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NorthWestern, Magten Reach Bankruptcy Settlement -- Again

NorthWestern Corp. said it has reached a settlement that could resolve litigation related to Magten Asset Management's claims in NorthWestern's 2003 Chapter 11 bankruptcy case.

Under terms of the proposed settlement, Magten would receive approximately $23 million, to be paid from cash principally funded through the sale of shares of NorthWestern held in a disputed claim reserve (DCR) established under NorthWestern's Plan of Reorganization. NorthWestern would receive a reimbursement of previously incurred legal fees of approximately $3.5-4.0 million.

"We believe this settlement is in the best interest of NorthWestern and its shareholders as it brings to closure this protracted legal dispute and resolves the last major claim from the 2003 bankruptcy," said NorthWestern CEO Michael J. Hanson.

According to a motion filed last Tuesday in U.S. Bankruptcy Court for the District of Delaware, the proposed settlement would bring to an end the litigation that has persisted since Sioux Falls, SD-based NorthWestern emerged from Chapter 11 at the end of 2004. The motion is expected to be heard at an April 9 hearing and NorthWestern's bankruptcy case could close by the end of the year, the company said.

NorthWestern, which provides electricity and natural gas in the Upper Midwest and Northwest, serving approximately 650,000 customers in Montana, South Dakota and Nebraska, said it anticipates that there will be a supplemental distribution from the DCR as soon as is reasonably practicable after the approval of the motion, to all unsecured creditors and debt holders who have already received an allowed claim distribution of NorthWestern stock or a cash payment. The amount of the supplemental distribution is not presently known, the company said.

NorthWestern emerged from bankruptcy in late 2004 with an enterprise value of approximately $1.5 billion and approximately $900 million in debt, despite eleventh-hour legal challenges from Magten (see NGI, Nov. 8, 2004; Nov. 1, 2004). The confirmation order was affirmed on appeal by the U.S. District Court for the District of Delaware in September 2006, but Magten has kept alive legal actions disputing the confirmation order. Magten has alleged, among other things, that the DCR was not adequately funded.

NorthWestern and Magten had appeared to reach a settlement more than three years ago (see NGI, Feb. 14, 2005). That settlement agreement was not approved by the bankruptcy court. Twice during 2005 and twice during 2007, NorthWestern and Magten engaged in mediation efforts to resolve the litigation.

NorthWestern recently reported increased profits and several advances in Montana utility operations for 2007, and received a credit rating increase (to "BBB" from "BB+") from Standard & Poor's Ratings Services (S&P). With about $834 million of debt outstanding, S&P said NorthWestern's financial measurements have improved significantly since the company emerged from Chapter 11 bankruptcy.

Last year the Montana Public Service Commission rejected an Australian company's $2.2 billion bid to buy NorthWestern Energy, saying the deal would put Montana consumers at risk for higher rates and poor service (see NGI, May 28, 2007).

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