In Re: Empire Generating Co, LLC

Background

Empire Generating Co, LLC and affiliated debtors filed Chapter 11 bankruptcy cases. Empire Generating owned and operated a power plant in Rensselaer, New York. The debtors’ secured credit facility had an outstanding principal balance of $353,436,448. The appellants—ASSF IV AIV B Holdings III, L.P.; AEIF TRADE, LLC; SPT Infrastructure Finance Sub-1, LLC; and SPT Infrastructure Finance Sub-2, Ltd.—held approximately 45 percent of the debt. Black Diamond Capital Management, L.L.C., its affiliates, and funds managed by MJX Asset Management LLC held the remaining 55 percent.

The debtors entered into a restructuring support agreement with the majority lenders and sought approval to assume it. The agreement supported a proposed sale under Bankruptcy Code § 363. Under that proposal, the collateral agent would use a credit bid—using secured debt instead of cash—to acquire TTK Empire’s equity interests in Empire Gen Holdings, LLC. The bid would discharge the secured debt and facilitate the purchase of the power plant by Empire Acquisition LLC, the stalking-horse bidder.

The appellants objected, arguing that the credit bid was an improper reorganization plan, violated the parties’ intercreditor agreement, and could not be used because there was no allowed secured claim against TTK Empire. The bankruptcy court approved both the restructuring support agreement and the bid procedures. The appellants appealed the restructuring support agreement order as of right and asked for permission to appeal the bid procedures order before a final sale order.

Motion for Leave to Appeal the Bid Procedures Order

Judge Seibel held that the bid procedures order was interlocutory, meaning it was not final. The order did not approve the sale itself, left open the possibility of later objections based on new facts, and allowed for the possibility of other bids, including a cash bid from the appellants.

The court also denied permission for an immediate appeal. Under the applicable standard, the appellants had to show a controlling legal question, substantial disagreement about that question, and that immediate review could materially advance the litigation. Judge Seibel concluded that the appellants’ arguments required applying law to the facts, including the plan’s design, the reasons for the credit bid, and the parties’ contractual arrangements. The court further found no genuine doubt that the bankruptcy court applied the correct standards, no likely benefit from duplicative review, and no exceptional circumstances supporting an immediate appeal.

Appeal of the Restructuring Support Agreement Order

Judge Seibel rejected the argument that the appeal was moot. Although later sale and plan orders had been entered, the restructuring support agreement also contained provisions concerning matters such as exit financing and corporate governance. The court therefore could still provide some effective relief if it vacated the approval order.

The court affirmed the bankruptcy court’s conclusion that there was no cause under Bankruptcy Code § 363(k) to limit the credit bid. First, the restructuring support agreement did not itself finalize the reorganization or prevent the later confirmation process. It was an agreement to support proposed transactions, and better bids could still be considered. The court also held that the appellants’ loss of voting power resulted from the intercreditor agreement they had accepted, which gave the majority lenders authority to direct the collateral agent’s actions. Judge Seibel declined to rewrite that agreement to give the minority lenders additional rights.

Second, the court rejected the argument that the credit bid was invalid because there was no allowed claim against TTK Empire. Judge Seibel held that § 363(k) required property to be subject to a lien securing an allowed claim, but did not require the allowed claim to be against the same entity that owned the property. The lien on TTK Empire’s equity interest secured the lenders’ allowed claims under the credit facility. The court also noted, alternatively, that the collateral agent had a claim enforceable against TTK Empire’s pledged property even though the pledge was non-recourse.

Third, the court rejected the argument that the credit bid violated the intercreditor agreement. The agreement authorized the collateral agent to act on behalf of the secured parties when directed by lenders holding more than 50 percent of the debt. Judge Seibel concluded that the specific provision giving the majority lenders this authority controlled over the agreement’s more general language requiring the collateral agent to act for the benefit of all secured parties.

Approval Standard for the Restructuring Support Agreement

The bankruptcy court reviewed the agreement under the business-judgment standard, which generally asks whether assuming an executory contract would benefit or burden the bankruptcy estate. Judge Seibel held that the bankruptcy court properly used that standard rather than applying the more demanding entire-fairness standard. The record did not establish a sufficient conflict of interest, and the appellants’ assertions about secrecy and releases were either unsupported or concerned matters not contained in the restructuring support agreement.

The court concluded that the debtors had a sound business reason for the transaction, including eliminating the debt, addressing urgent liquidity needs, and bringing finality to the project. Even if the entire-fairness standard had applied, Judge Seibel stated that any error would have been harmless because the transaction satisfied that standard on the record presented.

Disposition

The motion for leave to appeal the bid procedures order was DENIED. The bankruptcy court’s restructuring support agreement order was AFFIRMED in all respects. The clerk was directed to terminate the pending motion and close Case Nos. 19-CV-5721 and 19-CV-5744.