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Optim Energy Says Blackstone 'Manufactured' $190M Claim

Bankrupt power plant operator Optim Energy LLC said Thursday that Blackstone Group LP had “manufactured” a $190 million claim lodged by its Walnut Creek Mining Co. unit over the debtor's rejection of a fuel supply agreement, arguing that the private equity firm had already agreed to scrapping the pact.
In a motion before the Delaware bankruptcy court, Optim argued that Blackstone — which bought the debtor's Texas-based Twin Oaks coal-fired power plant at a bankruptcy auction for $126 million in August — now owns, through units, both the plant and the coal mine on both sides of the rejected fuel supply agreement and thus captures all of the economic margin and profit of the deal.
Moreover, rejection of the agreement was a condition of the power plant sale, and one that was required by Blackstone to close to deal, and the private equity firm should not be allowed to now claim damages connected to it, Optim said in its motion.
“Indeed, Blackstone reviewed and approved the rejection motion ... before it was filed,” the motion states. “Blackstone has manufactured a massive alleged claim in an effort to disrupt the debtors’ ongoing reorganization efforts.”
The issue stems over proofs of claim Optim says Walnut Creek lodged in November claiming that rejection of the supply agreement had caused damages to the tune of more than $190 million, and asking for a general unsecured claim in that amount.
Optim says the proofs of claim allege lost profits from the deal's rejection, but are “sparse” and don't have support to back up the “exorbitant” dollar amount.
The fuel supply agreement in question was struck between Twin Oaks and Walnut Creek in 1987, and in part obligated the power plant to purchase a minimum amount of coal no matter the actual need, according to court records.
When Blackstone unit Major Oak Power LLC was competing in the auction for Twin Oaks, it repeatedly conditioned its bid on that deal being scrapped, and the fuel supply agreement rejection was baked into the sale order the bankruptcy court approved Aug. 26, Optim said in court papers.
Blackstone also wound up buying Walnut Creek the same month and now essentially controls both sides of the agreement at issue.
“Given its dominion and control over both entities, Blackstone controls the price that one affiliate charges the other and can easily manipulate the amount of its alleged claim simply by lowering the price of fuel,” Optim said in its motion.
The debtor is asking that the court reject the Walnut Creek claim, or at least substantially lower it.
Representatives for Blackstone and attorneys for Walnut Creek did not immediately respond to requests for comment Thursday.
Owned by Bill Gates' Cascade Investment LLC, Optim and several subsidiaries filed for Chapter 11 protection in February 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.
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 records.
Optim is represented by Kurt Mayr, Rachel B. Goldman and Robert G. Burns of Bracewell & Giuliani LLP and Robert J. Dehney and William M. Alleman Jr. of Morris Nichols Arsht & Tunnell LLP.
Walnut Creek is represented by Paul M. Basta, Joshua A. Sussberg and Matthew Kapitanyan of Kirkland & Ellis LLP and Michael W. Yurkewicz of Klehr Harrison Harvey Branzburg 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.