NorthWestern pulls out of settlement with Magten, Law Debenture

By Ellen Chang

Houston, Feb. 17 - NorthWestern Corp. said Thursday it has abandoned its proposed settlement with Magten Asset Management Corp. and Law Debenture Trust Co. of New York LLC because the plan committee and major shareholders have objected to it.

The company had announced an agreement to settle all pending legal actions, appeals, claims and disputes with Magten and Law Debenture over the Quips issued by Montana Power and had been intending to present it to the bankruptcy court for approval.

Since the settlement will not be going forward, NorthWestern will distribute the 368,626 shares of common stock that was not distributed to non-accepting class 8(b) creditors to holders of allowed claims in Class 7 (unsecured note holders) and to holders of allowed claims in class 9 (general unsecured).

Holders of class 7 claims will receive an extra 324,134 shares and holders of allowed class 9 claims will receive the remaining 44,492 shares. In addition, 684,265 warrants that were not distributed to non-accepting class 8(b) creditors have been cancelled.

Among the objectors was Harbert Distressed Investment Master Fund, Ltd., which released a letter Tuesday claiming NorthWestern was violating the terms of its recently completed reorganization plan.

Harbert noted that it holds 20% of the class 7 pre-bankruptcy claims against NorthWestern as well as 20% of the common stock of the reorganized company and 33% of the warrants.

It added that holders of a majority of the class 7 claims and the new common stock have said they share the concerns.

Under the now-abandoned agreement with Magten and Law Debenture, NorthWestern would have distributed to the Quips holders that did not accept the plan of reorganization the 382,732 shares and 710,449 warrants that would have been distributed had they accepted the plan of reorganization. NorthWestern will also distribute $17.4 million worth of common stock, about 870,000 shares, which were set aside for pending litigation claims. Fees and expenses owed to Law Debenture as the trustee will be paid from the distribution of stock and warrants.

Harbert criticized the amount to be distributed as "excessive" - and also disputes the $17.4 million figure, saying $24 million is the correct number.

NorthWestern, a Sioux Falls, S.D., provider of electricity and natural gas, emerged from Chapter 11 on Nov. 1, 2004.

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