National Energy & Gas Transmission gets approval for sale procedures of equity interests

By Jeff Pines

Washington, Aug. 10 - National Energy & Gas Transmission Inc. obtained approval for procedures to sell its equity interests in National Energy Power Co. LLC, Plains End, LLC and Madison Windpower LLC. The approval was given by the U.S. Bankruptcy Court for the District of Maryland on Tuesday.

The stalking horse bidder is Denali Power, LLC, which is offering $558 million for the equity interests.

The three companies that National Energy is selling own stakes in independent power producers, or power plants that sell all or most of their electricity to one or more third-party buyers.

National Energy Power also owns a 5% stake in the Iroquois Gas Transmission System, an interstate natural gas pipeline. Stakeholders in Iroquois have asked the judge to give them more time to determine under what conditions National Energy can sell its Iroquois interests.

A subsidiary of Bethesda, Md.-based National Energy & Gas Transmission is negotiating the sale of all of the company's equity interests in Hermiston Generating Co. LLC, which are held by National Energy Power, to a subsidiary of Sumitomo Corp. If the deal is completed 45 days before the closing date of the Denali purchase agreement, the base price of the sale will be lowered by $40 million.

If the sale to the Sumitomo subsidiary fails to go through, then National Energy & Gas Transmission can enter into a call agreement requiring the winner of the auction to buy the Hermiston interests for $40 million. The call agreement will expire 180 days after the closing date.

Under the court order, National Energy & Gas Transmission can transfer all of its assets in Raptor Holdings Co. to any entity not being bought by the purchaser. If National Energy & Gas Transmission transfers the Raptor assets, the total purchase price will be lowered by $18.5 million. The buyer must enter into a put agreement that will require the buyer to agree to buy all of National Energy & Gas Transmission's Raptor assets for $18.5 million. The agreement will expire 365 days after the closing date, according to the purchase agreement.

In addition, at the closing, whoever wins the auction will make a $46 million non-recourse loan to a newly formed limited liability company to be owned by National Energy & Gas Transmission. If the Beale Generating Co. and its subsidiaries convert to a limited liability company within six months of closing, the buyer will pay National Energy & Gas Transmission $100 million and $46 million of the $100 million will be used to repay the loan.

The court agreed to the proposed $15 million break-up fee and $7 million in expenses should Denali lose the auction.

Bids are due within 30 days of the order being entered. Initial overbids must be at least $26 million more than the Denali offer. Subsequent bids must be in $2 million increments.

If there are any competing bids, the auction will be held on Sept. 14 in New York.

A hearing on the auction results will be held on Sept. 22.

National Energy & Gas Transmission filed for bankruptcy on July 8, 2003. The Chapter 11 case number is 03-30459.

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