Thus we know about the proposed multi-million dollar purchase of Kenetech's power electronics and of its Wyoming assets, about the financial minutiae of its compensation agreements for executives, and the estimates of the worth of Kenetech assets. Above all, we have become aware of the snail-slow pace of liquidating such a company. It's the nuts and bolts of American money making and business making -- or business unmaking -- in all its glory.
There is no better way of gauging exactly how the process unfolds -- and how the money is disbursed -- than by attending hearings in the US Bankruptcy Court, in front of Judge Leslie Tchaikovsky, or by perusing the court documents at 1300 Clay Street in downtown Oakland. Kenetech Windpower, which comprises most of the business of the parent Kenetech Corp of San Francisco, voluntarily sought bankruptcy protection in May 1996 after financial problems caused by a soft market and long-standing technical problems with its KVS-33 turbine.
First class and malt whisky
Much intriguing and detailed information is available at the bankruptcy court, ranging from xeroxes of expense receipts for everything from hotels and $1400 airfares to valet parking and 12-year-old single malt Macallan whisky. You might guess which companies involved in the Kenetech bankruptcy have their people use ordinary coach class (such as the down-to-earth Midwestern firm Milwaukee Gear) and those who allows first class all the way (such as Kenetech's Boston-based corporate counsel, its Los Angeles-based bankruptcy counsel and members of the unsecured creditors' committee such as John Hancock Mutual Life Insurance Co and LG&E Power Inc).
From the court documents you learn, too, that Kenetech's arch rival Zond bought Kenetech's Vansycle asset -- a wind project in the making for a region described as the "Vansycle area of Oregon and Washington and other areas of the western United States" -- for $1.35 million. Zond, however, has since sold the project to an "unrelated US based company in December," according to the firm's Ken Karas. The court documents also reveal the character of some of Kenetech's dealings in its last months, such as the sale of three used turbine blades to LG&E Power Development Inc for $7500 apiece and three damaged used blades, also to LG&E, for $5500 each. Or the revaluation by Kenetech of its "auction rights" under the Biennial Resource Power Update (BRPU) from an estimated $10 million to $15 million. Or the Kenetech request that settlements regarding its BRPU rights remain confidential because, it argues, negotiations are continuing between the California utilities and various bidders.
Thousands of pages
If you're not sure of exactly what was said in court during a particular hearing, the word-for-word transcript will be available not long afterwards. That is, if you have time to plough through the tens of thousands of pages that make up Case No. 96 44426 T, filed on May 29, 1996. So indeed, the court transcript does now include Kenetech attorney Gary Klausner introducing himself to the judge as representing "Zond Energy, which is one of the financial backers" of the purchaser of Kenetech's power electronics, Trace Technologies.
The whole case -- both the court hearings and documents -- also provide a strange glimpse of exactly how business-oriented American bankruptcy proceedings are. The hearings are mostly gentlemanly, which is perhaps not so surprising when you discover that -- for example -- Kenetech's bankruptcy attorneys are billing at a rate of $190 to $395 hourly (apparently a typical rate for such work in these parts). Last December alone, the "reorganisation counsel," the firm Stutman Treister & Glatt, clocked up almost $90,000 in professional fees. And when (sometimes high) out-of-pocket expenses filed by various other parties in the proceedings were discussed recently, the judge did not flinch, only noting in passing, seemingly almost as an afterthought, that the US Trustee objected to the expense submissions.
Indeed the entire process seems chummy, moneyed and rather scary from the lowly view of an individual rather than corporate tax payer. At one point in recent weeks, the US Trustee questioned various parts of a bill submitted by Kenetech's Boston-based corporate counsel, which included $171.50 in phone calls made during one flight. The firm responded that the in-flight calls had been necessary, but it had, however, misread some guidelines on faxing -- and it dropped the fax fees by $1666.60 for the period in question, from June 18 to September 30. Sometimes what emerges in court seems so absurd it becomes humorous -- until you recall the number of employees laid off just before Christmas in 1995, some without severance pay. During a recent short hearing the absurdity surrounded an explanation for a financial request by Kenetech. At first the discussion during the sparsely attended January 22 hearing was routine enough, focusing on whether Kenetech could extend its exclusive right to file a plan of reorganisation, from January 31 to June 30, 1997.
Then came a bizarre request by Kenetech counsel James Johnson for $56,000 in compensation for Eugene Buuck, a former key Kenetech player in Europe. Buuck, noted Johnson, had been omitted from the compensation agreement previously submitted to the court (Windpower Monthly, September 1996).
The court was told that, because of a miscommunication, Buuck was never informed that his employment had been terminated last August. He thus continued for the next two to three and a half months, working on selling the company's United Kingdom assets, work that included three trips to Britain. The court was told that, strangely enough, Buuck did not realise or discover that he had been laid off until he had completed months of work.
Judge Tchaikovsky, a woman of youthful demeanour, usually in court with dangling earrings and large owlish spectacles at odds with her stern black robes, smiled and noted that she would not rule on the request immediately. The US Trustee, usually represented in this case by a woman with the improbable name Minnie Loo, was not in court. But all the same, discussion of the matter ended with much pleasant nodding and smiling between the youngish nervous-seeming attorney, James Johnson, and Judge Tchaikovsky.
When the formal application -- and approval -- of compensation for Buuck was filed with the court later in the month, on January 29, the wording seemed far more carefully chosen. The issue of whether Buuck knew he was out of a job was avoided entirely. Instead it was argued, apparently successfully, that he did not realise he had been omitted from the compensation agreement. He was duly granted 1.75% of the first $1 million in net income from the UK sales, 1.5% of the next $2 million and 1% of all further proceeds. By the end of January, the UK sale had generated $3.866 million to date, and there was the prospect of an additional payment of $3.32 million in the event that certain contingencies were satisfied.
The Buuck matter was not the only item on the agenda at the January 22 hearing, which was attended by seven attorneys for various parties as well as four court employees in the small and quiet hearing room, dominated by a Stars and Stripes and a seal: "U.S. Bankruptcy Court; District of California." Earlier in the hearing, Judge Tchaikovsky had granted the motion for Kenetech to extend its exclusivity on submitting a reorganisation plan, to the date requested. She however also said that those creditors who do not agree with Kenetech's plan could still move to end Kenetech's exclusivity within ten days.
That decision was after another titbit, when Tchaikovsky had noted in passing, "as I understand it, this is a liquidation caseÉ" It may have been obvious to any observer that Kenetech is indeed liquidating itself, and only two weeks earlier president Steve Kern had told a local newspaper that "the essence of the business will continue under another flag." Even so, her comment was timely given that the debtor, initially at least, avoided characterising its plans.
In fact, it was only on February 19 that the case had reached the point of Judge Tchaikovsky hearing Kenetech's application to hire Great American Auctioneers and Liquidators and a motion to allow the company to sell its furniture, fixtures and equipment in Livermore -- everything from bookcases to trucks.
In contrast with the January 22 hearing, a hearing the previous month had been jammed with about 30 corporate attorneys and other wind representatives, drawn to downtown Oakland for the most part by the sale of Kenetech's Wyoming assets. After a brief mention of expenses -- the judge politely asked for additional detail on more than $2000 in meal expenses -- the court went on to consider several major items (Windpower Monthly, January 1997). The judge approved the sale of Kenetech's interest in the Ukraine and postponed until January 6 the auction on the Tehachapi Arbutus assets, for which Calwind had bid $1.1 million. A purchase by Zond-backed Trace Technologies Inc for Kenetech's power electronics, a deal that included an up front $1.55 million, was approved by the court to much smiling from the Kenetech officials observing the hearing. Most contentious, though, was the bidding for Wyoming, during which SeaWest outbid Zond with an offer of $3.5 million.
On the golf course
The proceedings first became heated after an attorney for Zond told the judge that his client was interested in overbidding at a future date, that is, could she delay the hearing. For Judge Tchaikovsky, the response was uncharacteristically crisp: "I'm going to ask you politely to sit down.. you have no standing here É. You have no standing to object to the sale that is going forward." After high-stakes argument, bidding and last-minute informal "corridor" discussions outside the court, SeaWest's purchase was eventually approved -- and the atmosphere quickly became collegial and genteel once again. After the hearing, a few of the lawyers chatted about their flights to northern California or the weather. One, a young-looking attorney who said he worked for Zond, was overheard saying the wind company was great to work for -- because, he said, he was on the golf course most days by mid-afternoon.