednesday, tapping a group that includes private equity firm Arclight Capital Partners LLC for the role after receiving eleventh-hour offers at a hearing in Delaware bankruptcy court.

Owned by Bill Gates' Cascade Investment LLC, Texas-based Optim appeared in the Wilmington court seeking approval for bidding procedures that would install a unit of Blackstone Group LP as a $60 million stalking horse for a planned August auction, only to have a pair of suitors present higher offers.

Carlyle Investment Management LLC put up a $70.5 million bid to serve as stalking horse, while the Arclight Group — including Arclight Capital, Arclight Energy Partners V LP and Olympus Power LLC — offered $75 million for the right to set the auction floor.

Optim’s board reviewed the three offers during an extended recess, and determined to enter into a stalking horse agreement with Arclight, debtors’ counsel Robert G. Burns told the court.

“We didn’t come here for an auction, but the debtors have a fiduciary duty,” Burns said. “We now have a purchase price that’s 25 percent larger.”

Apart from the price, the new bidding procedures remain largely unchanged from those worked out with Blackstone, Burns said, and still call for an Aug. 4 auction with a $2 million initial overbid increment.

They also retain a contested provision that prohibits any suitor from having discussions with Walnut Creek Mining Co., which furnishes coal to the Optim plant under a fuel supply agreement.

The new stalking horse deal requires court approval, and U.S. Bankruptcy Judge Christopher S. Sontchi will consider evidence and arguments when the hearing continues Thursday morning.

Blackstone contends it has earned the role of stalking horse, since it took the risks and did the work to put together the original purchase agreement and was the only party to follow the court-sanctioned time line, attorney Brian E. Schartz said.

News of Blackstone’s involvement was what attracted the other suitors, Schartz said, and shutting the firm out now poses a larger issue that could affect other bankruptcy sales.

“Why would a private equity fund ever put its name on a stalking horse bid if there’s going to be an auction before the auction?” Schartz said.

Meanwhile, counsel for Walnut Creek and Carlyle told the court that they continue to take issue with the so-called “gag order” provision contained in the bid procedures and intend to challenge it at Thursday’s hearing.

Optim owns three generation plants in Texas — two powered by natural gas and one by coal — and has been funding its stay in Chapter 11 through a $115 million debtor-in-possession financing package furnished by nondebtor parent Cascade.

The coal-fired Twin Oaks power station, located in Robertson County, is the only unit involved in the Section 363 sale.

Optim and seven subsidiaries sought court protection Feb. 12, 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 declaration by CEO Nick Rahn.

Formed in 2007, the company owed approximately $713 million to Wells Fargo Bank NA under a prepetition credit agreement, but Cascade, as guarantor of the debt, paid Wells Fargo in full shortly after the Chapter 11 filing, according to court documents.

Optim is represented by Robert G. Burns, Rachel B. Goldman and Kurt Mayr of Bracewell & Giuliani LLP and Robert J. Dehney, William M. Alleman Jr. and Christopher M. Hayes of Morris Nichols Arsht & Tunnell LLP.

Blackstone is represented by Brian E. Schartz of Kirkland & Ellis LLP and Michael W. Yurkewicz of Klehr Harrison Harvey Branzburg LLP.

The Arclight group is represented by Peter S. Partee Sr. of Hunton & Williams LLP and GianClaudio Finizio of Bayard PA.

Carlyle is represented by C. Luckey McDowell and Ian E. Roberts of Baker Botts LLP and John H. Knight, Michael J. Merchant and Robert C. Maddox of Richards Layton & Finger PA.

Walnut Creek is represented by Kenneth S. Ziman, Anthony W. Clark, Sarah E. Pierce and Christine A. Okike of Skadden Arps Slate Meagher & Flom LLP.

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