FloWind, which sought bankruptcy protection in June, is also asking Judge Alan Jaroslovsky to grant Premier "break-up" fees if it does not become co-developer with FloWind in repowering the company's wind farms in the US. In addition, FloWind is asking the court to grant Premier, known too as MNR Energy Systems Inc, first priority "priming" liens against its real and personal property. FloWind had also requested Premier be given an option to buy its assets, although the request was later withdrawn. According to court documents, FloWind had 19 employees in July, seven at its San Rafael office and 12 in the field.
The liens request is hotly disputed by Zond Development Corporation, part of Enron Wind Corporation and Houston-based energy giant Enron, as well as by the Export-Import Bank of the United States. Both the bank and Zond say the Premier offer is too soon after FloWind filed for bankruptcy.
Zond also says that Premier's "interim financing" offer is really a pretext for gaining control over FloWind's assets under the guise of being a white knight. Instead, Zond wants to have the right to buy, or at least bid on, FloWind's Tehachapi assets, particularly the Cameron Ridge project. Zond says those assets -- 59.88 MW of wind farms -- were the subject of a purchase agreement with Zond that FloWind had "inexplicably abandoned" just before filing for bankruptcy protection in June. The US Import-Export Bank, also a creditor, says that Premier would get an unfair advantage over other creditors if the judge gives it the go-ahead.
The court approved Premier loaning FloWind some $300,000 in late July (Windpower Monthly, August 1997). Premier had emerged shortly after FloWind filed for Chapter 11 in federal court. Three-quarters owned by NEG Micon and 25% by RES, the European company is also backed by a major Japanese trading company. The Japanese company is not identified formally in court documents, although Tomen Power Corp, c/o SeaWest in San Diego, does appear in the bankruptcy court records as requesting "special notice" of the court proceedings.
NEG Micon's Vagn Trend Poulsen declines to discuss the proceedings. "This is just one of a number of several business negotiations we are involved in. Time will tell what will result," he says. From RES, Ian Mays confirms the company is pressing ahead with its bid. "What we are looking to do in the US is to extend our development and construction activities," he says.
Whatever the outcome of the October 3 hearing, it will highlight the disputed dealings between FloWind and Zond. In a declaration filed on July 24, FloWind president and CEO Hal Koegler says FloWind did not abandon the agreement with Zond to buy its Tehachapi assets for $9.5 million. He says what happened is that -- -at the last minute and after Zond had dragged its feet -- Zond unexpectedly revised its terms, offering FloWind $4.3 million, less than half of the original amount. Koegler says the sale was initially to close by April 7, but that it was only on May 22 that Zond sent him a letter revising its offer downwards.
In the interim, Koegler says that Zond had learned that Southern California Edison (SCE) would not agree to buy more electricity from the repowered wind farm. Also in the interim, Zond had asked FloWind not to discuss selling the assets with anyone else, according to a March 10 letter from Zond laying out the terms. The letter was agreed to by FloWind the next day and accompanies Koegler's declaration in the court record.
The delays in closing the sale were caused by Zond, says an internal FloWind document. Among other things, the FloWind memo alleges that Zond unexpectedly changed the buyer in the deal from Zond Development Corporation to what FloWind describes as a shell company named Zond Cameron Ridge Corporation. FloWind also says that it was Zond that contacted SCE about the purchase -- although the terms of the agreement were confidential. "It is not yet clear whether any permanent damage has been done to us or the relationship with SCE," says the April 18 internal memo. FloWind said too that, because of the delays, it lost the backing of its secured creditors for the Zond purchase. Koegler says that both FloWind and Zond had known beforehand that the issues with SCE might become the subject of litigation.
He says there is no greater risk in FloWind going with Premier. To the contrary, in the declaration Koegler says "Premier is a company with a proven manufacturing track record and a quality tested product, the Micon wind turbine. Indeed, Zond has very little, if any, manufacturing ability or experience." He also urges a quick solution because of the expiration of the Production Tax Credits on July 1, 1999, which means that as much redevelopment as possible should be complete before next year's wind season.
Zond disagrees. In its formal opposition to FloWind's Premier petition, lawyers for Zond Development Corporation say that Zond's agreement would mean more certain money for FloWind creditors, rather that an "involuntary $1.35 million insubordination," and more up-front cash for FloWind without the speculative, oppressive contingencies that it says are inherent in the Premier proposal. Zond says it would pay dollars up-front and assume the development and financing risks -- whereas Premier would pay far less money while leaving the risk to be borne by the estate. FloWind, Zond notes, has not even submitted its schedule of assets and liabilities to the court, and the court's US Trustee has yet to complete an official creditors' committee.
Zond's says that it had to lower its offer to 45% of the original $9.5 million because of SCE's stance. Zond had hoped to approximately double ouptut from the Cameron Ridge plant with newer, more efficient turbines. And it was FloWind, it says, that inexplicably abandoned the transaction and then three weeks later filed for Chapter 11 bankruptcy protection. The Premier proposal, it continues, is highly speculative for the creditors.
Although Premier is offering to pay up to nearly $14 million for the Altamont Pass and Tehachapi assets, the price is dependent upon the outcome of the dispute with SCE and on what Premier considers "developable." The proposal is "nothing more than a lottery ticket left on the table for creditors of the estate," states Zond. Its opposition concludes, "No bankruptcy court has ever allowed the credit provider to leverage the availability of financing into a taking of all of the debtor's income producing assets."