ASSF IV AIV B Holdings III, L.P. v. Empire Generating Co. (In re Empire Generating Co.)
| Decision Date | 23 March 2020 |
| Docket Number | Lead Case 19-CV-5721 (CS),Consolidated Action 19-CV-5744 (CS) |
| Parties | In re: EMPIRE GENERATING CO, LLC, et al., Debtors. ASSF IV AIV B HOLDINGS III, L.P.; AEIF TRADE, LLC; SPT INFRASTRUCTURE FINANCE SUB-1, LLC; and SPT INFRASTRUCTURE FINANCE SUB-2, LTD., Appellants, v. EMPIRE GENERATING CO, LLC; EMPIRE GEN HOLDCO, LLC; EMPIRE GEN HOLDINGS, LLC; and TTK EMPIRE POWER, LLC, Appellees. BLACK DIAMOND CAPITAL MANAGEMENT, L.L.C., Intervenor. |
| Court | U.S. District Court — Southern District of New York |
Appearances:
Brian E. Schartz
James H.M. Sprayregen
Kirkland & Ellis LLP
Kirkland & Ellis International LLP
New York, New York
Anup Sathy
Alexandra Schwarzman
Kirkland & Ellis LLP
Kirkland & Ellis International LLP
Chicago, Illinois
George W. Hicks, Jr.
Aaron L. Nielson
Damon C. Andrews
Kirkland & Ellis LLP
Kirkland & Ellis International LLP
Washington, D.C.
Counsel for Appellants ASSF IV AIV B Holdings III, L.P.
and AEIF Trade, LLC
Steven M. Abramowitz
Marisa Antos-Fallon
Vinson & Elkins LLP
New York, New York
Counsel for Appellants SPT Infrastructure Finance Sub-1, LLC
and SPT Infrastructure Finance Sub-2, Ltd
Peter S. Partee, Sr.
Robert A. Rich
Michael S. Legge
Hunton Andrews Kurth LLP
New York, New York
Michael P. Richman
Steinhilber Swanson LLP
Madison, Wisconsin
Counsel for Appellees Empire Generating Co, LLC;
Empire Gen Holdco, LLC; Empire Gen Holdings, LLC;
and TTK Empire Power, LLC
Christine A. Okike
Skadden, Arps, Slate, Meagher & Flom LLP
New York, New York
Albert L. Hogan III
Skadden, Arps, Slate, Meagher & Flom LLP
Chicago, Illinois
Carl T. Tullson
Skadden, Arps, Slate, Meagher & Flom LLP
Wilmington, Delaware
Capital Management, L.L.C.
Before the Court is the appeal of minority lenders ASSF IV AIV B Holdings III, L.P.; AEIF TRADE, LLC; SPT Infrastructure Finance Sub-1, LLC; and SPT Infrastructure Finance Sub-2, Ltd (together, "Appellants"), from the Bankruptcy Court's Order Authorizing and Directing the Debtors to Assume Restructuring Support Agreement. (Bankr. Doc. 98 ("RSA Order").)1 Appellants also move for leave to appeal from the Bankruptcy Court's Order (A) Approving Bid Procedures Relating to the Sale of Substantially All the Assets of Empire Generating Co, LLC or Interests in Empire Gen Holdings, LLC, (B) Establishing Procedures in Connection with the Assumption or Assumption and Assignment of Certain Executory Contracts and Unexpired Leases, (C) Approving Notice Procedures, (D) Approving Stalking Horse Bid Protections, and (E) Granting Related Relief, (Bankr. Docs. 99, 102 ("Bid Procedures Order")).2 (Doc. 3.) For the following reasons, Appellants' motion for leave to appeal from the Bid Procedures Order is DENIED, and the Bankruptcy Court's RSA Order is AFFIRMED.
The following facts are taken from the record generated in the bankruptcy case. On May 19, 2019, ("Petition Date"), Empire Generating Co, LLC ("Empire Generating") and certain of its affiliates (together, "Appellees" or "Debtors") - specifically, Empire Gen Holdco, LLC, ("Holdco"), Empire Gen Holdings, LLC, ("Holdings"), and TTK Empire Power, LLC, ("TTK Empire") - filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, (Bankr.Doc. 1), and requested joint administration of their respective cases, which request the Bankruptcy Court granted on May 21, 2019, (Bankr. Docs. 2, 34).3
Debtor Empire Generating owns and operates a power plant in Rensselaer, New York. (Bankr. Doc. 3 ("Venteicher Decl.") ¶ 7.) Debtor TTK Empire owns 100 percent of the membership interests in Debtor Holdings, which owns 100 percent of the membership interests in Debtor Holdco, which owns 100 percent of the membership interests in Empire Generating. (Id. ¶ 6.) Nondebtor Tyr Energy, Inc. owns 100 percent of the membership interests in nondebtor Tyr TTK Power, LLC, which owns 50 percent of the membership interests in nondebtor TTK Power, LLC, which owns 100 percent of the membership interests of Debtor TTK Empire. (Id.)
Appellants are lenders that own approximately 45 percent of Appellees' secured debt. (Doc. 27 ("Appellants' Br.") at 1; Doc. 40 ("Appellees' Br.") at 8; Doc. 41 ("I's Br.") at 4.) Intervenor Black Diamond Capital Management, LLC ("Black Diamond" or "Intervenor"), its affiliates, and funds managed by MJX Asset Management LLC (together, "Majority Lenders") own the remaining 55 percent. (Appellees' Br. at 8; I's Br. at 4-5.)4
The relationships among the parties are governed by a series of prepetition agreements. The Debtors' business is financed under a Credit and Guaranty Agreement, which provides Empire Generating with $480 million in secured credit facilities (the "Credit Facility"), withHoldco and Holdings guaranteeing the debt. The obligations of Empire Generating, Holdco, and Holdings under the Credit Facility are secured by liens on substantially all of their assets. (Id. ¶ 22.) Those obligations are also secured by a lien on TTK Empire's membership interests in Holdings, which are pledged by TTK Empire in favor of the Collateral Agent - the agent empowered to act on behalf of the lenders - under a prepetition Pledge Agreement dated February 23, 2017. TTK Empire's pledge is a non-recourse obligation, meaning the creditor cannot look to TTK Empire for payment of the underlying debt. (Pledge Agreement § 6.25.)
As of the Petition Date, the outstanding principal balance under the Credit Facility was $353,436,448. (Venteicher Decl. ¶ 22) Rights and remedies with respect to the collateral are governed by a Collateral Agency and Intercreditor Agreement, dated March 14, 2014. That agreement provides, among other things, that the Collateral Agent will act solely for the benefit of the secured parties, (Intercreditor Agreement § 2.3), and that the Collateral Agent has the exclusive right to exercise remedies with respect to the collateral (including the right to credit bid the secured obligations) at the direction of parties holding more than 50 percent of the outstanding secured obligations, (id. §§ 1.1, 3.1).
On the Petition Date, following failure to negotiate an agreement out of court, Appellees entered into a purchase agreement and the RSA with the Majority Lenders and filed a motion seeking to assume the RSA. (Bankr. Doc. 5 ("RSA Motion").) The purchase agreement provided for a sale pursuant to 11 U.S.C. § 363 in which the Collateral Agent would credit bid all outstanding obligations under the Credit Facility in exchange for TTK Empire's equity interests in Holdings, thereby discharging the secured debt and paving the way for the purchaseof the power plant by Empire Acquisition LLC ("Stalking Horse Bidder"). (See Venteicher Decl. ¶¶ 5, 45-47, 60.) The RSA provided for, among other things, the parties' support for the credit bid and the confirmation and consummation by the Debtors of a joint reorganizing Chapter 11 plan that satisfied all allowed claims. (Id. ¶ 46; Bankr. Doc. 5-1 Ex. 1 ("RSA").)
Appellees also sought approval of certain procedures governing the credit bid, assumption and assignment of executory contracts and leases, and notice, as well as other related relief ("Bid Procedures Motion"). (Bankr. Doc. 6 at 15.)
Appellants filed an objection to both motions, asserting there, as they do here, that the Bankruptcy Court had cause to set aside the proposed credit bid (as supported by the RSA and the proposed Bid Procedures Order), because, among other things, it constituted an impermissible sub rosa plan, it would violate the Intercreditor Agreement, and there was no allowed secured claim against TTK Empire against which the credit bid could be offset. (Bankr. Doc. 61.) Appellants argued that the amount of the outstanding obligations under the Credit Facility, and therefore the amount of the credit bid, exceeded the actual value of the plant, thus satisfying the lenders' claims on paper but precluding them from voting against confirmation of the plan, which would give the Majority Lenders control over the new entity (the Stalking Horse Bidder).
On June 4, U.S. Bankruptcy Judge Robert D. Drain heard oral argument on the motions (Appellants' MFL Ex. B ("Hearing Tr.")), and granted them on June 10, (RSA Order; Bid Procedures Order).
On July 6, 2019, Appellees deemed the Stalking Horse Bidder to be the successful bidder under the Bid Procedures Order and cancelled the auction that would have taken place had therebeen another viable bidder. (Bankr. Doc. 184.) On September 18, after a hearing held September 16, (see Bankr. Doc. 307), the Bankruptcy Court entered an order approving the sale, (Bankr. Doc. 298 ("Sale Order")). Thereafter, the Court issued findings of fact and conclusions of law and an order confirming Appellees' Chapter 11 plan. (Bankr. Doc. 304 ("Plan Order").) Appellants appealed from the Sale and Plan Orders, and those appeals are currently pending before Judge Nelson S. Roman. (See Nos. 19-CV-9111, 19-CV-9146.)
On June 17, 2019, Appellants timely filed Notices of Appeal of the Bid Procedures Order and the RSA Order with the Bankruptcy Court. (Bankr. Docs. 122-123.) The appeal from the Bid Procedures Order was docketed in this Court as No. 19-CV-5744, and the appeal from the RSA Order was docketed in this Court as No. 19-CV-5721. That same day, Appellants filed a motion for leave to appeal from the Bid Procedures Order, which contained a memorandum of law in support. (Bankr. Doc. 124; No. 19-CV-5744 Doc. 3 ("Appellants' MFL").)
On June 25, Appellants made an unopposed motion to consolidate the cases, (Docs. 4, 6), which U.S. District Judge Kenneth M. Karas granted under 19-CV-5721, (Doc. 7).5
On July 1, Appellees opposed Appellants' motion for leave to appeal. (Doc. 9 ("Appellees' MFL Opp.").) Black Diamond filed...
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