In re Reliant Energy Channelview LP

Chapter 11 debtors Reliant Energy Channelview LP and Reliant Energy Services Channelview LLC (collectively, Reliant) (debtors) decided to sell their largest asset, a power plant. Reliant received bids from 12 purchasers, including Fortistar, LLC. Reliant selected a $468 million bid from Kelson Channelview LLC (Kelson) as the winning bid and entered an asset-purchase agreement (APA) with Kelson. The APA provided that Reliant would seek the bankruptcy court’s approval for the sale. Reliant also agreed to seek bid protections for Kelson’s benefit if the court decided that the plant should be auctioned before any sale. The proposed bid protections provided that (1) Reliant could not accept a competitor’s bid unless it exceeded Kelson’s bid by over $5 million (the overbid requirement), and (2) if Reliant accepted a competing bid, Kelson would receive a $15 million breakup fee and reimbursement of up to $2 million in expenses. The bankruptcy court refused to approve the sale to Kelson without an auction, and Reliant asked the court to approve the bid-protection measures. Fortistar objected, asserting that it would be willing to make a higher bid for the plant at auction but would be deterred from doing so by the breakup fee and expense reimbursement. The court ultimately approved the overbid requirement and the expense reimbursement, but not the breakup fee. In the ensuing auction, Kelson did not participate, and Fortistar’s bid exceeded Kelson’s original bid by $32 million. The court approved the sale to Fortistar. The district court affirmed the bankruptcy court’s orders rejecting the breakup fee and approving the sale, and Kelson appealed.