Harbert, Wilmington move to have HSBC, Oaktree claims against NorthWestern voided

By Jeff Pines

Washington, July 13 - Claims against NorthWestern Corp. by HSBC Bank USA and Oaktree Capital Management LLC should be voided because NorthWestern sold securities in violation of the Public Utilities Holding Company Act, Harbert Management Corp. and Wilmington Trust Co. said.

Harbert and Wilmington Trust filed their motion Monday with the U.S. Bankruptcy Court for the District of Delaware.

Wilimington Trust is the indenture trustee for four series of trust preferred securities issued by the Sioux Falls, S.D. utility and two of Harbert's funds own some of the securities.

Under NorthWestern's reorganization plan, holders of the trust preferred securities would get a 3.6% recovery.

HSBC Bank is the indenture trustee for $250 million of 7 7/8% senior notes due 2007 and $470 million of 8¾% senior notes due 8.75%. Both series of notes were sold in March 2002. Oaktree is a general partner in funds that own the senior notes. NorthWestern's reorganization plan calls for the senior noteholders to get an estimated 73.8% recovery.

Harbert's and Wilmington Trust's position is that at the time those securities were sold NorthWestern was in violation of PUHCA and that debt sold by a company in violation of that law is void. In a previous court filing, NorthWestern said its exemption was valid.

If the company did not have to repay $720 million of claims, there would be more for the trust preferred securities claims.

An Aug. 25 hearing is scheduled.

In a separate motion filed with the court on Monday, Harbert asked the court to: order NorthWestern to turn over documents it has requested relating to a memorandum of understanding; prevent the company from offering evidence that releases for its officers and directors are valid; and order payment of Harbert's lawyers for their time in this matter.

Harbert said it requested documents through the discovery process. It asked for insurance coverage letters for a NorthWestern subsidiary, documents the company has already provided to the Securities and Exchange Commission and a privilege log of NorthWestern's investigation of its officers and directors.

According to Harbert, the company's position is that the documents are protected by the attorney-client privilege and therefore it does not have to provide them.

An Aug. 4 hearing is scheduled.

NorthWestern filed for bankruptcy on Sept. 14, 2003. NorthWestern's Chapter 11 case number is 03-12872.

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