Density may be near deal to sell La. treatment systems

Bankrupt private sewer company Density Utilities of Louisiana LLC says it has an agreement in principle to sell all 49 of its treatment systems in Louisiana to an undisclosed buyer for $1.2 million.

Density Utilities, based in Hammond with corporate headquarters in Macon, Ga., serves about 2,350 customers in eight parishes, most in Ascension, Tangipahoa and Assumption, and has been under regulatory scrutiny for its problematic sewer treatment systems.

Density Utilities manager Neil Hertenstein said Density and the buyer are optimistic they will reach an agreement.

“Both parties have agreed on the broad outline of a deal,” Hertenstein said.

He was unable to provide a timeline, but any agreement would need approval from U.S. Bankruptcy Court in Macon, Ga., and garner close scrutiny of Louisiana health, utility and environmental regulators.

Density, which bought most of its systems a few years ago from troubled sewer company World Wide Environmental Solutions LLC, has attracted regulatory interest due to sewer overflows, foul smells and other complaints from customers.

In late August, the company reported to the state Department of Environmental Quality that 3,583 gallons of raw sewage spilled on the ground due to a lift station failure in Prairieville’s Autumn View subdivision.

An engineering report done for the state Public Service Commission in early 2013 found many of Density’s oldest systems, generally in Ascension and Assumption, are dilapidated and exceeded their useful lives.

Colby Cook, PSC spokesman, said the agency was aware of discussions Density was having with a prospective buyer late last year but is not able to confirm the identity.

“As far as the impact to ratepayers, we are cautiously optimistic that a viable utility would place them in a better position than they are in today,” Cook said.

At $37.25 per month, Density has the highest sewer rate ever approved by the PSC. The decision came in 2010 in anticipation of a major bond issue for sewer upgrades.

The bond issue did not materialize, and, instead of lowering the rate, the PSC ordered Density to perform $15,500 in monthly upgrades.

Hertenstein has said the company can only do smaller repairs without the kind of major influx of cash Density can now no longer generate.

Creditors get a chance to review Density’s new reorganization plan and have until Feb. 10 to object.

Unsecured creditors are owed a combined $1.6 million. Under the reorganization plan filed Thursday in Bankruptcy Court, they would be paid only 58 cents on the dollar unless pending lawsuits are resolved.

Several Louisiana companies and law firms are among the unsecured creditors, but the largest single one is Density Inc., Density Utilities’ corporate parent in Macon. The parent took out a $1.25 million bank loan for the Louisiana operations.

Under the proposed deal, Density Utilities’ buyer would pocket $481,600 in existing deposits, accounts receivable and other assets in addition to the systems.

After secured creditors, severance packages and other expenses are paid, the company would be left with $1.22 million to pay unsecured debts.

The proposed sale price is a discount compared with the $2.4 million company officials valued their sewer systems when they filed for Chapter 11 bankruptcy in March. In recent filings, however, the company said discussions with potential buyers put the market value at $1.5 million.

Assumption Parish Police Juror Irving Comeaux said he is hopeful a new buyer will make needed upgrades and “do what is right with” the sewer systems. Comeaux represents the Bayou L’Ourse area where two of Density’s more troubled systems are located.

Ascension Parish officials are trying to get into the sewer business, but Density officials have said they preferred to sell all their systems to one buyer.

Ascension Parish Councilman Benny Johnson said he was disappointed an agreement could not be reached to buy the systems but had not heard about the proposed buyer.

The state DEQ, PSC, Department of Health and Hospitals and Attorney General’s Office have asked U.S. Bankruptcy Judge James P. Smith in Macon to move the case to Louisiana.

Since late May, though, the state agencies have agreed to continuances on a hearing so Density could line up a buyer. The next hearing is set for 10 a.m. Feb. 11. A separate hearing on creditors’ objections to the reorganization plan is set for 11 a.m. Feb. 12.

Steven Hartmann, spokesman for Attorney General James “Buddy” Caldwell, said Friday he was unable to comment on pending litigation.