AES Eastern Energy's asset sale faces opposition from Bank of Nova Scotia, creditors committee

By Lisa Kerner

Charlotte, N.C., Feb. 29 - The Bank of Nova Scotia and AES Eastern Energy LP's recently appointed official committee of unsecured creditors both filed objections that could stall the sale of AES' two power operating plants, according to two separate court filings on Tuesday.

As previously reported, AES reached an agreement in principle for the sale of its Somerset and Cayuga plants to an entity sponsored by holders of pass-through trust certificates in connection with a leveraged lease transaction that financed the acquisition of the plants, which are located in Barker, N.Y., and Lansing, N.Y.

The sale, subject to higher or otherwise better offers in an auction process, will leave the debtors with enough cash to wind down their affairs and resolve remaining liabilities, according to court documents.

The pass-through trust certificate holders will serve as the stalking horse bidder with an initial credit bid of $300 million, $5 million in cash, the release to the debtors of $8.5 million in cash in a Deutsche Bank depositary account, the assumption of the debtors' liabilities and additional cash to cover operating losses if the closing occurs after March 30.

Specifically, Bank of Nova Scotia wants the court to reject the settlement agreement.

Somerset Railroad Corp. services the two plants and is the only asset of value securing Bank of Nova Scotia's claim against its obligor, AES New York Surety, LLC. Bank of Nova Scotia believes there is substantial equity in Somerset Railroad proposed to be pledged to the indentured trustees for no consideration, which is "on its face a fraudulent conveyance and should not be approved," the Bank of Nova Scotia filing said.

The committee wants the court to deny the settlement, as well as the sale motion, at a hearing on March 2 in part because settlement violates Section 503(b)(1)(A) of the Bankruptcy Code limiting administrative expenses to "the actual, necessary costs and expenses of preserving the estate," the court filing said.

As it stands, the agreement guarantees that the debtors will allocate $4 million of their limited liquid assets to satisfaction of the certificate holders' professional fees with the balance of the fees paid at the closing.

As previously reported under the settlement agreement, the stalking horse bidder is entitled to reimbursement of professional expenses.

Proposals are due by noon ET on March 2.

If one or more qualified bids are received, an auction will be conducted on March 12.

The initial overbid amount will be announced at the bid procedures hearing.

A sale hearing is scheduled for 10 a.m. ET on March 15. The sale is scheduled to close on or before March 30.

AES Eastern Energy operates more than 1,000 megawatts of capacity at four facilities in New York that were acquired from New York State Electric & Gas in May 1999. The Chapter 11 case number is 11-14138.

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