March 29, 2022 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) and the U.S. Trustee assigned to the Debtors' cases have each filed objections to the Debtors’ Disclosure Statement [Docket Nos. 427 and 430, respectively] with both objections (to varying degrees) taking issue with the appropriateness of proposed release provisions and to lack of disclosure as to insider AES Andes.

The U.S. Trustee begins by taking comprehensive offense to the Plan's third-party releases and exculpation provsions, which it argues are vague, overly broad and inadequately described. On a more Plan-specific note, the U.S. Trustee also argues that the Disclosure Statement fails to describe "how the Plan satisfies the absolute priority rule" specifically citing the treatment of the planned treatment of general unsecured creditors in apposition to that of equity holder AES Andes. How, the U.S. Trustee wonders, is the absolute priority rule being respected when "unsecured creditors will receive no distribution, while equity will be cancelled and reissued to AES Andes, who holds 93% of the existing equity"? To the extent that the treatment is to be justified by the contribution of "new value" by AES Andes, the Committee argues that "the Debtors have not adequately described how the proposed new value contribution constitutes sufficient consideration in exchange for the new equity…"

The Committee also takes issue with AES Andes, arguing that the whole Plan should be "assessed under a heightened scrutiny standard" given the insider relationship of AES Andes and its affiliates with the Debtors. Regardless of standard of review, however, the Commitee argues, the Plan is "dead upon arrival" given that "the RSA’s requisite 2/3 support has not been achieved."  

Returning to AES Andes, the Committee presses forward its argument that the Disclosure Statement is informationally inadequate, failing to provide adequate background on the Debtors' insider relationship, why AES Andes should not be held responsible for project overruns and why AES Andes should be entitle to releases. The objection notes that "aAmong its information flaws, the Disclosure Statement fails to: (i) disclose whether the Debtors will or will not seek foreign recognition and the effect of that decision on, among other things, their ability to successfully reorganize; (ii) provide necessary details concerning the Debtors’ relationship with AES Andes, why AES Andes should not be held responsible for significant project overruns and why AES Andes and other insiders are entitled to releases; (iii) the nature of litigation claims and potential water rights; (iv) the hydrology of the Project (as defined below); and (v) how the Debtors will meet their debt obligations under the Plan."

On March 22, 2022, the Debtors, developers of a run-of-river hydroelectric energy project in the Santiago Metropolitan Region of Chile, filed a Revised Chapter 11 Plan of Reorganization and a related Disclosure Statement [Docket Nos. 401 and 402, respectively] with adequacy of the Disclosure Statement now scheduled to be considered at an April 5th hearing (at which these objections will also be considered). 

U.S. Trustee’s Objection

The U.S. Trustee's objection [Docket No. 427] states, “The Debtors’ proposed Disclosure Statement should not be approved because it does not provide adequate disclosure as to who will be giving third-party releases, who will be receiving such releases, and what claims will be released. The Plan imposes non-consensual third-party releases on numerous non-debtor parties, and a related parties clause greatly expands the universe of those who will be forced to release their direct claims against non-debtors to at least 32 categories of persons and entities that are related in some fashion to each party deemed to give a release. Those categories include such broad and vaguely defined ones as ‘agents,’ ‘consultants,’ ‘representatives’ and ‘other professionals’ of releasing parties.

The Disclosure Statement also fails to adequately disclose, or explain why, the Debtors are giving two sets of releases benefitting the same Released Parties: Article 9.3(a) of the Plan is entitled ‘Releases by Debtors,’ but Article 9.3(c), entitled ‘Releases by Holders of Claims and Interests,’ also includes releases by the Debtors. Nor is there disclosure as to why the Debtors will be releasing the DIP Lenders and Strabag, if they vote to accept the Plan, or the nature and value of the Debtors’ claims against such parties that are being released, or what (if anything) the Debtors are receiving in exchange.

The Disclosure Statement further should not be approved because the proposed Plan is not confirmable due to the scope of the third-party releases, the Debtor Releases and the parties receiving exculpation. With respect to the third-party releases, the Plan extinguishes direct claims against non-debtor parties held by other non-debtor parties without their affirmative consent, including claims held by, (i) unimpaired creditors, (ii) creditors in voting classes who do not return a ballot, (iii) creditors who vote to reject the Plan but overlook the opt-out box on the ballot, and (iv) by parties who are merely related to Releasing Parties. Not only does the Motion fail to include any method by which the Debtors will obtain affirmative consent from such parties to give releases, but the Debtors will not even provide unimpaired creditors and related parties with a way to opt-out of such releases. In addition, most of the related parties will not even receive notice that the Plan will strip them of their direct claims against non-debtors. This is because the vast majority of the related parties are not themselves creditors or equity holders of the Debtors. They include, by way of example, all current and former employees of all creditors who are Releasing Parties, and all current and former employees of all affiliates of all creditors who are Releasing Parties. 

The Exculpation provisions of the Plan also make the Plan non-confirmable because it is overly broad in terms of the parties to be exculpated, and the temporal scope.

The U.S. Trustee further objects to certain other aspects of the Disclosure Statement as not including sufficient information with respect to how the Plan satisfies the absolute priority rule requiring that senior classes of claims be fully satisfied before distributions may be made to the junior classes or interests retained by equity holders. In particular, the Plan proposes that unsecured creditors will receive no distribution, while equity will be cancelled and reissued to AES Andes, who holds 93% of the existing equity. To the extent AES Andes is contributing ‘new value’ in consideration of receiving the new equity, the Debtors have not adequately described how the proposed new value contribution constitutes sufficient consideration in exchange for the new equity, as further detailed below.”

Committee Objection

The Committee's objection [Docket No. 430] states, “As the Court expressed at the hearing on March 24, 2022, at least one significant issue concerning feasibility exists – whether the MLP PPA (as those terms are defined herein) may be assumed and enforced….Although that concern was noted in a separate context, it and other concerns warrant denial of the Motion and/or approval of the Disclosure Statement on the basis that the Plan is patently unconfirmable and the Disclosure Statement does not contain ‘adequate information’ as required by section 1125 of Title 11 of the United States Code, 11 U.S.C. § 101, et seq.

Due to the insider relationship of AES Andes and its affiliates with the Debtors and the benefits sought to be provided to AES Andes and its affiliates (which already hold 93% of existing equity) under the Plan, the Disclosure Statement should be assessed under a heightened scrutiny standard. These benefits include increasing AES Andes’ ownership stake in the reorganized Debtors to 100%, providing Class 7 intercompany creditors with the ability to have its claims ‘reinstated’ and providing insider parties with valuable releases, all the while leaving general unsecured creditors out of the money.

Regardless of the standard employed, denial of the Motion is appropriate. The Plan is predicated on approval of an RSA…the terms of which are themselves subject to objection on several grounds, including (but not limited to the fact) that the RSA’s requisite 2/3 support has not been achieved. The absence of the requisite support by parties to the RSA renders the Plan ‘dead upon arrival.’ Yet, even if such support were to arise, denial of the assumption of the RSA for any other reason will render the Plan unconfirmable because RSA approval is an express condition to the Plan going Effective.

Second, denial is appropriate due to a lack of adequate information. Among its information flaws, the Disclosure Statement fails to: (i) disclose whether the Debtors will or will not seek foreign recognition and the effect of that decision on, among other things, their ability to successfully reorganize; (ii) provide necessary details concerning the Debtors’ relationship with AES Andes, why AES Andes should not be held responsible for significant project overruns and why AES Andes and other insiders are entitled to releases; (iii) the nature of litigation claims and potential water rights; (iv) the hydrology of the Project (as defined below); and (v) how the Debtors will meet their debt obligations under the Plan.

In addition, while the Plan and Disclosure Statement appear to exclude general unsecured creditors under Class 4 as a ‘Releasing Party,’ any disclosure statement that ultimate may be approved should expressly provide the Class 4 claim holders are not subject to the release provision under the Plan.

Further, the Court should require the Debtors to file their proposed Plan Supplement at least 21 days before the confirmation hearing and the confirmation hearing should begin no earlier than May 23, 2022 (rather than on May 12, 2022), given the significant amount of Plan related discovery that remains needed.”

About the Debtors

According to the Debtors: “Alto Maipo is a special purpose company, incorporated under Chilean law for the purpose of developing, constructing, and operating a run-of-river hydroelectric energy project in the Santiago Metropolitan Region of Chile, approximately 30 miles southeast of the city of Santiago. The hydroelectric energy project that is presently under construction (the ‘Project’) will consist of two run-of-river hydroelectric plants (the ‘Hydroelectric Plants’) which, once completed, will provide significant zero-emissions energy to Chile’s electric grid…Construction of the Project is currently expected to reach commercial operation in the first half of 2022, after which Alto Maipo will provide clean, renewable energy to power Chile’s economy.”

Corporate Structure (sourced from lead Petition and Declaration)

• Alto Maipo SpA is 93% owned by Norgener SpA and 7% owned by Strabag SpA.  
• Norgener SpA is 100% owned by AES Andes S.A. which is 66.7% owned by the AES Corporation.
• Strabag SpA is 100% owned by Strabag SE.
• Alto Maipo Delaware LLC is 100% owned by Alto Maipo SpA 

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