Objections by Icahn Associates Corp. and Franklin Mutual Series to an out-of-court reorganization for Teco Panda forced the lenders to pursue a Chapter 11 restructuring for the power-project plants. Teco had proposed an out-of-court restructuring but required 100% approval from the 40-member syndicate. Icahn, with approximately $19 million and Franklin with $24.6 million, hold 10% principal of the project debt.
Carl Icahn did not return calls and Mike Embler, v.p. of the distressed-investment group at Franklin Mutual Advisors declined comment.
"Apparently the primary issues were ownership limitations on the plant," a source familiar with the situation said, adding the two lenders "wanted to buy as much as they wanted." There were other issues with voting limitations and the post-restructuring debt. "The plan values the two plants at $1.1 billion, while the plan then saddles them with a face amount of at least $1.3 billion in debt and that on its base is just a non-starter," he noted. The pricing on that debt was another problem for the two holdouts, a different source close to the situation said. Another lender clarified that Citigroup, the agent, put limitations on ownership of more than 20% of the debt and attempted to put in place a poison pill provision that the two lenders were opposed to. A banker at Citi declined to comment.
Teco paper is part of a larger bank financing that was put in place during the summer of 2001 to support the construction and operation of the Union and Gila River plants. Last month the Federal Energy Regulatory Commission granted consent for the transfer of ownerships of the plants to the lenders.
Interest on the name, which is quoted at 66-68, is likely to continue. "Part of what's propping the interest is that there are continuing good indications that the Gila plant has pretty good fundamentals and the story for the Unions plants has been regulatory reform in the Entergy region," said Stephen Moyer, director of research at Imperial Capital. "The bankruptcy is a double-edged sword," said Moyer. "On the one hand it releases one level of uncertainty, but [on the other] some institutions are adverse to holding positions in a bankruptcy situation," he noted.
Lenders with the largest exposure include General Electric International with $48 million, Quadrangle Master Funding with $21.5 million and Citibank with $20 million. A slew of lenders have more than $10 million including Société Générale, Cargill, Norddeutsche Landesbank Girozentrale,Royal Bank of Canada, Royal Bank of Scotland, Barclays Bank, Bayerische Hypo-und Vereinsbank, BNP Paribas, Dexia Bank, Scotiabank, Toronto Dominion, CoBank, Merrill Lynch, Stonehill Capital and Satellite Senior Income.
Joff Mitchell a managing director at Kroll Zolfo Cooper and future ceo of the two plants when they emerge from bankruptcy, referred calls to Citi.
