Longview Power dispute over $59 million letters of credit postponed

By Jim Witters

Wilmington, Del., Oct. 9 - Longview Power, LLC won a four-week delay for a hearing to begin sorting through issues surrounding two letters of credit totaling $59 million, but the judge said he granted the continuance reluctantly and admonished the attorneys to focus more on the financial and operational restructuring of the company.

Judge Brendan L. Shannon approved the debtors' request to postpone the hearing and rejected requests from three contractors to split the issues into separate hearings in October and November. The decisions came during an Oct. 9 telephonic hearing in the U.S. Bankruptcy Court for the District of Delaware.

Longview attorney Phillip R. White told the court that "almost all" interested parties have agreed to participate in settlement negotiations and more time before the hearing may produce a resolution.

"There is a glimmer of hope on the horizon, and this is the first glimmer of hope that we have seen," White said.

Longview and three of its contractors have been entangled in a dispute over the letters of credit for six years and have been involved in arbitration for two years.

At issue is whether Longview holds the letters of credit or assigned them to a consortium involved in a $2 billion project that included the construction and operation of a coal mining operation and a 750 megawatt, coal-fired power plant.

Longview is seeking authority to tap the letters of credit for operations during the bankruptcy case. The company is operating on lenders' cash collateral and projects it will run out of funds by the end of November.

Three contractors involved in the mining and power plant project - Siemens Energy, Inc., Foster Wheeler North America Corp./Foster Wheeler AG and Kvaerner North American Construction Inc. - argue that the letters of credit belong to the consortium.

They want the bankruptcy court to allow the arbitration process to play out.

The contractors also wanted Shannon to bifurcate the issues.

At one hearing, they would tackle the question of whether the bankruptcy court has jurisdiction to settle the disputes and whether it is appropriate for the court to hear them. At the second hearing, the parties would make their arguments about the facts of the case.

The contractors also told the court that Longview has not been in touch with them regarding settlement negotiations and has made no proposals for consideration.

Judge Shannon said the prospect of a settlement did not influence his decision to delay the hearing.

While the idea of bifurcating the issues was attractive, Shannon said, the pleadings in the case and the litigation have bound the disputes into a package.

He also said that, from the outset of the case, there was a question about whether these complicated issues could be teed up for an October hearing.

However, Shannon also took the attorneys to task for focusing more on the letters of credit than on the prospect of restructuring the company through the bankruptcy proceedings.

"At least from my assessment - and you can take this for what it's worth - this case calls for financial and operational restructuring. The disputes over the letters of credit are not moving the case forward, but all the activity in the case is focused on these issues," Shannon said.

The judge scheduled a Nov. 21 hearing for determination of jurisdiction over the letters of credit and for final approval of Longview's use of cash collateral.

Longview and Mepco, an integrated power generation enterprise based in Maidsville, W.Va., filed for bankruptcy on Aug. 30. Their Chapter 11 case number is 13-12211.

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