Update: Suzlon starts US court action over $208m Edison debt

Indian turbine manufacturer Suzlon has launched legal proceedings in a New York court to recover a $208m payment from US wind developer Edison Mission Group.

In a brief statement Suzlon says: “Suzlon has initiated legal proceedings against Edison Mission towards the recovery of dues around the 240MW ‘Big Sky’ project. It would be inappropriate to comment in detail as the matter remains sub judice.”

Court papers seen by Recharge show that Edison Mission has cited one of four conditionality clauses as grounds for not making the payment, which is due by 9 February 2013, by alleging that the turbines at the project suffer from “serial defects”.

In the court papers, Suzlon says that the Big Sky wind farm in Illinois has had an average operational availability of over 99% for 18 months.

“It seems apparent that Big Sky’s unwillingness to make the mandatory prepayment on the mandatory prepayment date is motivated by not only the challenge of selling power in a sluggish renewable energy market, but also by reason of the precarious financial situation of Edison and its subsidiaries, including Big Sky," it says.

Recharge understands that Suzlon has approached Edison on different occasions to offer advantageous financial terms to make the payment ahead of time – but that these offers have been refused by Edison.

Charles Coleman, a spokesman for Edison Mission parent Edison International (EI), tells Recharge that it is company policy not to comment on any pending litigation.

EI in a 31 July filing to the US Securities and Exchange Commission says that in October 2009 it entered into a 5-year, $206m turbine financing arrangement through its Big Sky Wind subsidiary. Big Sky's repayment obligations were guaranteed by Edison Mission until certain conditions were met, including commercial operations.

It says that on 1 February this year, "the lender agreed" that all conditions had been satisfied and released Edison Mission Energy (EME), a subsidiary of Edison Mission, from such guarantee.

It notes that the loan is secured by a leashold mortgage on the project's real property assets, a pledge of all other collateral of the Big Sky wind project, as well as a cash reserve account into which one-third of distributable cash flow, if any, of Big Sky is to be deposited on a monthly basis. The loan is also secured by pledges of Big Sky's direct and indirect ownership interests in the project.

"Big Sky will need to arrange alternative financing, if available, to repay the loan at maturity or reach agreement with the lender to extend the maturity date of the loan as EME does not plan to make an investment in the project, and is under no obligation to do so," the filing says.

"If these efforts are unsuccessful, the lender may foreclose on the project resulting in a write-off of the entire investment in the project. As of 30 June, EME's net investment in the ... project was $135m."

Suzlon notes in its court filing that EI says in its SEC submission that Edison Mission may have to file for Chapter 11 bankruptcy protection.

At the same time, EI chief executive Ted Craver has told analysts that the company is working to restructure about $3.7bn in debt held by Edison Mission. It has $500m in 7.5% senior unsecured notes due 15 June 2013. EI has warned that absent a restructuring of its obligations, based on projects at the end of the second quarter, EME is not expected to have sufficient liquidity to repay that amount. Asset sales are also under consideration to reduce debt.

The unit’s net loss in the second quarter more than tripled to $110m from $30m a year earlier on lower power prices and sales, and higher fuel costs at its coal-fired plants. First half net loss was $194m versus $51m a year ago.

Edison Mission manages the competitive power generation business and other unregulated subsidiaries of EI. It develops, acquires, owns or leases, operates and sells energy and capacity from independent power production facilities. Its 10.03GW power generation portfolio includes 1.7GW in biomass and wind.

It also has several merchant power plants whose output is sold into the PJM Interconnection, a regional transmission organisation whose territory includes all or part of 13 states and the District of Colombia.

Edison Mission is headquartered in Santa Ana, California.

Suzlon itself is currently seeking a four-month extension on the maturity dates of bonds worth about $220m to give it time to sort out financing arrangements.

Suzlon will meet with bondholders on 10 October to ask for the extension until 11 February 2013.

The request relates to $200m and $20.8m sets of foreign currency convertible bonds (FCCBs). Both fall due on 11 October.

Suzlon has already been through a similar process once this year, and faced questions from financial analysts at the start of 2012 over how it planned to meet its looming obligations.