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Delaware Bankruptcy Litigation Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

A Closer Look at the Longview Power Bankruptcy

Posted in Bankruptcy Case Summaries

Introduction

On August 30, 2013, Longview Power, LLC, and various related entities (collectively, “Longview”), filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to the Declaration of Longview’s CEO (the “Declaration” or “Decl.”), Longview was formed in 2003 for the purpose of building and operating a 700 megawatt coal-fired power plant in Maidsville, West Virginia.  Decl. at *2.  Longview contends that when operating at full capacity, its power plant is one of the most efficient in the country, having some of the lowest air emissions in the United States.  Id

Longview and its affiliates operate in two primary sectors: (i) electricty generation; and (ii) coal mining and processing.  Decl. at *5.  The company operates its power plant through Longview Power and its coal mining operations through Mepco Holdings, LLC.  Although Longview was formed more recently to operate the power plant, Mepco was formed over 50 years ago and describes itself as “one of the largest independent coal companies in North Appalachia.”  Decl. at *2.  Approximately half of Mepco’s annual coal production is sold to Longview through an intercompany supply contract.  Decl. at *2-3.  From July 1, 2012 to June 30, 2012, Longview Power’s revenues totaled $106 million while Mepco’s revenue totaled $149 million.  Id.

Longview’s Financials

In 2007, Longview entered into a credit agreement with Citicorp North America and Union Bank. Under the credit agreement, Longview received various term loans, revolving lines of credit and letters of credit.  Decl. at *9-10.  The loans have various maturity dates and a combined face value of $1.03 billion.  Decl. at *10.  Aside from the credit agreement, Longview is also a party to an interest rate swap agreement with J. Aron & Company and a party to price hedge agreements with BP Energy and EDF Trading North America. Decl. at *11.

Events Leading to Bankruptcy

Longview attributes its need for bankruptcy “in large part because [Longview Power] has been plagued by design, construction, and equipment defects and failures …”  Decl. at *3.  According to Longview, its construction defect claims have been an issue since the company took possession of the power plant in December 2011.  Construction problems have resulted in the power facility operating at 68 percent capacity stemming from forced and planned outages.  Decl. at *3.  Three of the forced outages were due to boiler tube leaks in the four months leading up to Longview’s bankruptcy proceeding.  Longview’s construction defect claims are currently in arbitration.  However, aside from operational challenges, Longview is also facing over $550 million in debt obligations maturing in February of next year.  Decl. at *4.  The company believes that its operational losses will prevent it from satisfying their obligations under various credit agreements.  Id

Objectives in Bankruptcy

Approximately $557 million of Longview’s debt obligations mature in February 2014.  The company realizes that it is “practically impossible” for Longview to either refinance its debt or service its current level of debt going forward.  Decl. at *17.  Longview, along with its lenders and other interested parties, has been participating in negotiations regarding a potential restructuring of the company’s balance sheet.  Id.  The ongoing arbitration concerning the construction defect claims, however, has created uncertainty regarding Longview’s future capital structure.  Decl. at *18.  Despite these uncertainties, Longview hopes to reach an agreement with its various creditors regarding a proposed plan of reorganization.  Id.

The Longview bankruptcy proceeding is before Judge Brendan L. Shannon in the United States Bankruptcy Court for the District of Delaware. Longview is represented by the law firms Kirkland and Ellis and Richards, Layton & Finger.

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason is a creditors’ rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida. You can reach Jason at 302 427 5512 or jcornell@foxrothschild.com.

Below are some additional posts Jason has written concerning Delaware bankruptcy litigation:

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

Seeking Relief from the Automatic Stay in Delaware.

A Tale of Two Bankruptcy Auctions.

What Information is Required in a Chapter 11 Disclosure Statement?