Longview Power disclosure statement draws objections from five parties

By Jim Witters

Wilmington, Del., Dec. 11 - Longview Power, LLC's disclosure statement is inadequate and should not be approved, according to five parties who filed objections Dec. 11 with the U.S. Bankruptcy Court for the District of Delaware.

Among the deficiencies listed in the objections are the proposed distributions to unsecured creditors, the classification of some creditors, the valuation used to determine proposed distributions and the justification for "disparate treatment among similarly situated creditors."

The objecting parties include an informal group of unsecured creditors, Fifth Third Bank, Wilmington Trust NA, Kvaerner North American Construction and Siemens Energy, Inc.

Longview, Kvaerner, Foster Wheeler North America Corp. and Siemens Energy, Inc. are parties to an arbitration in connection with pre-petition disputes arising from the construction of a 700-net-megawatt, supercritical, coal-fired power generation facility in Maidsville, W.Va.

On Nov. 15, the bankruptcy court entered an order authorizing a stipulation modifying and lifting the automatic stays to permit the arbitration to proceed as to all issues other than the Foster Wheeler letters of credit.

A hearing on the disclosure statement is scheduled for Dec. 18.

Creditor objections

The informal group of unsecured creditors was formed by two of the debtors' largest trade creditors, Consolidation Coal Co. and Airgas USA, LLC.

They say the unsecured creditors' interests have gone unrepresented throughout the case.

The U.S. Trustee's office has made attempts to form an official committee of unsecured creditors beginning in September. However, the attempts were unsuccessful because some of the creditors prepared to serve on the committee were paid in full as critical vendors.

"Unsecured creditors have had no seat at the table, and the effect is a disclosure statement with no meaningful information as to the treatment of the claims of general unsecured creditors," the objection states.

The disclosure statement "entirely fails to describe the distributions available to general unsecured claimants and whether lien claimants will receive recoveries from the same pool," according to the filing.

The lack of information prevents general unsecured creditors from making an informed vote on the proposed plan, the objectors say.

Siemens objections

"The Nov. 13 plan proposed by the debtors and described in the disclosure statement is little more than a deed in lieu of foreclosure of the power facility to the pre-petition secured lenders with little or no value delivered to any other constituency, and greater care is required in the disclosures made," according to the Siemens objection.

Longview is indebted to Siemens for material and services provided by Siemens in construction of the debtors' power plants.

The debts are secured by mechanics' liens.

The debtors and the debtor-in-possession facility lenders stipulate that a disputed mechanics' lien claims resolution is a pre-condition to confirmation of the proposed plan.

The resolution states that the claims of Siemens and the other contractors are disallowed or their mechanics' liens are determined to be junior in priority to those of the pre-petition secured lenders.

"The disclosure statement then assumes, but does not contain sufficient material information to establish, that junior secured status is tantamount to being entirely unsecured," Siemens says.

The disclosure statement lacks information regarding alternatives to confirmation of the proposed plan other than liquidation under Chapter 7, the objection states.

Kvaerner objections

Kvaerner says the disclosure statement does not contain adequate information acknowledging the various disputes between the contractors and Longview.

"Specifically, the debtors utilize the defined term 'construction and design defects' to describe the alleged causes for all the issues plaguing the power facility. This defined term, however, is completely one-sided, laying all the blame on the contractors. The definition is also structured in such a way as to imply the construction and design defects are facts and not mere allegations," according to the filing.

The allegations "will mislead creditors," Kvaerner says.

The plan also may be unconfirmable if the backstoppers do not waive the requirements of the disputed mechanics' lien claims resolution process, the objection states.

"Kvaerner has a first-priority perfected mechanic's lien senior to the Longview lenders' pre-petition secured claims. As the debtors are also aware, Kvaerner's first-priority properly perfected lien secures all of Kvaerner's claims," according to the filing.

The resolution process would reduce those claims to zero or make them junior to the Longview credit agreement claims.

Kvaerner asserts that the DIP lenders are using their lending status to benefit the pre-petition loans and create a sub rosa plan.

"The disclosure statement describes Kvaerner's mechanic's lien claims as Class 5 and impaired. This description is incorrect," according to the objection.

Wilmington Trust objections

Wilmington Trust, NA, as successor agent under the credit agreement with Dunkard Creek Water Treatment System, LLC and AMD Reclamation, Inc., says the disclosure statement contains "materially misleading and confusing information" concerning the terms under which the debtors may exercise an option to buy Dunkard Creek's assets.

Specifically, the disclosure statement says the debtors may exercise that option by issuing new notes to the Dunkard lenders rather than through a cash payment, according to the objection.

Fifth Third Bank objections

Fifth Third is party to three leases with the debtor, Mepco, LLC, for the use of certain mining related equipment.

The bank says its leases are true leases and not secured claims as the debtors listed them in schedules filed with the court.

"Due to the lack of information in the disclosure statement, Fifth Third is uncertain as to whether the debtor is even classifying Fifth Third as a Class 1 'other secured claim.'"

If the leases are true leases, Fifth Third's leases must be assumed or rejected pursuant to the plan. If the leases are rejected, Fifth Third will have a substantial rejection damages claim against the estate, according to the filing.

"However, the disclosure statement contains very little information regarding the treatment of unsecured claims against Mepco," the bank says.

If the debtors intend to treat Fifth Third as a secured creditor, the bank needs to know whether its claim will be classified as an "other secured claim."

"The disclosure statement should not be considered by the court until the deficiencies in both the adequacy of the disclosures and treatment of creditors under the plan are addressed and corrected," the bank asserts.

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

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