b>By the OGJ Online Staff
HOUSTON, Feb. 1 -- Loaded down by $1 billion in debt, a Texas electric cooperative filed for bankruptcy protection Friday to avert foreclosure by the National Rural Utilities Cooperative Finance Corp (CFC).
CoServ Electric, Corinth, Tex., filed for reorganization under Chapter 11 of the bankruptcy code in US Bankruptcy Court in Fort Worth after negotiations broke down and CFC began foreclosure proceedings. CoServ said it "withheld" a regularly scheduled interest and principal payment of $8 million due CFC Dec. 31, 2001. CoServ owes the CFC $1 billion, said Joe Forman, senior vice-president.
CoServ is a 65-year-old electricity co-op serving about 64,000 customers in the North Texas area. It diversified into telecommunications, real estate, natural gas distribution, and other services beginning in 1998.
CoServ and CFC have disagreed since March 2001 over a financial agreement. The co-op alleges CFC failed to honor an agreement calling for its lender to provide $15.1 million in funding for CoServ's telephone and cable companies. The co-op had already filed for Chapter 11 bankruptcy protection in November 2001 for its telecommunications companies.
Separately, CoServ filed a lawsuit alleging CFC breached agreements and made unreasonable demands. The co-op said it will show it was "operating according to a plan CFC not only funded but also encouraged."
CFC refused to honor its commitment to meet legitimate funding requests that were in line with the very plan CFC reviewed and approved, said CEO Bill McGinnis. CoServ pursued a strategy of 'cooperative diversification' at CFC's urging, McGinnis claimed.
He said CFC is now backing off the strategy, forcing co-ops that diversified to scramble for alternative funding. Originally an electricity co-op, CoServ diversified into telecommunications, cable, broadband, internet services, security/fire services, engineering and construction, real estate, and natural gas.
The companies included in the Chapter11 filing include CoServ Electric, CoServ Investments LP, CoServe Utility Holdings LP, and CoServ Realty Holdings LP. The gas, security, and internet services companies are not included.
