USA Springs deal is muddied again

Tuesday, January 10, 2012


The detention of two executives of Malom Group AG – and the difficulties of the Swiss company in proving two Brazilian bonds it holds are legitimate – has held up closing on a $60 million loan that would enable bankrupt USA Springs to complete its controversial water bottling plant in Nottingham.

According to a Malom emergency filing, filed Jan. 3 in U.S. Bankruptcy Court in Manchester, Swiss authorities took Malom president Hans-Jurg Lips into “investigative custody” on Sept. September 28, 2011, weeks before the loan was supposed to be closed in October.

According to a memorandum from Lips included in the Jan. 3 filing, Lips said he was accused of issuing guarantees from NAS Ltd. – a U.S. surety company — without sufficient cover. Lips was held for 12 weeks and questioned five times regarding NAS. His partner, Martin Schlapfer, a director at both NAS Ltd and Malom, was still in custody on Dec. 29, when Lips’ memorandum was signed, Lips said in the memo. Both Schlapfer and Lips own NAS Operations AG, a Swiss subsidiary of NAS Ltd.

A detention in Switzerland related to financial issues is not the same as an arrest in the United States, explained USA Springs attorney Alan L. Braunstein. Swiss authorities are more likely to detain executives and freeze their assets at an earlier stage of a securities investigation, he said.

However it is categorized, because of the detentions the company’s “entire business came to a complete standstill,” Lips said, although the partners were able to keep it “going in some areas,” through James Warras, Malom’s U.S. executive vice president who is based in Las Vegas, Nev.

In addition, some of Malom’s assets were being blocked by Swiss and Lichtenstein banks as of September.

The detention was a “significant event,” said Malom’s Manchester attorney Bill Gannon, but it is not necessarily the one mentioned in his emergency motion, in which he said an event “outside of Malom’s control” prevented “Malom’s president from finalizing the financing” and “stymied” the closing of the deal.

Gannon said he could not further elaborate on that event because of attorney-client privilege.

In any case, according to the filing, the process can now begin again and close before Feb. 29 at the latest, according to Malom.

But there are difficulties ahead.

While there are no other restrictions on Lips and Malom, the USA Spring financing is now based on two Brazilian treasury bills worth more than $1.2 billion, at least when they mature in 2036.

The problem with these notes is that they are part of a series of paper notes released by Brazil’s military dictatorship starting in the 1970s.

But “there are also fraudulent documents floating in the market,” according to a Brazilian law firm’s lengthy explanation of the matter, and Brazil, which now issues notes electronically, “generically” denies them.

“Brazil, of course, would like and actually need to eliminate this older debts but wants to do so on its on terms and at prices that are at extreme terms discounts to face value,” according to the law firm.

“The Brazilian government website gives a vague statement that these older LTN (treasury notes) are fraudulent and worthless. Nothing more, nothing less.” But unofficially, investors working “behind the scenes” have been able to get notes verified, the law firm said.

These notes are genuine, asserts the law firm, and it claims to have extensive documentation to prove it, but it is still a lengthy process. Malom is also exploring swapping the notes with someone who already has electronic notes, or simply selling them.

The problem is that because of the reputation for fraud, every person involved in the deal has to be reassured.

“It tends to be a repetitive process that goes on and on,” said Gannon.

USA Springs and its creditors are concerned about Malom’s difficulties, and is in negotiations about alternatives, if “in the event that Malom does not close.”

In the meantime, it will share information with the creditors “so they can assess Malom, its intentions and its credibilities.” — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW


USA Springs Bailout Delayed Again

USA Springs bailout delayed again

Wednesday, December 21, 2011


Money to bail out USA Springs still has not arrived, forcing creditors to consider alternatives, including liquidation and foreclosure.

Malom Group AG — the bankrupt company’s Swiss financier – was supposed to deposit $7 million on Dec. 9 into the account of USA Springs, which is trying to build a controversial bottling plant near the border of Nottingham and Barrington.

The payment was supposed to be the first installment of a $19.3 million bridge loan as part of a $60 million financing deal.

But USA Springs told the court on Dec. 15 that the money hadn’t arrived, making it Malom’s fourth missed deadline since Oct. 3.

Attorneys for USA Springs asked for a new deadline of Jan. 6, and the judge agreed to the extension, which is the fifth since the company filed for Chapter 11 protection in 2008.

A hearing on other issues — such as attorneys’ compensation — was set for Jan. 26.

An unnamed insider investor, with the bankruptcy court’s protection, has paid Malom a $1.2 million loan fee, a fee that was supposed to be paid back at closing, along with a potential $600,000 success fee.

If Malom doesn’t come through with the initial financing, the bankruptcy court – in its order – said it would seek the full $60 million from the firm.

Jan. 26 will also be set aside for consideration of a motion filed by Save Our Groundwater, an organization that opposes the USA Springs proposal and is seeking more documents on the redacted agreement between Malom.

USA Springs has spent $17 million over the past decade trying to get a permit to withdraw 300,000 gallons a day from the groundwater in the face of tenacious opposition from SOG and other opponents.

But shortly after the state granted the major permits, the company ran out of money, and the half-finished project has languished ever since. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

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USA Springs Loan Deal Remains Elusive

from New Hampshire Business Review: December 7, 2011

For the third time in as many months, the bankrupt USA Springs has been unable to close on a $60 million loan because initial funding from its Swiss underwriter, Malom Group AG, still has not arrived.

The deal, which would enable the company to resume construction on its controversial partially completed bottling plant on the border of Nottingham and Barrington, was originally supposed to close on Oct. 3, with the arrival of $19.3 million bridge loan in the bank account controlled by USA Springs’ attorney.

But that deadline was extended twice until Dec. 2 because of financial turmoil in Europe, according to Malom. In November, Malom said it would rely on the sale of Brazilian securities to raise that initial bridge loan.

At Monday’s bankruptcy court hearing in Manchester, attorneys for USA Springs said Malom missed that deadline as well because it found “a better offer” elsewhere, and instead $7 million would arrive at the close of business Friday. The rest of the bridge loan would arrive by the end of the year, the company said.

“We want to make sure that Malom is true to its word,” said the company’s attorney, Alan L. Braunstein.

Malom received a $1.2 million loan fee in advance from an unnamed USA insider. That fee would be paid back at closing along with a potential $600,000 success fee

Braunstein said that Malom would pay extra interest and attorney’s fees for the delay, but the main creditor, Roswell Commercial Mortgage LLC, wanted to see any changes in writing and subpoenaed a Malom executive for a deposition.

U.S. Bankruptcy Court Judge J. Michael Deasy granted another extension of the deal.

“At the end of the day, it’s up to the parties to decide what they want to do, but at some point this thing has to go or not to go. I don’t know what time that is,” said Deasy.

But the judge added that Roswell and other creditors were understandably skeptical and that the whole bankruptcy rescue plan was in danger of “blowing up.”

The future of the USA Springs plant has never been certain. USA Springs has spent $17 million to build the plant since 1997, but it took nearly a decade to overcome the opposition of residents and environmental groups before the company finally obtained state and federal permits.

State regulators eventually sided with USA Springs, but the permit fight drained its resources and the company filed for Chapter 11 bankruptcy in 2008. The project has languished in bankruptcy ever since, after several other financial arrangements fell apart. Malom has been the most promising deal thus far.

Meanwhile, opponents have raised question with potential investors about to whether the permits were still valid — a claim that USA Springs cited as a reason to keep the names of the investors secret.

But the organization Save Our Groundwater filed a motion to find out the names of foreign investors, arguing that they might use international trade agreements to trump state environmental laws.

USA Springs maintains that SOG doesn’t have the standing to make its motion because it has no financial interest in the deal and is instead trying to sabotage it.

The court – at the request of both parties – put that matter off until after Friday, when it will be clearer whether the Malom deal will close after all.

Another hearing has been tentatively scheduled for December 15. — BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

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