U.S. Energy Biogas agrees to Countryside financing to allow quick Chapter 11 exit

By Caroline Salls

Pittsburgh, Jan. 16 - U.S. Energy Biogas Corp. has reached an agreement in principle with Countryside Power Income Fund that will allow U.S. Energy Biogas and parent U.S. Energy Systems, Inc. to establish new financing for U.S. Energy Biogas, according to a company news release.

According to the release, the financing should allow U.S. Energy Biogas to pay all of its creditors in full, exit Chapter 11 bankruptcy quickly and support the growth of the business for the benefit of U.S. Energy's shareholders.

The agreement in principle gives Countryside Canada Power Inc., a subsidiary of Countryside, a $99 million secured claim against U.S. Energy Biogas, which will be the only allowed claim that Countryside will have in the Chapter 11 case.

Countryside has agreed to forgo any claim concerning U.S. Energy Biogas' April 8, 2004 royalty agreement with Countryside as well as any claim against U.S. Energy under its April 8, 2004 development agreement with Countryside.

The agreement provides for installment cash payments of $3 million by Jan. 31, $30 million by March 31 and the remaining balance of the secured claim by maturity at May 31.

Outstanding principal amounts will be deemed oversecured for purposes of adequate protection and the use of cash collateral in the U.S. Energy Biogas bankruptcy cases and will bear interest at a rate of 10%, down from 11%, from Feb. 1, payable monthly to the fund.

Upon approval of the financing agreement by the U.S. Bankruptcy Court for the Southern District of New York, as well as each party's respective boards, U.S. Energy Biogas said it expects to be able to move immediately toward an expedited confirmation of a Chapter 11 plan of reorganization.

"We are elated with the agreement we were able to reach with Countryside," U.S. Energy Biogas chairman and U.S. Energy chief executive officer Asher E. Fogel said in the release.

The release said the parties will work together to pursue a "take-out" financing before the final installment date of May 31, and mutual general releases will be exchanged among the parties involved and will cover individuals affiliated with the fund who have been threatened with lawsuits arising out of their prior employment by U.S. Energy.

U.S. Energy Biogas, an Avon, Conn.-based renewable energy business, filed for bankruptcy on Nov. 30. Its Chapter 11 case number is 06-12827.

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