Optim affiliates lash back at Blackstone over bankruptcy case issues

Optim Energy Altura Cogen LLC and Optim Energy Cedar Bayou 4 LLC, which are the power plant-owning subsidiaries of Optim Energy LLC that have a revamped reorganization plan before their bankruptcy court, on May 18 lashed back at Blackstone Group LP over its objections to the latest reorganization plan.

Blackstone’s Walnut Creek Mining unit, which controls a lignite mine in Texas that supplies the Twin Oaks power plant that Optim sold last year to Blackstone, is objecting to a May 6 Third Amended Disclosure Statement and Reorganization Plan. “The Third Amended Disclosure Statement is fully consensual,” said the Optim affiliates in their May 18 filing. “No creditor has raised an objection to it. Parties in interest have approached the Debtors expressing support for the Third Amended Plan. Plans for the six remaining Debtors (the ‘Other Debtors’) have been, for the moment, deferred while the Debtors focus upon reorganizing their operating businesses.

“The sale provisions have been removed,” the filing added, referring to a now-terminated sale process for Optim’s two remaining power plants, both of them gas-fired facilities located in Texas. “The Debtors received no qualifying bids for the Debtors’ gas plants by the bid deadline. As a natural result, the sale process was eliminated from the Third Amended Plan and Third Amended Disclosure Statement. This should come as no surprise.

“The Third Amended Plan was not drafted in a vacuum. After the Hearing, the Debtors conferred with representatives of Walnut Creek and its ultimate parent, The Blackstone Group, L.P. (collectively, ‘Blackstone’), regarding settlement of their claims against certain of the Other Debtors. It quickly became apparent that the parties were too far apart to achieve a resolution, as Blackstone sought significantly more than the ‘tip’ it referred to at the Hearing. The Debtors view the Rejection Damages Claim as utterly meritless. Moreover, there are no assets to distribute on account of the claim. There is simply no economic justification to pay Blackstone to resolve a woefully out-of-the-money and baseless claim.

“Blackstone directed the Debtors to reject the fuel supply agreement between the Twin Oaks Plant and the Walnut Creek mine as a condition of their bid and now seeks to benefit from the rejection. Moreover, the Debtors are of the view there is no Rejection Damages Claim because Blackstone actually generated significant synergies for itself by acquiring both assets in a joint process and combining them in their existing ERCOT portfolio.

“Most disturbing, however, are the commercial representations made by Blackstone in the sale process. When Blackstone submitted its bid for the Twin Oaks Plant, it assured the Debtors (and Cascade) that “Blackstone is the right partner for Cascade as they continue through this process . . . . [and that Blackstone is] committed to getting this transaction done and being a good partner to them on this deal, and, perhaps, if they decide to sell their gas plants, on the next transaction as well.’

“Based on these written assurances from the leader of the Blackstone deal team, the Debtors had no reason to believe Blackstone would turn around and attempt to use the jurisdiction of this Court to invent the Rejection Damages Claim it now uses as a weapon to stymie progress in these chapter 11 cases. If there is any ‘sudden shift that necessitates a deeper dive’ (Motion for 2004 Examination Motion of Walnut Creek Mining Company Pursuant to Bankruptcy Rule 2004 for an Order Authorizing an Examination of the Debtors and Certain Third Parties, D.I. 905, ¶ 5) it is Blackstone’s alarming shift from ‘good partner’ to its campaign to obstruct all progress in these chapter 11 cases. The Debtors intend to pursue this conduct and defend the integrity of this process against Blackstone’s abuse.

“Blackstone claims that the Reorganizing Debtors somehow are undermining the policy of consensual plans and manipulating these chapter 11 cases to the detriment of creditors. Nothing could be farther from the truth. These chapter 11 cases have been extraordinarily consensual, with the sole exception of Blackstone. No other creditor has objected to the Third Amended Disclosure Statement. If there is any manipulation afoot, it is Blackstone’s relentless efforts to obstruct any plan of reorganization.

“Blackstone purports to be acting for the best interests of all unsecured creditors. This claim has no basis in reality. Blackstone has already objected to a plan that offered a 100% recovery for unsecured creditors of the Reorganizing Debtors—a home run in any other case—forcing the Reorganizing Debtors to reduce recoveries for these creditors and delay payouts. Now Blackstone seeks to do additional damage, and could jeopardize recoveries altogether for creditors of the Reorganizing Debtors. The Debtors respectfully submit enough is enough. The Court should overrule the Objection and approve the Third Amended Disclosure Statement pursuant to the applicable legal standard—the adequacy of information presented under section 1125 of the Bankruptcy Code.”

The two Optim companies suggested that Blackstone may be unhappy about accidentally overbidding in last year’s buy of the Twin Oaks coal plant, and about “negative market developments” since it bought both the power plant and the Walnut Creek coal mine.

Walnut Creek Mining says interrelated aspects of the Optim companies give it a claim here

Said Walnut Creek Mining in its May 14 objections: “[T]he Debtors filed an amended version of the plan that strips out six of the eight Debtor entities and seeks to move forward with the two entities that own the gas plant assets. And while the Debtors have effectively acknowledged that section 1129(a)(10) means what it says, they have still failed to proffer a plan that complies with the Bankruptcy Code. The Debtors have now improperly manufactured impaired classes; in the case of Cedar Bayou, according to the Debtors’ schedules, statements and disclosure statement, a single creditor with a claim of $194.48 (with impairment of less than ten dollars) will vote on the plan. Importantly, this is not a circumstance where voting on the plan can change the fact that the plan is unconfirmable on its face. This is not a question of process to determine whether impairment is contrived or manipulated to ensure compliance with the Bankruptcy Code. The facts are not in dispute.”

Walnut Creek later added: “The original plan was designed to disenfranchise Walnut Creek. The amended plan is designed to silence Walnut Creek. Walnut Creek welcomes these Debtors to challenge its standing to pursue this Objection and or any objection to potential relief sought in these chapter 11 cases. Walnut Creek has standing for a myriad of reasons and it is unquestionably a party in interest. These Debtors are interrelated. The Debtors against which Walnut Creek holds claims (Optim Energy and Twin Oaks LP) hold intercompany claims against the Reorganizing Debtors and vice versa. The plan seeks to effect a cancellation of all intercompany claims against any Debtor. Optim Energy also happens to be a guarantor of many of the contracts that the Reorganizing Debtors seek to assume, including some of its most important contracts (e.g., the SEPSA agreement with Lyondell). This is a case where there is no creditors’ committee. And there is no fiduciary home. There is no one to look out for Walnut Creek so it is doing so on its own.”

The Optim plants that were up for sale are:

  • The Altura Cogen Plant is a natural gas-fired plant capable of producing 600 MW, located in Harris County, Texas. It sells the majority of its energy in the ERCOT market. The plant is owned by Optim Energy Altura Cogen LLC. The Altura Cogen Plant has been commercially operating since 1985 and is located within a complex of petrochemical facilities owned by Lyondell Chemical Co. Limited objections by Lyondell to the sale plan have been resolved.
  • The Cedar Bayou Plant is a gas-fired plant capable of producing 550 MW, located in Chambers County, Texas. It operates in ERCOT’s Houston Zone. Debtor Optim Energy Cedar Bayou 4 LLC owns a 50% undivided interest in the Cedar Bayou Plant and NRG Cedar Bayou Development Co. LLC owns the remaining 50% undivided interest. The Cedar Bayou Plant began operating in 2009. It is located within a complex of generation facilities owned by NRG Texas Power LLC, which owns the real property upon which the Cedar Bayou Plant is situated.

The Debtors in these chapter 11 cases are: Optim Energy LLC; OEM 1 LLC; Optim Energy Cedar Bayou 4 LLC; Optim Energy Altura Cogen LLC; Optim Energy Marketing LLC; Optim Energy Generation LLC; Optim Energy Twin Oaks GP LLC; and Optim Energy Twin Oaks LP.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.