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USA Springs files bankruptcy plan

by Bob SandersNew Hampshire Business Review
May 26th, 2010

USA Springs has filed a plan to emerge from bankruptcy, pay off its creditors and complete its controversial plant in Nottingham so it can bottle groundwater and sell hundreds of millions of dollars of it overseas.



Under the plan, filed Monday, the company will get a five-year, $55 million loan to pay the original contractors to complete the bottling plant, which neighbors and others in the area have been fighting tooth and nail. 



"A successful reorganization will mean hundreds of jobs and will create great benefits for the surrounding community. We intend to be a good partner and neighbor," said Alan Braunstein, an attorney for USA Springs, which originally filed for bankruptcy in June 2008, after spending more than a decade obtaining the necessary permits to withdraw groundwater from the 186 acre site.



"USA has not been a good neighbor," countered Denise Hart, of Save Our Groundwater, a group leading the opposition to the plan. Hart stressed she has not had time to digest the bankruptcy filing, but "they have significant wetland violations that they have not mitigated, and they seem like they are not interested in protecting our water, but in shipping it overseas.

"

The filing revealed for the first time the major potential customers of USA Springs, which have signed conditional contracts and letters of intent to buy a total of $1.3 billion of bottled water. The company’s assets include:



• A conditional contract with the International Organization for Diplomatic Relations in Malta to supply water for 10 years, at annual payments of $70 million a year, or a total of $700 million.
The organization, which was founded shortly before the Crusades to provide care for pilgrims to the Holy Land, is now an independent charity entity that has UN observer status, embassies in 100 countries and supports chartable efforts all over the world.
"It’s an international charity. It’s not going to Malta," Braunstein said of the water.



• A preliminary letter of intent with Martini & Rossi, an Italian multinational alcoholic beverage company, for five years, with annual payments starting for a total of $453 million.



• Another preliminary letter of intent with presso Hotel Escuela to buy bottled water for two years, for a total of $152 million. The filing doesn’t give the location of the hotel, but there are many hotels with that name, mainly in Spain and Latin America.

The five-year loan that would allow this all to happen will come from Lower Falls Funding LLC, a privately held lending group that would acquire a 20 percent equity interest in USA Springs at a 6.5 percent interest rate with 2 points. 

The bankruptcy court approved payment of the $137,500 application fee for the loan on May 17. Originally, the lenders wanted twice that amount, leading to objections to creditors who cited concerns that the deal might be some kind of scam, but the creditors dropped those objections and agreed to the lesser fee before a May 12 hearing on the matter.

Also under the deal, some of the creditors might be paid back in stock, as opposed to cash.

The company will retain the same manager – Francesco Rotondo, USA Springs' owner and president -- unless the final loan agreement does not specify otherwise.

The company expects to receive a final commitment lender after a due-diligence period expires on June 7, and the loan is expected to close a few months after that.



Final details – including more information about Lower Falls – might be filed with the bankruptcy court, Braunstein said. At this time , he would not disclose any details about Lower Falls, including where it has filed its LLC papers or its principals. 

Braunstein did say that there were two other lenders waiting in the wings, one of which has a commitment on financing.



In the meantime, on Tuesday the court approved a motion by the Official Committee of Unsecured Creditors compelling a number of lawyers and accountants to explain and provide documents explaining what happened to some $2.6 million of a $8.4 million loan made in 2007 that was used for "mortgage and loan payoffs," mainly to shareholders directors or affiliates of the debtor and borrowers.

The company appeared to have been insolvent, or was rendered insolvent, as a result of the these payments or operating with unreasonably small capital because of the payments, the committee said.



Braunstein said that such motions were routine, does not mean there was any impropriety and won’t be necessary should there be a successful reorganization that pays off all the creditors. USA Springs supports the investigation so it can concentrate on its plan, he said.

"It’s hedging bets, in case there is an impediment in the way of the plan," Braunstein said.