Mirant calls Perryville's proposed $5 million auction break-up fee too high

By Jeff Pines

Washington, Feb. 24 - Perryville Energy Holdings LLC's proposed $5 million break-up fee is exorbitant, said Mirant Corp. in a filing with the U.S. Bankruptcy Court for the Western District of Louisiana.

Entergy Louisiana, Inc. is the stalking horse bidder with a $170 million bid for Perryville and if it lost the auction it would receive the $5 million. Competing bids must start at $176 million.

Mirant said that unless Perryville can prove no other stalking horse is likely to show, the court cannot decide if the break-up fee is appropriate.

Futhermore, it argued the high fee will probably discourage competing bids.

Mirant admits a break-up fee equal to 3% of the deal is in the acceptable range, but it said it is at the high end of the range.

Perryville, which owns a gas-fueled 718-megawatt power plant, filed for Chapter 11 on Jan. 28. The Chapter 11 case number is 04-80109. Perryville is a subsidiary of Cleco Corp., which has not filed for Chapter 11.

The Chapter 11 filing was triggered by Perryville's inability to reach terms acceptable to its lenders on the sale to Entergy. Before the filing, it was in default on its $133 million loan as a result of an agreement with Mirant Americas Energy Marketing LP. Mirant agreed to provide natural gas to the Perryville plant.

The plant would convert the gas into electricity for a fee and then provide Mirant with the electricity created from the fuel. When Mirant filed for bankruptcy on July 14, it threw Perryville Energy Partners's loan into default.

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