Walnut Creek Mining, the coal supplier to Optim Energy LLC’s 305-MW Twin Oaks power plant in Texas, filed a June 19 objection with Optim Energy’s bankruptcy court to a motion for an expedited auction process for the Twin Oaks plant.
Optim Energy, which owns two gas-fired power plants in Texas and this one coal-fired plant, sought Chapter 11 protection in February. It has identified the Twin Oaks plant itself, and the plant’s burdensome lignite supply contract with Walnut Creek Mining, as the major financial drags on the company. It has indicated no plans to sell the gas-fired plants.
Granting the motion for an expedited sale would significantly prejudice the debtors’ creditors and other parties in interest, the coal company said in its June 19 filing. “Instead, Walnut Creek requests that the Court schedule a hearing no earlier than July 1, 2014, still a full 4 days short of the required notice period, and set an objection deadline of one day prior to the hearing.”
Walnut Creek said there is no urgent need to keep the entity that has offered a stalking horse bid for the power plant in the running. “The Proposed Purchaser cannot be allowed, under the guise of strict deadlines imposed in connection with its bid, to avoid the protections afforded by the Local Rules by reducing the time to which parties in interest are entitled to review, digest, and if necessary, object to the Debtors’ Bid Procedures Motion. This case does not concern a debtor with rapidly depreciating assets. There is thus no prejudice that would befall the Debtors, their estates or any party in interest by providing parties with the notice to which they are entitled under the Local Rules.”
Major Oak Power LLC the top bidder in recent sale process
The sale motion was filed with the U.S. Bankruptcy Court for the District of Delaware on June 17. Optim Energy CEO Nick Rahn said in supporting testimony that Major Oak Power LLC offered the best bid in a recent sale process.
Rahn said bidders were specifically told not be in touch with Walnut Creek Mining. “Put simply, based on the long-standing history of failed negotiations with Walnut Creek and the posture Walnut Creek has taken in these chapter 11 cases, contact between potential bidders and Walnut Creek carries significant risk of being counterproductive, distracting, not in the best interest of the estate, and potentially detrimental to the overall sale process.”
He noted that Walnut Creek itself was in the process as a potential bidder. “Walnut Creek has not put forth a commercial proposal and/or structure for a dialogue with potential bidders that were constructive or value-maximizing for the Debtors. While Walnut Creek has been and will be precluded from any communication or collaboration with any potential bidder, it is not excluded from the sale process. Walnut Creek executed a confidentiality agreement and received sale materials (through Barclays, not its litigation process). Additionally, Walnut Creek is clearly entitled to seek to submit a Qualifying Bid pursuant to the terms of the Sale Procedures, which would allow it to participate in the Auction. Walnut Creek’s status as a potential bidder is another reason why the Debtors and their Independent Directors, in their business judgment, determined not to permit bidders to engage in discussions with Walnut Creek.”
In its June 17 sale motion, Optim Energy said that its post-petition financing requires that a sale of Twin Oaks be approved on or before Aug. 12, and requires that sale procedures be approved by this court on or before July 11. Major Oak Power has the option to terminate the tentative sale agreement if an order approving sale procedures and proposed purchaser payments is not entered on or before June 27.
Optim Energy wants the court to shorten notice with respect to the sales procedures relief sought in the sale motion, scheduling the sale procedures hearing for June 25, and requiring objections to the sale procedures to be filed on or before June 23.
Twin Oaks is a two-unit lignite-fired plant located in Robertson County, Texas. Twin Oaks sells its generated power into the market regulated by the Electric Reliability Council of Texas (ERCOT). Twin Oaks purchases the vast majority of the coal necessary to operate the facility from Walnut Creek Mining under an executory long-term fuel supply agreement (FSA) executed in 1987.
Under the FSA, Twin Oaks must purchase in excess of approximately 90% of its coal from Walnut Creek and is required to purchase minimum coal quantities regardless of its actual needs. Under the FSA, Twin Oaks is obligated to purchase coal from Walnut Creek for at least another 10 years. The terms of the FSA provide for escalating prices for coal purchased from Walnut Creek over time without any adjustment for declining power prices, Optim Energy told the court.
Purchase price to beat at auction is $60m in cash
In the recent bid process run by Barclays Capital, the decision was to whittle the initial offers down to eight final bidders, who took a look at a data room and did site visits in April. Four of those eight submitted final binding offers. The agreement with Major Oak Power was worked out on June 13. It would purchase the facility for a cash purchase price of $60m, subject to certain additional adjustments, plus the assumption and assignment of certain executory contracts. The sale agreement does not contemplate assumption of the FSA with Walnut Creek.
To see if any other offers are out there, Optim Energy is asking the court for:
- A bid deadline of July 23 at 3:00 p.m. (prevailing Eastern Time).
- A sale objection deadline of July 29 at 5:00 p.m. (prevailing Eastern Time).
- An auction on Aug. 4 at 10:00 a.m. (prevailing Eastern Time), at the offices of Bracewell & Giuliani LLP, 1251 Avenue of Americas, New York, N.Y.
- A sale hearing before the court on Aug. 5 at 10:00 a.m. (prevailing Eastern Time) to look at the auction results.
The counsel for Major Oak Power are: Kirkland & Ellis LLP, 601 Lexington Avenue, New York, NY 10022, Attn: Paul Basta, Esq. and Brian Schartz, Esq.
The June 13 sale agreement is signed by Sean Klimczak as President of Major Oak Power. His contact information is: Major Oak Power LLC c/o The Blackstone Group LP, 345 Park Avenue, New York, NY 10154 Telephone: (212) 583-5701, Email:email@example.com.
His bio on the Blackstone website says: “Sean T. Klimczak is a Senior Managing Director in the Private Equity Group and is based in New York. Since joining Blackstone in 2005, Mr. Klimczak has been involved in the execution of several Blackstone investments, including various Sithe Global investments (including Goreway, Bujagali, GNP Mariveles and SKS), Cheniere Energy Partners, Fisterra, PQ Energy, Meerwind, Transmission Developers, American Petroleum Tankers and The Weather Channel. Before joining Blackstone, Mr. Klimczak was an Associate at Madison Dearborn Partners. Prior to that, Mr. Klimczak worked in the Mergers & Acquisitions department of Morgan Stanley & Company’s Investment Banking Division.”