A federal bankruptcy court judge in Wilmington, Del. granted Abengoa, S.A., the troubled Spanish renewable energy contractor and engineer, protection under U.S. bankruptcy law from its U.S. creditors, making it less likely that sureties will be able to enforce their own claims against the company for funds spent to complete unfinished projects that may total $200 million.
The April 27 ruling makes it less likely the sureties can easily collect under the indemnity agreements associated with the bonds.
As often happens, bankruptcy forces sureties to get in line with other creditors in trying to recoup their losses from claims. In their pleadings, the sureties reminded the bankruptcy judge that “a surety bond is not an insurance policy” and involves unique obligations, including the contractor’s promise to indemnify the surety.
The bankruptcy court legal issue revolved around whether Abengoa qualified, by virtue of the legal proceedings in Spain tied to its global financial troubles, as a foreign bankruptcy and therefore should be recognized in the U.S. Abengoa had filed for protection from its creditors under Chapter 15 of the U.S. bankruptcy code.
Perhaps the biggest potential liability for the sureties are disputed claims for completing an Oregon power plant for Portland General Electric Co., the Carty Generating Station, a 440-Mw natural gas generating station near Boardman.
Sureties Liberty Mutual Insurance Co. and Zurich American Insurance Co. said in bankruptcy court pleadings that they had issued surety bonds to Abengoa units with penal sums exceeding $250 million, including bonds in the amount of $145.6 million for the Oregon project.
The sureties denied liability for the whole amount in a letter sent to the utility in early March, PGE said in a statement. In a bankruptcy court pleading dated April 20, Zurich said the sureties “dispute” potential power plant bond claims by PGE of losses between $179 million and $236 million.