May 29 (Bloomberg) -- Longview Power LLC, which spent $2 billion to build a coal-fired plant in West Virginia, won court approval to seek creditors’ votes on a modified restructuring plan, paving a path toward exiting bankruptcy by September.
U.S. Bankruptcy Judge Brendan Linehan Shannon at a hearing today in Wilmington, Delaware, granted the company permission to retake creditors’ votes on the changes to the plan. Creditors will have until July 15 to cast ballots.
Under the revised reorganization plan, Longview proposes to resolve a dispute with Kvaerner North American Construction Inc. and a Siemens AG unit, contractors that helped build its 700-megawatt plant, by paying their claims from an $825 million insurance policy to the company’s secured lenders.
“We think this plan structure is a real step in the right direction,” said Ray C. Schrock, a lawyer for Longview, said at the hearing. The changes avoid “protracted estimation” litigation with the contractors.
The Maidsville, West Virginia-based power producer, an indirect unit of investment firm First Reserve Corp., was forced to seek bankruptcy protection after construction flaws at the plant reduced its power output, hindering its ability to make debt payments, according to court documents. Longview blamed its contractors for the flaws, which they contest.
The two contractors have filed about $335 million in mechanics liens that they claim should be paid ahead of lenders owed about $1 billion. Mediation in recent weeks hasn’t produced a resolution.
Longview settled another dispute with a unit of Geneva-based Foster Wheeler AG, a third contractor. According to court papers, the unit agreed to fix for free flaws that the power producer valued at about $50 million.
Last week, Longview sued First American Title Insurance Co., which had provided a policy to Longview lenders that weren’t identified in court papers. The First American policy covers defects to title resulting from mechanics liens, according to court filings.
Longview seeks a ruling that it can use funds from the lenders’ policy and said its reorganization plan will collapse if it’s denied access to the money. First American says the funds aren’t available to Longview.
Under the restructuring plan, Longview’s lenders will get about 85 to 90 percent of the equity in the reorganized company. Some of them, which are providing as much as $150 million in bankruptcy financing, would get the remaining equity.
Under the plan, unsecured creditors that support it will get a recovery of as much as about 22 percent of what they’re owed. Those that vote against it will get about 5.5 percent recovery at most.
Longview received a $1 billion equity investment from an affiliate of Greenwich, Connecticut-based First Reserve and borrowed about $1.2 billion on a secured credit facility to fund construction of the West Virginia project, according to court papers.
The case is In re Longview Power LLC, 13-bk-12211, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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