The Blackstone Group LP unit Walnut Creek Mining Co. objected on Thursday to bankrupt energy supplier Optim Energy LLC’s third stab at a Chapter 11 plan disclosure statement, saying that the supplier improperly manufactured impaired creditors in an attempt to silence Walnut Creek, its largest noninsider creditor.
Despite telling the court three weeks ago that it planned to pay back unsecured creditors in full amounts as a component of its plan, Walnut Creek said, Optim is rolling out a plan that marks those creditors as impaired, giving them voting rights on the plan. That is a move that the creditor says “reveals gross manipulation designed to achieve compliance” with section 1129(a)(10) of U.S. Bankruptcy Code, which sets the standards for the approval of a bankruptcy plan. The impairment comes despite an “ability and desire to pay general unsecured claims in full,” according to the objection.
“There is no economic or business justification to support this alleged impairment; in fact, the debtors are on the record just three weeks ago saying the exact opposite,” the objection said. “Courts that have considered similar facts in the past have found this treatment (and this type of amendment) as manufacturing an end run around the section of 1129(a)(10).”
For example, the manipulation will result in Verizon, which holds a scheduled claim of $194, and impairment of less than $10, getting a vote on the plan, said Walnut Creek, which holds a $190 million damages claim against Optim.
“Importantly, this is not a circumstance where voting on the plan can change the fact that the plan is unconfirmable on its face,” the objection said. “This is not a question of a process to determine whether impairment is contrived or manipulated to ensure compliance with the Bankruptcy Code. The facts are not in dispute.”
To back that up, Walnut Creek emphasized Optim’s position three weeks ago when it “explained unequivocally” the importance of paying creditors the full amount of their allowed claims because those creditors would be crucial to the ongoing business, regardless of who owns it.
“In fact, the debtors went so far as to reserve the right to pay postpetition interest to all unsecured creditors at the reorganizing debtors,” the objection said.
The third amended disclosure statement, Walnut Creek argues, fails to note that a claim held by Siemens Energy Inc. in the amount of $426,500 relates to payments owed under an executory contract, one that will be cured and thus not offer a vote on the plan.
“As a result, it appears the debtors intend to confirm the subplan ... and satisfy section 1129(a)(10), through the vote of one creditor; a creditor with a claim of $194.48 that will be impaired in the amount of $9.72,” the objection said. “In recognition of the fact that Verizon may not actually submit a ballot, the plan provides that if no holder of a claim in the class submits a ballot, the class will be deemed to have accepted.”
Earlier this month, Optim dumped its strategy to sell its two remaining gas-fired plans after they didn’t attract satisfactory bids, and instead proposed to move forward with a plan that hands them over to its parent, Bill Gates’ Cascade Investment LLC.
The bad blood between Walnut Creek and Optim has deep roots. Optim claimed in January that the unit manufactured its $190 million claim over the rejection of a fuel supply agreement to disrupt its reorganization efforts.
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.
A request for comment from Optim’s counsel was not immediately returned on Thursday.
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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