Optim Energy, LLC and its subsidiaries and affiliates (“Optim” or the “Debtors”) filed for bankruptcy under Chapter 11 of the Bankruptcy Code on Wednesday, February 12, 2014 (the “Petition Date”) in the United States District Court for the District of Delaware.

According to Declaration of Nick Rahn, Chief Executive Officer of Optim Energy, LLC in Support of Chapter 11 Petitions and First Day Pleadings (the “Rahn Declaration”), the Debtors “are power plant owners principally engaged in the production of energy in Texas’s deregulated energy market.”  Rahn Declaration, ¶ 5.  The Debtors own and operate three power plants in eastern Texas.  Two of the plants are fueled by natural gas, and the third is coal fired.  See id.  According to the Petition, the Debtors’ assets are valued at $100 million to $500 million, and their debts are estimated at $500 million to $1 billion.

Events Leading to Bankruptcy

According to the Rahn Declaration, The current depressed economic environment of the electric power industry and the Debtors’ liquidity constraints have resulted in continuing losses that have left the Debtors without alternatives.  Specifically, the Debtors carried $713 million in outstanding principal indebtedness related to a credit agreement with Wells Fargo Bank, N.A. and were unable to continue to borrow additional funds before the Petition Date.

Objectives in Bankruptcy

Optim’s main goal is to reorganize their debt through the chapter 11 bankruptcy filing, including the restructuring of the Debtors’ obligations and pursuing strategic alternatives that will maximize the value of their power producing assets.  Rahn Declaration, ¶ 5.

First Day Hearing

The Court held a “first day” hearing on Friday, February 14, 2014, at which time the Court entered the following “first day” orders: (i) interim order authorizing the Debtors to continue to operate their cash management system; (ii) interim order determining adequate assurance of payments for future utility services, prohibiting utility providers from altering, refusing or discontinuing utility service, and establishing adequate assurance procedures; and (iii) interim authorizing the debtors to (a) maintain prepetition insurance policies and b) continue financing insurance premiums.

The next omnibus hearing in this matter is scheduled for March 6, 2014 at 10:00 a.m.

Optim is represented by the law firm of Morris Nichols Arsht & Tunnell LLP.  Optim’s bankruptcy proceeding is before the Honorable Brendan Shannon of the Delaware Bankruptcy Court, proceeding under case no. 14-10262.  Stay tuned for more updates on this bankruptcy matter.

Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.