Article

Note: Centennial Energy Holdings, Inc. (Parent/Guarantor) guaranteed Colorado Energy Management's (Contractor) construction of a power plant in Hobbs, New Mexico to Lea Power Partners (Owner). When it purchased Contractor, Bicent Power, LLC (Buyer/Issuer) agreed to use "commercially reasonable efforts" to cause Parent/Guarantor's guarantee to be discharged. Unable to obtain a discharge, Buyer/Issuer amended the purchase agreement, agreeing "to provide an irrevocable standby letter of credit issued to [Parent/Guarantor] in the principal amount of [US] $10,000,000 in form and substance satisfactory to [CER] in which [Parent/Guarantor] may draw upon in the event that [Parent/Guarantor] is required to make any payment under [the Guaranty]...the [Contractor] [letter of credit] shall be in lieu of and in full satisfaction of [Buyer/Issuer] obligations to CER under Section 2.4 of the [PSA]"

Accordingly, Buyer/Issuer issued a standby letter of credit for US $10,000,000 in favor of Parent/Guarantor providing for automatic extension with a final expiration date "past the earlier of June 10, 2012, or the later of, final completion under the construction agreement, or the expiration of the warranty period, which was February 16, 2010."

After the project was completed, Owner indicated that it had quality disputes and subsequently the standby letter of credit was amended to reflect an expiration date of 1 November 2010. Several days later, Owner commenced arbitration proceedings. It appears that there was no further extension of the standby.

On 4 November 2010, Parent/Guarantor and another related entity sued Buyer/Issuer on several counts including the failure to provide a letter of credit during the pendency of arbitration in breach of the purchase agreement and sought to enjoin the arbitration proceeding. On Buyer/Issuer's motion to dismiss, the New York Supreme Court, New York County, Fried, J, denied the preliminary injunction and granted the motion to dismiss the letter of credit count for failure to state a claim.

[JEB/med]

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