Judge OKs USA Springs bankruptcy plan
Thursday, August 5, 2010
USA Springs has taken another step in its effort to climb out of bankruptcy and obtain the necessary financing to finish its controversial water bottling plant in Nottingham.
A federal bankruptcy judge last week approved a revised plan for the company to borrow $55 million from Lower Falls Funding LLC, a group of investors based in Newton, Mass.
The lenders completed their due diligence – according to the filing -- and creditors now have until Sept. 15 before a confirmation hearing is scheduled for the bankruptcy court’s stamp of approval on the deal.
The plan would give Francesco Rotondo, president of USA Springs, a chance to finish the bottling plant he had been trying to build ever since he incorporated the company 13 years ago.
But opponents, who charged that Rotondo would be removing groundwater in their area in order to ship it overseas, have fought the plant at every step.
Rotondo had previously obtained a permit to draw more than 300,000 gallons daily out of the ground and started construction of the 176,000-square-foot bottling plant on a 200-acre site.
But after spending $17 million, the company could no longer pay its bills and filed for bankruptcy in June 2008, leaving the plant half-finished.Since then, Rotondo has been scrambling to get financing and retain control of the project.
The company owes at least $8.5 million on its primary mortgage, another $2 million on secondary mortgages, more than $200,000 in property taxes and another $2.5 million to unsecured creditors.
Those unsecured creditors challenged the standing of the first mortgages, saying much of the proceeds of that loan went to insiders. USA Springs’ attorney dismissed such an action as an effort by the unsecured creditors to retain their rights before the statute of limitation ran out. Such an action would be rendered moot, if the reorganization succeeded and all the creditors got paid off.
USA Springs contends that it has enough assets for its plan to work.The land alone is worth $20 million in today’s market (half of what it was worth three years ago), and with its permit in hand and more than $1 billion in agreements with three overseas water customers, the whole enterprise is worth at least $100 million when the plant is completed, the company says.
Investors apparently are willing to back that up with $55 million at least in the short term. Under terms of the deal, the interest-only loan would be provided for five years at 6.5 percent interest with a balloon payment due at the end. In exchange, they would get a fifth of the company.
The lenders also are entitled to two points (about $1 million) out of the closing fee and an up-front fee of $137,000, already approved by bankruptcy court.
The company's biggest asset, it says, is its permit, but opponents have attacked that claim, saying state and town permits have lapsed, and may not automatically be transferred.
Indeed, the town of Nottingham raised objections last week to maintain that the bankruptcy court does not have the right to overrule the local permitting process.USA Springs tried to answer that objection in its latest filing, arguing that "all actions necessary to active the permits and to maintain them have been taken, and the Debtor believes that its interest in various permits have in effect been vested," and that it "intends to obtain orders(s) of the Bankruptcy court related to Debtor’s rights and privileges under such assets."
It lambasted attempts by opponents of the plant for "delivering unsolicited inflammatory communications" and "misguided and vindictive commentary" questioning the company’s permit status.
However, in the same filing, USA Springs said it has endeavored to "make a serious effort to reach out and/or respond to community representatives." And it offered "concessions": retention of local employees, utilization of local vendors and sponsorship of community activities, but none of the concessions related to environmental matters raised by opponents of the plant. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW