On February 10th, electricity operator LSP Energy LP (“LSP”) filed chapter 11 petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  As stated in court filings, LSP owns and operates an electricity plant located in Batesville, Mississippi.  Aside from its gas-fired electric generation facility, LSP’s assets consist primarily of 58 acres of land in which it operates its facility.  See Declaration of LSP’s President in Support of First Day Motions (the “Declaration” or “Decl.”).

Events Leading to Bankruptcy

LSP runs three “gas-fired combined cycle electric generating units.”  Decl. at *3.  In May of last year, one of the company’s combustion turbines experienced a mechanical failure which triggered an interruption in operations.  According to the company, the service interruption from the turbine has lasted longer, and with greater effect, than originally anticipated.  Despite repairs, inspections and part replacements, the damaged turbine remains out of operation and is not expected to be back on line until March of this year.  See Decl. at *4-5.

LSP’s power generation problems went from bad to worse late last year.  Whereas the company lost power in Turbine 1 in May, on October 10, 2011, the company experienced a second outage in the second of three turbines.  Although the second outage was resolved on January 21, 2012, LSP estimates that the cost of repairs and lost revenues will total approximately $19 million, assuming Unit 1 is back online in March.  This lost revenue is in addition to losses that are covered by insurance.  Decl. at *5.    LSP’s losses have resulted in it being unable to fund its operations while at the same time service its debt.  In order to address its “liquidity problem,” the company sought protection under chapter 11 of the Bankruptcy Code.  Decl. at *5.

Objectives in Bankruptcy

According to its Declaration, now that LSP is in bankruptcy, the company intends to sell the majority of its assets pursuant to section 363 of the Bankruptcy Code.  Because of the “highly regulated nature” of the energy industry, the company anticipates that it will take at least six to eight months to complete a 363 sale.  Decl. at *6.  LSP has reached an agreement with some, but not all, of its secured lenders regarding the timing and procedures for the sale.  Id.

The LSP Energy bankruptcy is before Judge Mary F. Walrath.  Judge Walrath previously served as Chief Judge of the Delaware Bankruptcy Court.  LSP is represented by the law firm Whiteford Taylor & Preston LLP.

For readers looking for more information regarding some of the procedural and substantive aspects of a bankruptcy auction, a prior post of mine is available here for review.