Angelina and Neches trustee can’t make bond payments amid loan default

By Caroline Salls

Pittsburgh, Nov. 23 – Angelina and Neches River Authority Industrial Development Corp. series 2007A and 2007B environmental facilities revenue bond trustee U.S. Bank NA said it did not have sufficient funds to pay interest due on the bonds on Nov. 1 and May 1, 2015 in light of Aspen Power LLC’s continuing failure to make monthly payments under a related loan agreement.

According to a notice released Monday, Angelina and Neches loaned the bond proceeds to Aspen Power for an electric generation facility project.

The trustee said Aspen failed to make monthly payments due from Feb. 1, 2012 through Nov. 1 under the loan agreement.

The missed payments constitute events of default, and the company also remains in default of its reporting obligations under a continuing disclosure agreement as a result of its failure to provide annual reports, quarterly reports and reports of significant events.

The trustee said it began a foreclosure proceeding in the District Court of Angelina County, Texas, 217th Judicial District in 2013 against the real and personal property assets of Aspen and Angelina that were pledged to secure the bonds. The court also allowed the trustee to secure, market, recommission and operate Aspen’s project.

In accordance with court orders, the trustee said it has paid operational and other expenses of the project, including the cost of fuel, the fees and expenses of court-approved third-party operator NRG Energy Services LLC, security, utilities, insurance and ad-valorem property taxes for the years 2010 to 2015.

To fund these ongoing expenses, the trustee used a portion of the proceeds of four loans advanced by holders of a majority of the principal amount of the bonds, including a $7 million senior-secured bridge loan, a $3.5 million single-advance, senior secured operations term loan, a $6 million single-advance, senior secured continuing operations term loan and a $2.75 million single-advance, senior secured second continuing operations term loan.

In April 2015, the trustee determined that operation of the project was no longer cost effective and should be discontinued. As a result, U.S. Bank said the project is not currently generating power.

In connection with the termination of project operations, a dispute arose as to the amount owed to NRG under an operations and maintenance agreement (O&M agreement).

Under a settlement of that dispute, the parties agreed that the O&M agreement terminated as of May 1, 2015, and that the trustee would pay $1.2 million to NRG in full and final satisfaction of all amounts due under the O&M agreement. The trustee said the settlement payment was made from the proceeds of the second continuing operations term loan.

In addition, the Internal Revenue Service said on Oct. 15 that less than 95% of the proceeds of the series A bonds were used for qualified expenses under the Internal Revenue Code of 1986.

As a result, the trustee said the series A bonds are not exempt for purposes of federal tax law.

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