La Paloma Generating committee: Plan not in creditors’ best interest

By Caroline Salls

Pittsburgh, Oct. 23 – La Paloma Generating Co., LLC’s official committee of unsecured creditors objected to confirmation of the company’s proposed Chapter 11 plan, according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

“The plan cannot be crammed down over the votes of the unsecured creditors because the plan does not meet the best interests of the creditors test,” the committee said.

The committee said the best interests test is designed to guarantee that each creditor or interestholder will receive at least as much under the plan as it would in a Chapter 7 liquidation unless that creditor or interestholder agrees otherwise.

However, the committee said La Paloma’s first-lien and second-lien debtholders are both non-recourse creditors who would not have general unsecured claims in a Chapter 7 liquidation, and a hypothetical Chapter 7 trustee could use avoidance action income and post-bankruptcy revenue to pay general unsecured trade creditors.

According to the objection, the trade creditors would not be diluted under the liquidation scenario since the first-lien and second-lien debtholders would not have deficiency claims. As a result, the committee said the trade claimants could receive the entire $5 million earmarked for a general unsecured claims pool.

The creditor group said the trade creditors “could easily be paid in full in a Chapter 7 liquidation.”

In addition, the committee said the third-party releases given under the plan do not meet the standard of review under bankruptcy law “and cannot withstand the scrutiny given to insider transactions.”

The committee said the plan also violates bankruptcy law because it gives first-lien lender LNV Corp. the right to credit bid and grants it a $150 million unsecured claim.

La Paloma is a 1,022 MW combined-cycle gas-fired power plant located in Kern, Calif. The company filed bankruptcy on Dec. 6, 2016 under Chapter 11 case number 16-12700.

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