December 1, 2016 / 6:00 PM / a year ago

U.S. watchdog says Abengoa unit's reorganization violates law

CHICAGO (Reuters) - A Chapter 11 bankruptcy exit plan by Abengoa SA’s main U.S. subsidiary, Abeinsa Holding Inc, violates the law by shielding the Spanish renewable energy parent from lawsuits, according to the U.S. government’s bankruptcy watchdog.

The objection by the U.S. Trustee, which typically oversees the administration of bankruptcy cases and polices them for conflicts, threatens to derail Abengoa’s high-stakes debt restructuring plan to avoid its own bankruptcy in Spain.

Abengoa, a renewable and engineering company with a global footprint, has already received approval from its shareholders and a Spanish court to cut $10 billion of debt, but parts of the complex plan hinge on the successful reorganization of its U.S. subsidiaries.

Abengoa did not immediately return a request for comment.

The Spanish company put its U.S. subsidiaries, including Abeinsa, in Chapter 11 this year while it negotiated its so-called master restructuring agreement (MRA), or debt plan, to avoid becoming Spain’s largest-ever corporate failure.

Under Abeinsa’s reorganization plan, Abengoa will contribute $20 million in exchange for retaining its equity stake in the U.S. company. Abengoa will also be released from potential fraudulent transfer claims involving another U.S. subsidiary, Nasdaq-listed Atlantica Yield Plc.

In a filing with the U.S. Bankruptcy Court in Delaware, the U.S. Trustee said Abeinsa’s plan may not comply with federal laws and regulations and should not be confirmed by the court.

“Failure to win court backing would be a significant issue for Abengoa and a delay would be detrimental too,” said Joshua Friedman, a legal analyst for Debtwire. “Confirming a Chapter 11 plan is vital to its debt restructuring agreement.”

Aside from criticizing the broad releases from lawsuits, the watchdog said Abengoa’s plan to retain an equity stake in Abeinsa even though the U.S. unit’s creditors are not being paid in full violates the U.S. Bankruptcy Code.

The U.S. Trustee said the U.S. reorganization may also fail to provide “sufficient, or sufficiently convincing” financial information and may not meet feasibility requirements.

Abeinsa’s bankruptcy exit plan has also raised objections from a string of creditors as well as the U.S. government, on behalf of the Department of Energy and the Federal Communications Commission, and the U.S. Internal Revenue Service.

Abeinsa’s bankruptcy confirmation is set for trial in Delaware on Dec. 6.

Reporting by Tracy Rucinski in Chicago; additional reporting by Jose Elias Rodriguez in Madrid; Editing by Jonathan Oatis

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