Bankruptcy judge denies Southern's liquidation

2013-08-09T00:15:00Z 2013-08-22T13:17:06Z Bankruptcy judge denies Southern's liquidationBy CLAIR JOHNSON The Billings Gazette

A bankruptcy judge Wednesday denied requests to liquidate Billings-based Southern Montana Electric Generation and Transmission Cooperative, saying the trustee for the troubled wholesale power supplier has shown “a likelihood” of proposing a reorganization plan.

The order from U.S. Bankruptcy Judge Ralph Kirscher follows a July 31 hearing in Missoula in which an unsecured creditors committee and some of Southern’s member cooperatives argued that Southern should be liquidated, not reorganized.

The judge said liquidation could be reconsidered.

In addition, the judge set new deadlines in the case.

The trustee is to file a new amended reorganization plan by Aug. 14. A hearing on the amended plan and other information in the case is set for Sept. 24, while a plan confirmation hearing will be on Nov. 12. Both hearings will be in Billings.

The unsecured creditors argued that settlements with two of Southern’s former members reduced the wholesale supplier’s income stream with no reasonable chance of replacing that revenue.

In addition, the unsecured creditors committee said there was little chance of an agreement between Southern’s noteholders, which are secured creditors, and its remaining members for a payment plan the members could afford.

Kirscher rejected those arguments and others, saying the committee “did not produce any evidence showing that a loss in a portion of Southern Montana’s revenue stream has any impact on Southern Montana’s future viability.”

The judge also noted the committee failed to show how payments the trustee has been making to a secured creditor were hurting Southern.

“Stated simply, the Committee failed to show any loss to or diminution of the estate,” Kirscher said.

The judge agreed with Southern’s trustee, Lee Freeman, that the committee’s liquidation request was not supported by the facts.

Freeman testified at the hearing that his goal was to keep Southern on “stable ground and keep its rates at a reasonable level,” the order said.

Freeman has been doing that, the order said, by rejecting Southern’s contract with PPL EnergyPlus LLC, an unsecured creditor, in which Southern was paying about $60 per megawatt of power. Freeman then began buying power from other sellers for about half the price.

In addition, Freeman testified he has been “working diligently to put Southern Montana on solid financial ground.” Southern has had a positive cash flow since February 2012, a trend the trustee said he expected would continue.

Freeman also told the judge that he had reached an agreement with the noteholders and would file information about it by Aug. 14.

Southern is an umbrella cooperative that contracts to provide power to its members. Current members include the Beartooth, Fergus, Mid-Yellowstone and Tongue River rural co-ops.

Former members Yellowstone Valley Electric Co-op and the City of Great Falls left Southern after the judge approved settlements negotiated by the trustee and the parties.

Southern also built the gas-fired 40-megawatt Highwood Generating Station near Great Falls.

The wholesaler borrowed $80 million from Prudential and other lenders for the plant and was trying to borrow another $215 million to enlarge the plant when it filed for bankruptcy reorganization in October 2011. The plant has not operated. A recent appraisal placed Highwood’s fair market value at $1.18 million as of January 2014.

Beartooth, Fergus and Mid-Yellowstone joined the unsecured creditors in seeking liquidation. Tongue River, along with the noteholders, opposed it.

Arleen Boyd, a Beartooth and Southern board member, said in a news release that Freeman indicated the amended plan will be like his previous plan with new provisions from a settlement agreement with the noteholders.

“It is clear that the only reason to keep Southern together is to pay the Noteholders. Three of the four co-ops have clearly stated that they want to liquidate Southern, yet this trustee told the court that ‘everyone’ is on a path for settling. He is obviously not talking to us,” Boyd said.



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