Massachusetts natural gas plant files for Ch. 11 after arbitration loss

Salem Harbor Power Station
Salem Harbor Power Station, a natural gas-fired power plant operated by Footprint Power, stands in Salem, Massachusetts, on March 24, 2022. REUTERS/Nate Raymond
  • Footprint Power ordered to pay Spanish company $236 mln
  • Lender takeover or bankruptcy sale on the table

(Reuters) - Natural gas-fired power plant operator Footprint Power Salem Harbor Development LP filed for Ch. 11 bankruptcy protection on Wednesday after it was ordered to pay $236 million in a longstanding dispute over the construction of its main facility.

The Salem, Massachusetts-based company reported $337 million in secured debt in addition to the arbitration award in favor of Spanish company Iberdrola Energy Projects Inc. in court papers filed in the U.S. Bankruptcy Court for the District of Delaware.

Footprint Power, which is owned by Oaktree Capital Management-run funds, has developed a preliminary restructuring proposal under which it will either transfer its equity to its lenders or find an outside buyer. The process of marketing the company’s assets and finding interested bidders is ongoing, according to court papers.

Iberdrola and Footprint Power signed an agreement in 2014 for the construction of the power plant in Salem for about $702 million. Footprint Power contends that over the course of the project, it began seeing rising costs, delays and issues arising from subcontractors and project management. The company blamed Iberdrola’s “mishandling of the project” for the problems, according to a written declaration from its chief restructuring officer, John Castellano.

Footprint Power terminated the contract in April 2018. IEP then launched arbitration proceedings, asserting claims of wrongful termination and seeking $575 million in damages.

An arbitration panel issued the $236 million judgment in favor of Iberdrola in October 2021. A New York court confirmed the award in December.

A representative for Iberdrola and a lawyer for Footprint Power did not immediately respond to requests for comment.

The Iberdrola dispute led to several events of default under Footprint Power’s primary credit agreement. Shortly after the arbitration award was issued, the loan agent transferred about $90 million from the company’s accounts and used it to pay down principal on the loan, leaving the company with about $27.5 million in available cash.

Iberdrola and Footprint Power signed a new agreement in January under which Iberdrola said it would hold off on its efforts to collect the judgment. But it told Footprint Power last week that it planned to terminate that agreement on March 23, Castellano said, which prompted Footprint Power to file for Chapter 11 protection.

A hearing on a series of administrative and operational matters is scheduled for Friday before U.S. Bankruptcy Judge Mary Walrath.

Footprint Power ultimately completed the construction of the facility, which has been operational since May 2018. The company reported about $195 million in revenue for 2021.

The case is In re Footprint Power Salem Harbor Development LP, U.S. Bankruptcy Court, District of Delaware, No. 22-10239.

For Footprint Power: Brian Hermann, John Weber and Alice Nofzinger of Paul Weiss Rifkind Wharton & Garrison and Pauline Morgan and Andrew Magaziner of Young Conaway Stargatt & Taylor

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at