Southern bankruptcy makes gains

Southern Montana Electric Transmission and Generation Cooperative, Inc.’s (Southern) bankruptcy took a new turn when attorneys for the debtors filed papers on Wednesday, March 26 in federal bankruptcy court in Billings regarding the mediation. Part of the filings included a Reorganization Plan Settlement Term Sheet with further details of the complex situation.

There are currently four remaining cooperatives in Southern and a host of secured and unsecured debtors. The plan included some major breakthroughs such as letting Southern approve the (currently $70/mwh) rates and having insurance and indemnification for Southern for any liability for the Highwood Generation Station (HGS) through a trust. “Things are moving!” said Southern board member Arleen Boyd. Here are some of the highlights: 1. The NorthWest Energy deposit of $1.25 million will be refunded to the debtor upon a list of conditions being reached including debtor’s agreement to assign all of HGS’ proceeds to the Noteholders; 2. Notes shall accrue interest at a simple interest rate of 4.125 percent per annum and cash interest will be paid monthly as due. The initial monthly payment shall be $218,750 (which amount shall be “shaped and smoothed” over based upon expected cash flow during the initial 90 day period of the notes after the effective date). ; 3. Payments shall also be made by way of a monthly “cash sweep of net operating cash over $1 million” and applied first to any unpaid interest then due under the notes, if any, and second, to the principal balance of the notes due at maturity.

The cash sweep shall not go into effect until the notes are issued under the plan and Adequate Protection Payments cease under the Cash Collateral Order. Debtor and/or Members may prepay, in whole or in part, the notes and there shall be no prepayment penalty. ; 4. Adequate Protection Payments and professional fee payments shall continue through the effective date on the present terms of the existing Cash Collateral Order; provided, however, that any Adequate Protection Payment paid to the Noteholders for the month of May, 2014 and subsequently, will be applied to the notes as a Principal Prepayment of the same.; 5. Parties agree upon payment in full of the notes and satisfaction of the obligations as set forth in the plan, the debtor and the members and the noteholders shall exchange mutual and full releases regarding damages, liabilities, conduct and claims of any nature.; 6. The release of the All Requirements Contract of Beartooth Electric Cooperative, Inc. (BEC) as collateral for the notes and BEC’s withdrawal from the debtor, shall be approved by the noteholders upon payment by BEC or the debtor, to the noteholders of an amount equal to the outstanding balance of the notes (with conditions) multiplied by 17.5211 percent.

This is BEC’s current average percentage load of electricity purchases from the debtor along with other terms and conditions as agreed. Mutual releases shall be granted upon the effective date from and to the noteholders, debtor and to other members upon the same terms and conditions provided for payment in full.; 7.

Upon payment in full of the notes and satisfaction of debtor and members’ obligations, the debtor and members shall have the right, as they decide, to dissolve and/or otherwise terminate the ongoing operation of debtor, provided that, they agree among themselves that, at a minimum, they shall cause the debtor to take all necessary steps to i. terminate the All Requirements Contracts without further duty, responsibility or performance of any party; ii. allocate the remaining WAPA power supply rights among members; and iii. allow any member to withdraw from further membership in the debtor. ; 8. Capital Claims of members are subordinated to the repayment of the notes. ; 9. The effective date is anticipated to occur on May 1, 2014, unless the date is extended with consent of the parties. ; 10. The members’ All Requirements Contract shall be assumed as modified herein, set throughout the term at the current rate of $70/mwh and shall not vary up or down unless approved by the board of the debtor. ; 11.

The HGS Holding Trust (Trust) shall be created for the benefit of the noteholders as beneficiaries for managing the disposition of the tangible collateral for the notes known as HGS. Insurance shall be maintained and trust shall be responsible for and indemnify debtor against all HGS costs, including without limitation, any liability, cost, expense or exposure accruing after effective date resulting from holding title to HGS and associated assets. Trust shall cover at all times, $17 million in liability insurance. Debtor shall terminate employment of HGS employees. Upon fourth anniversary of the effective date, debtor shall no longer be required to retain title to the trust assets but shall transfer them to the Noteholders or designee. The plan must be ultimately approved by the bankruptcy judge.

The debtor will make no voluntary bankruptcy filing (as agreed by members) unless the notes are fully satisfied for 90 days or after unanimous board approval by the debtor, receiving the indenture trustee’s consent and other conditions. All other actions continue to be stayed as all parties review the plan.