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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowRural electricity provider Hoosier Energy has dodged — at least for now — a $120 million claim brought against it
by John Hancock
Life Insurance Co. after the co-op allegedly defaulted on a 2002 sale-leaseback of its Merom generating plant.
U.S. District Court Judge David Hamilton on Nov. 25 issued a preliminary injunction to block Hancock’s demand for payment,
saying that if payment were made, "it is highly likely that Hoosier Energy would be forced to file very quickly for protection
under Chapter 11" bankruptcy.
The injunction was not unexpected given the complexity of the 2002 sale-leaseback of Hoosier Energy’s 1,070-megawatt Merom
generating plant to Hancock and the recent collapse in credit markets.
Bloomington-based Hoosier never stopped making lease payments to Hancock but rather a firm that guaranteed those payments
suffered a credit downgrade, putting the deal with Hancock in technical default.
Hoosier was in the midst of arranging a replacement guarantee through Berkshire Hathaway when Boston-based Hancock "turned
out the lights," Hamilton wrote.
Hancock enjoyed tens of millions of dollars in tax breaks from the 2002 deal and Hoosier Energy netted about $20 million,
which it used to fund construction projects.
But in recent years, the Internal Revenue Service cracked down on such deals.
"The deal was the attempted sale of a tax deduction and no more than that; it appears to have been rotten to the core,
so
that the illegality affects every portion of the deal," Hamilton said.
Hoosier Energy generates and supplies power for 17 rural electric cooperatives with customers in 48 central and southern Indiana
counties. The Hancock claim would amount to the equivalent of 23 percent of Hoosier’s 2007 revenue of $513 million.
The lawsuit in which Hoosier sought an injunction against Hancock was filed Oct. 30 in Monroe Circuit Court.
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