(Adds parties working toward out-of-court restructuring for
months; comment from Longview CEO; background)
By Patrick Fitzgerald and Emily Glazer
First Reserve Corp.'s Longview Power, LLC, a 700 megawatt
coal-fired power project in West Virginia, filed for Chapter 11
bankruptcy protection in Delaware Friday morning as it faced an
upcoming interest payment and battled low natural gas and coal
prices.
Also filing for Chapter 11 protection in U.S. Bankruptcy Court
in Wilmington, Del., was Longview's West Virginia coal-mining
partner Mepco Holdings LLC and 11 other affiliates.
First Reserve, a $23 billion energy-focused private equity firm
based in Greenwich, Conn., pumped about $1 billion in equity into
the $2 billion project, according to court filings. Longview Power
owes lenders, led by Citigroup (C), about $1.2 billion, including
$557 million of debt that matures in February 2014.
The bankruptcy filing was prompted by the interest payment due
to lenders on Friday. Failure to pay would have caused a default
under the company's credit pact, said Jeffery Keffer, chief
executive of Longview Power, in court papers.
"The company has been in consensual negotiations with our senior
lenders toward a Chapter 11 plan to maximize value; those
negotiations remain ongoing," Mr. Keffer said in a statement. "We
remain confident that the company and our lenders will reach an
agreement on the terms of a Chapter 11 plan in the near term."
Legal and financial advisers had been working on an out-of-court
restructuring with lenders for months, but it was a slow path
because creditors were diverse and widely held, including power
holders and European banks, a person familiar with the matter said.
There was also a lot of trading during the attempted restructuring
because creditors didn't want to take writedowns, this person
said.
Longview, based in Maidsville, W. Va., began operations in
December 2011. The company generated about $255 million in revenue
for the 12-month period ending in June, with some $106 million
coming from the sale of power.
But the plant has been plagued by problems, including forced and
extended planned outages owing to problems arising from its design
and construction, , Mr. Keffer said. Those alleged flaws have
resulted in the plant operating at 68% of capacity.
Mepco brought in $149 million over the same 12-month period. It
operates three active underground coal mines and one active surface
mine located in northern West Virginia and southwestern
Pennsylvania. About half its yearly coal production is sold to
Longview.
Longview and Mepco will keep their doors opens and continue to
conduct business during their bankruptcy case. To that end, the
company is seeking approval of a number of so-called first-day
motions to operate their businesses without interruption. The
companies are seeking court approval to continue to pay their more
than 600 employees and key vendors.
The companies don't have a debtor-in-possession, or DIP, loan
but they intend to draw on $59 million in letters of credit from a
unit of German engineering firm Foster Wheeler AG (FWLT).
Those letters of credit, however, have been the subject of an
arbitration dispute with contractors Siemens Energy Inc., and the
North American units of Norwegian construction firm Kvaerner ASA
(KVAER.OS) and Foster Wheeler.
Olivia Offner, spokeswoman for First Reserve, declined to
comment, as did spokesmen for Longview and Foster Wheeler. A
spokeswoman for Siemens couldn't immediately comment. A Kvaerner
representative didn't respond to requests for comment.
The law firm of Kirkland & Ellis LLP is handling the Chapter
11 case, Alvarez & Marsal is acting as restructuring adviser
and Lazard is serving as Longview's investment banker.
Judge Brendan Linehan Shannon, who has been assigned the case,
has scheduled a hearing on the companies' first-day requests for
Sept. 3.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com and
Emily Glazer at emily.glazer@wsj.com
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