Southern Montana Electric to file plan under members, noteholders deal

By Caroline Salls

Pittsburgh, March 26 - Southern Montana Electric Generation and Transmission Cooperative, Inc. reached an agreement with its member co-ops and a group of noteholders that allows the company to file its own plan of reorganization, according to a Wednesday filing with the U.S. Bankruptcy Court for the District of Montana.

The noteholders are the Prudential Insurance Co. of America, Universal Prudential Arizona Reinsurance Co., Prudential Investment Management, Inc. and Modern Woodmen of America.

Because the agreement allows Southern Montana Electric to file a plan, the pending motion to convert the company's bankruptcy case to Chapter 7 and the plans previously filed by the member co-ops and noteholders will be held in abeyance pending the outcome of the company's plan.

A plan filed by Southern Montana Electric's former trustee will be withdrawn.

If the company's plan is confirmed, the conversion motion and other plans will be rendered moot and will be withdrawn.

The company's plan is expected to take effect on May 1.

Agreement terms

Under the term sheet:

• The noteholders' claims will be satisfied through the retention of adequate protection payments and professional fees paid from the bankruptcy filing date through April, delivery of a $1.25 million payment held by Northwestern Energy, $21 million in four-year 4 1/8% promissory notes and the granting of trust interests and the company's agreement to assign all HGS proceeds to the noteholders;

• Upon payment in full of the notes and satisfaction of the company's and members' obligations to the noteholders, all requirement contracts will cease to be noteholder collateral, and the company will have no continuing liability to the noteholders;

• The company will transfer Chapter 5 actions and rights to recovery for the benefit of general unsecured creditors, but the company may not provide for a total recovery of more than $1 million for holders of general unsecured claims without the consent of the members and noteholders;

• Construction lien claims will be treated in accordance with the noteholders' plan. Under that plan, construction lien claims will be satisfied by payment of $825,000 on the plan effective date and a total of $2.5 million in annual installments over four years with no interest;

• Member reserve account claims may be restored in whole or in part by the members at their discretion to ensure payment of their obligations to Southern Montana Electric;

• Member capital claims will be treated in accordance with the noteholders' plan, with repayment subordinated to the payment of the notes. Under the noteholders' plan, member capital claims will be retained.

Southern Montana filed for bankruptcy on Oct. 21, 2011. The Billings, Mont.-based cooperative's Chapter 11 case number is 11-62031.

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