Westinghouse DIP Loan Seen as Intellectual-Property Grab

(Bloomberg) -- An $800 million loan proposed to keep Westinghouse Electric Co. alive in bankruptcy is drawing fire from utility owner Southern Co., which warned that lender Apollo Global Management LLC would gain the keys to intellectual property and the ultimate fate over stalled U.S. nuclear projects.

The loan, which has yet to win court approval, appears to use valuable intellectual property as collateral. That means New York-based Apollo, led by billionaire Leon Black, could disrupt or halt completion of four nuclear plants if it foreclosed on the debt, Southern's Georgia Power Co. and the city of Dalton, Georgia, said in objections to the loan filed in Manhattan bankruptcy court Wednesday.

The plants, in Georgia and South Carolina, were the first nuclear projects to receive construction approval in more than 30 years.

“The possibility would exist that the DIP lenders would later foreclose on the intellectual property, which could seriously disrupt or even potentially halt construction of the project,” the owners said, referring to Apollo, which agreed to provide the DIP, or debtor-in possession, loan. Georgia Power, Dalton and other co-owners are invested in two of the plants, known as the Vogtle project.

A foreclosure re unlikely given the intense interest in financing the loan and the option Westinghouse would have to refinance it or turn elsewhere. By raising the issue, the plant owners could be trying to cut the lenders out of negotiations about the owners' ongoing ability to use the IP.

Westinghouse declined to comment and Apollo didn't immediately return messages seeking comment.

Burn Rate

The objection comes amid other challenges for the loan, which Westinghouse has said it needs to fund operations in the U.S. and Europe. A hearing to approve it, scheduled for April 26, was delayed until May 10. Utilities in the U.S. Northeast have also objected, saying the loan may not be enough to sustain the company given the rate at which it burns cash.

The dispute pits the Vogtle project owners against Apollo, an experienced distressed-debt investor that was one of many private equity firms circling Westinghouse on the eve of its bankruptcy. The future power supply of 400,000 homes and businesses in Georgia is at stake, and may ultimately rest on where the intellectual property is physically located, according to court papers.

The loan calls for all assets and property of Westinghouse to be considered collateral, with the exception of assets located at the Vogtle site as well as the site of the other two stalled reactors known as the V.C. Summer project in South Carolina. That means that any of the company's valuable intellectual property, which covers design, engineering, construction, maintenance and even regulatory approval for the sites that isn't at one of those two locations, goes to Westinghouse if the loan defaults, the Vogtle owners said.

Ultimate Fate

They propose new terms on the loan that would force Apollo to look to other collateral to repay its loan first, and use intellectual property only as a last recourse.

Also hanging over Westinghouse's attempts to reorganize is a decision about whether it will fully abandon the stalled projects. Under an agreement with the Vogtle and V.C. Summer owners, they have until April 28 to assess the fate of the projects. Terms of the loan say its funds can't go to complete the projects, and can only be used to wind them down in liquidation should construction cease.

Georgia Power said in its Wednesday objection that as of yet, no decision has been made under the assessment agreement, and that the deadline may be extended.

Scana, which owns the V.C. Summer plant in South Carolina, is likely to seek to extend the deadline by as much as 90 days, spokeswoman Rhonda O'Banion said in an email Thursday, citing comments that Scana CEO Kevin Marsh has made to South Carolina regulators.

The case is In re Westinghouse Electric Co., 17-10751, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Kenneth Pringle, Rick Green