In the News Law360

Optim Gets Nod For Ch. 11 Disclosure Statement

A Delaware bankruptcy judge on Tuesday gave Optim Energy LLC the green light to solicit votes for a Chapter 11 plan that would hand its two gas-fired plants to parent Bill Gates’ Cascade Investment LLC, overruling opposition from the energy supplier's largest noninsider creditor.

U.S. Bankruptcy Judge Brendan L. Shannon signed off on Optim's disclosure statement at a hearing in Wilmington, finding the company should be allowed to move forward with the process despite concerns voiced by Blackstone Group LP unit Walnut Creek Mining Co. about the plan itself.

Optim's disclosure statement contains sufficient information required for approval, Judge Shannon said, while Walnut Creek's challenges to the classification and impairment of creditors under the plan are issues best taken up at the confirmation stage.

“It's clear to me the parties are at loggerheads on a number of issues,” the judge said, and nothing would be resolved by directing Optim to provide additional disclosure.

Optim filed for Chapter 11 in February 2014 and subsequently sold its coal-fired Twin Oaks plant to a unit of Blackstone Group for $126 million.

Earlier this month, the Texas-based company abandoned its strategy to sell its gas-fired Altura Cogen and Cedar Bayou plants and instead determined to forge ahead with an amended Chapter 11 plan that would see parent and secured creditor Cascade take control of its two remaining generation facilities.

Under the proposed plan, general unsecured creditors of the two plant-owning debtors could recover up to 95 percent and would be the only classes eligible to vote, according to court documents.

Walnut Creek launched an objection last week contending the disclosure statement should be rejected because it supported a plan that artificially impaired creditors and gerrymandered classes in an attempt to conform to the Bankruptcy Code.

But such concerns shouldn't derail the disclosure statement, Judge Shannon said, since they are typically treated as confirmation issues by the court.

Objections to aspects of Optim's plan will be reserved for the upcoming June 24 confirmation hearing, said the judge, who noted that he foresaw a “substantial fight” over plan structure and confirmability.

Optim and seven subsidiaries sought court protection in February 2014 after a drop in wholesale energy prices left the company with little cash and no ability to borrow more, according to court documents.

A major point of contention in the Chapter 11 case is a $190 million claim lodged in November by Walnut Creek for damages allegedly caused by the rejection of its agreement to supply coal to the Twin Oaks plant. That claim, according to Walnut Creek, makes it Optim's biggest noninsider creditor.

Optim contents Walnut Creek manufactured the claim in an attempt o disrupt its reorganization efforts, 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.

The two parties went head-to-head early in the case, when Walnut Creek attempted to get Cascade's $700 million secured claim rescheduled as equity. Judge Shannon rejected that bid, however, and his decision was subsequently affirmed in Delaware district court.

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 Erin R. Fay 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.