Southern Montana Electric committee's case conversion motion denied

By Caroline Salls

Pittsburgh, Aug. 7 - Southern Montana Electric Generation and Transmission Cooperative, Inc.'s unsecured creditors committee's motion for conversion of the company's bankruptcy case to Chapter 7 was denied Wednesday by the U.S. Bankruptcy Court for the District of Montana.

In the motion, the committee said settlements with the City of Great Falls and Yellowstone Valley Electric Cooperative removed about 35% of the company's future income.

Given that Southern Montana Electric is a "cooperative of cooperatives," the committee said there is no realistic chance that this income stream can be replaced by other sources.

In addition, the committee said adequate protection payments made to pre-bankruptcy noteholders are "another factor contributing to debtor's sure road to ruin."

According to the motion, Southern Montana Electric pays the noteholders $1.04 million per month in adequate protection payments and pays for their legal and professional expenses.

The committee said there appears to be little chance of a consensual agreement between the noteholders and the remaining member cooperatives for a payment structure that the members can afford.

The creditor group said the committee continues to claim entitlement through the position on the value of their secured claim and a make-whole premium "to far more than could possibly be paid by the remaining members."

"If a plan were confirmed that gave the noteholders their demand, then confirmation would be rapidly followed by the bankruptcy of the member coops," the motion said.

Noteholder agreement

Judge Ralph B. Kirscher said in Wednesday's ruling that the company's Chapter 11 trustee reached an agreement with noteholders the day after the committee filed the conversion motion and intends to file an amended plan and disclosure statement incorporating that agreement by Aug. 14.

Under the proposed settlement, the noteholders will waive their claim for a $46 million make-whole amount.

In addition, roughly $25 million of the noteholders' remaining claims, which totaled at least $85 million as of the bankruptcy filing date, not including the contested make-whole amount, will be treated under the amended plan as though the noteholders were undersecured.

The proposed settlement will result in rates for power, energy and transmission to Southern Montana Electric's remaining members that are fair and reasonable and far less than the projected rates approved before the closing of a financing transaction with the noteholders in February 2010, according to a motion filed on June 28 by the trustee.

"According to the trustee, he has reached an agreement with the noteholders and he is ready to move forward with confirmation of a plan," Kirscher said in the conversion ruling.

"Thus, in addition to finding no cause for converting this case to Chapter 7, the court also finds, based upon the evidence presented at the hearing, that the trustee has shown a likelihood of formulating a confirmable Chapter 11 plan of reorganization."

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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