Tuesday, May 21, 2013

(This story was originally published Monday.)

By Joseph Checkler

Arcapita Bank said an energy company's fraud claim stemming from Arcapita's sale of Texas natural-gas assets should be pushed behind the claims of other creditors.

In a filing last week with the U.S. Bankruptcy Court in Manhattan, Arcapita took on Tide Natural Gas Storage LP's contention that Arcapita's bankruptcy plan shouldn't be approved by a judge because of $70 million it says it is owed.

The $70 million lies in an escrow account and stems from Tide's 2010 purchase of natural-gas storage facilities from an Arcapita subsidiary. Tide has been fighting for the money in U.S. district court in Manhattan for two years, saying Arcapita overstated the amount of gas at the plants and gave inaccurate information regarding operating expenses. Arcapita's bankruptcy filing temporarily halted that suit, but Tide continues to fight the company in bankruptcy court, saying its claim to the $70 million shouldn't be placed behind the claims of other creditors.

In its filing made last week, Arcapita says the $70 million claim by Tide should be subordinated to those of other creditors. The issue, Arcapita says, isn't whether the claim should be placed lower, but rather how much of it should be.

A lawyer for Tide didn't immediately respond to a request for comment.

The filing comes as Arcapita tries to finalize its exit from Chapter 11. Tide lawyers have said they will most likely fight the plan at a hearing next month.

Arcapita last week secured $350 million in financing from Goldman Sachs Group Inc. (GS) that should help ease the company out of bankruptcy.

Last month, a judge said creditors can vote on Arcapita's proposal to wind itself down and sell its assets, a plan that has support among many of the creditors the Bahraini investment bank plans to pay back. Tide objected to the proposal, based on how its claims were treated.

Judge Sean H. Lane plans to consider whether to confirm that proposal at a June 11 hearing.

Arcapita filed for Chapter 11 in March 2012 with plans to reorganize as a leaner company. It manages real estate, infrastructure, private equity and venture capital investments that are compliant with Islamic Sharia law, which prohibits borrowing with interest.

Late last year, Arcapita received financing from Fortress Investment Group LLC (FIG) that it thought could help it reorganize, but instead the company ended up going to its backup plan, a liquidation of its assets. It has already sold off some of its business, including five U.K. assisted-living facilities, to generate cash.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at joseph.checkler@dowjones.com.

(END) Dow Jones Newswires

21-05-13 0348GMT