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LSP Energy powers on Chapter 11

by Jamie Mason  |  Published February 13, 2012 at 12:19 PM
LSP-Energy-powers-on-Chapter-11.jpgProblems with a combustion turbine have led electricity producer LSP Energy LP to seek bankruptcy protection and a sale of its assets.

The Batesville, Miss., electric generation facility operator filed for Chapter 11 on Friday, Feb. 10, in the U.S. Bankruptcy Court for the District of Delaware in Wilmington with three affiliates and a $20 million debtor-in-possession loan. The debtors seek joint administration of the cases.

LSP blamed its petition on liquidity issues that began with the interruption in its operations due to the mechanical failure of a combustion turbine in May 2011. The debtor faced a substantial repair bill, as well as a reduction in its revenue.

The initial failure led to the rebuilding of the turbine, but the outage of the unit continued through 2011 and into 2012 because following the repair came a series of attempted restarts, inspections and part replacements, court filings said.

After the latest restart attempt on Dec. 12, LSP and Siemens Energy Inc., which did the repair work, determined that the replacement rotor installed by Siemens in October 2011 was faulty. Siemens is replacing the rotor, and the debtor expects to restart operations at full capacity in March.

The debtor also had an outage in a second unit, however, with its steam turbine generator and the combustion turbine generator, from Oct. 10, 2011, through Jan. 21. While a portion of its losses have been covered by insurance, the debtor anticipates it will have an additional $19 million in costs not covered by insurance, court papers said.

"Although LSP has sufficient liquidity to fund its operations in the near term, it lacks sufficient liquidity to continue funding its operations and also fully service its secured obligations going forward," LSP said in court filings.

The debtor owes $34.95 million in 7.16% Series C senior secured bonds due Jan. 15, 2014, and $176 million in 8.16% Series D senior secured bonds due July 15, 2025. Bank of New York Mellon Corp. is indenture trustee on the bonds. The debtor also owes $3.9 million to Gleacher Products Corp. on a secured working capital facility.

The debtor wants to fund its continued operations with its cash collateral and a $20 million DIP term loan from Transamerica Life Insurance Co. and John Hancock Life Insurance Co. (U.S.A.). The loan, which appears to be all new money, is priced at 8.16% per annum.

The DIP has a 1.25% commitment fee, a $200,000 upfront commitment fee and a $400,000 fee for agent Cantor Fitzgerald LP when the first payment is due.

The loan matures on Aug. 30 or the effective date of a reorganization plan, whichever comes first.

Under terms of the DIP, the debtor must find a buyer for its assets by June 30 and complete the sale by Aug. 30.

Judge Mary F. Walrath is set to consider interim use of cash collateral and the DIP, along with joint administration of the debtors' cases, on Monday.

The debtor has not yet filed a sale motion with the bankruptcy court.

LSP's electric generation facility in Batesville has three gas-fired combined cycle electric generating units with a total capacity of 837 megawatts that connect with the Entergy Corp. and Tennessee Valley Authority transmission systems. The debtor also owns the 58-acre parcel under the facility.

The debtor sells its electricity through two long-term power purchase agreements with J. Aron & Co. and the South Mississippi Electric Power Association.

The company listed assets and liabilities of $100 million to $500 million in its petition.

LSP's largest unsecured creditors include Siemens Energy of Palatine, Ill. (owed $21.27 million), Complete Energy Batesville LLC of Silver Spring, Md. ($5.07 million), Siemens Demag Delaval Turbomachinery Inc. of Atlanta ($1.17 million), Barnhart Crane & Rigging Co. of Birmingham, Ala. ($90,000) and Baxter Co. of Tupelo, Miss. ($84,393).

Paul M. Nussbaum, Martin T. Fletcher, John F. Carlton and Thomas J. Francella Jr. at Whiteford Taylor & Preston LLP are debtor counsel.

Lazard is LSP's investment banker.

Tags: Bank of New York Mellon Corp. | Cantor Fitzgerald LP | Entergy Corp. | J. Aron & Co. | John Hancock Life Insurance Co. | Lazard | LSP Energy LP | Martin T. Fletcher | Paul M. Nussbaum | Tennessee Valley Authority | Transamerica Life Insurance Co. | Whiteford Taylor & Preston LLP

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