Looking to better focus on its core utility businesses and keep its head above water at the same time, NorthWestern Corp. announced that it has completed the sale of its Expanets communications services unit to Avaya, Inc. for $152 million in cash.
The sale notice comes at a shaky time for the Sioux Falls, SD company, which may have trouble continuing as a viable business depending on the outcome of its ongoing Chapter 11 bankruptcy proceeding, according to NorthWestern’s 10-Q Securities and Exchange Commission filing earlier this month (see Daily GPI, Nov. 25).
In the Nov. 14 filing, NorthWestern said its survival depended on at least three key developments: (1) acceptance of its reorganization plan by a federal bankruptcy court; (2) complying with the terms of an $85 million loan it received at the outset of its Chapter 11 filing last Sept. 14; and (3) generating enough cash for operations, non-utility asset sales and financing restructuring to meet all of its obligations.
“The successful divestiture of our largest nonutility business represents significant progress toward our goal of becoming an energy-focused company,” said Gary G. Drook, NorthWestern’s CEO.
By acquiring Expanets, Avaya Inc. — a global provider of communications solutions and services for businesses — said it will continue providing quality sales and service support for Expanets’ customers and grow its small and mid-sized business. Expanets is the nation’s largest provider of converged communications for mid-sized businesses. Expanets is also one of the largest resellers of Avaya’s products in the United States.
Under the agreement, Avaya purchased substantially all of the Expanets assets and assumed specified liabilities, less certain post-closing working capital adjustments and the payment of certain excluded liabilities. Following completion of this process, NorthWestern said it estimates it will receive net cash proceeds of approximately $70 million.
The sale occurred through an auction process conducted by Bear, Stearns & Co. At the auction held on Oct. 29 in New York, the final bid by Avaya was approved by Expanets. NorthWestern, as controlling shareholder, consented to the transaction.
Commenting on NorthWestern’s current situation, Standard & Poor’s Ratings Services (S&P) said that while investors have typically recovered 100% of their investment in electric utilities that have filed for bankruptcy, NorthWestern’s bankruptcy may be different because the unsecured debtholders are not likely to recover the full value of their investment. According to a S&P report published Wednesday, the ratings agency said similar to other utility bankruptcies, the secured debtholders will most likely receive full recovery.
“It is very difficult to estimate recovery values for unsecured creditors because unsecured obligations can increase materially during bankruptcy proceedings resulting in different — generally lower — recoveries than initial valuations would suggest,” said S&P credit analyst Peter Otersen.
However, the S&P report noted that initial valuation estimates based on a multiple of EBITDA suggest that the unsecured debtholders may recover between 30% and 50% of their investment. In addition, S&P believes the entire reorganization process could take the typical three years that utilities have experienced due to the multi-jurisdictional regulatory approvals that NorthWestern will need.
NorthWestern’s utility businesses provides electricity and natural gas in the Upper Midwest and Northwest, serving approximately 600,000 customers in Montana, South Dakota and Nebraska.
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