mew Doc 1593 Filed 10/19/17 Entered 10/19/17 20:43:44 Main Document Pg 1 of 8

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1 Pg 1 of 8 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re : Chapter 11 : WESTINGHOUSE ELECTRIC COMPANY : Case No (MEW) LLC, et al., : : Debtors. 1 : (Jointly Administered) : x DECLARATION OF LISA J. DONAHUE IN SUPPORT OF MOTION OF DEBTORS PURSUANT TO 11 U.S.C. 363 AND 364 AND FED. R. BANKR. P AND 6003 FOR AUTHORITY TO CONTINUE AND RENEW THEIR SURETY BOND PROGRAM I, Lisa J. Donahue, pursuant to section 1746 of title 28 of the United States Code, hereby declare that the following is true to the best of my knowledge, information, and belief: 1. I am the Chief Transition and Development Officer of Westinghouse Electric Company, LLC. For further explanation of my credentials, please see the Declaration of Lisa J. Donahue Pursuant to Rule of the Local Bankruptcy Rules for the Southern District of New York, dated March 29, 2017 [ECF No. 4]. 2. I submit this declaration (this Declaration ) in support of the Motion of Debtors Pursuant to 11 U.S.C. 363 and 364 and Fed. R. Bankr. P and 6003 for Authority to Continue and Renew Their Surety Bond Program, dated August 16, 2017 [ECF No. 1162] 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, if any, are: Westinghouse Electric Company LLC (0933), CE Nuclear Power International, Inc. (8833), Fauske and Associates LLC (8538), Field Services, LLC (2550), Nuclear Technology Solutions LLC (1921), PaR Nuclear Holding Co., Inc. (7944), PaR Nuclear, Inc. (6586), PCI Energy Services LLC (9100), Shaw Global Services, LLC (0436), Shaw Nuclear Services, Inc. (6250), Stone & Webster Asia Inc. (1348), Stone & Webster Construction Inc. (1673), Stone & Webster International Inc. (1586), Stone & Webster Services LLC (5448), Toshiba Nuclear Energy Holdings (UK) Limited (N/A), TSB Nuclear Energy Services Inc. (2348), WEC Carolina Energy Solutions, Inc. (8735), WEC Carolina Energy Solutions, LLC (2002), WEC Engineering Services Inc. (6759), WEC Equipment & Machining Solutions, LLC (3135), WEC Specialty LLC (N/A), WEC Welding and Machining, LLC (8771), WECTEC Contractors Inc. (4168), (8572), WECTEC LLC (6222), WECTEC Staffing Services LLC (4135), Westinghouse Energy Systems LLC (0328), Westinghouse Industry Products International Company LLC (3909), Westinghouse International Technology LLC (N/A), and Westinghouse Technology Licensing Company LLC (5961). The Debtors principal offices are located at 1000 Westinghouse Drive, Cranberry Township, Pennsylvania

2 Pg 2 of 8 (the Motion ) 2 and the revised proposed order filed contemporaneously herewith (the Revised Proposed Order ). 3. Unless otherwise indicated, the facts set forth in this Declaration are based upon (i) my personal knowledge, (ii) my review of relevant documents, (iii) my discussions with members of the Debtors senior management or the Debtors professional advisors, including Weil, Gotshal & Manges LLP as legal restructuring counsel, or (iv) my opinion based upon my experience and knowledge. 4. If called upon to testify, I would testify competently to the facts set forth in this Declaration. I am authorized to submit this Declaration on behalf of the Debtors. Westinghouse s Surety Bond Program 5. In the ordinary course of business, the Debtors are required to provide surety bonds to third parties to secure the Debtors payment or performance of certain obligations relating to the Debtors business operations (the Surety Bond Program ). The Debtors maintain their Surety Bond Program with two sureties, Westchester Fire Insurance Company ( Westchester ) 3 and American Insurance Group ( AIG ). 6. In connection with AIG s issuance of 26 surety bonds, the Debtors executed in favor of AIG an Agreement of Indemnity dated May 16, 2008, as amended from time to time (the AIG Indemnity Agreement ). Toshiba International Corporation ( Toshiba ), a nondebtor affiliate and subsidiary of the ultimate parent of the Debtors, Toshiba Corporation, provided AIG with 11 separate letters of credit totaling $14,639, from January 2017 to March 2017 (the LC Collateral ). 2 Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Motion. 3 Westchester is a subsidiary of Chubb Limited. 2

3 Pg 3 of 8 7. The Debtors Surety Bond Program includes a total of 53 bonds including (i) bonds securing obligations owed to various states and state agencies relating to contractor permits and licenses that are necessary to the Debtors continued operations (the Licensing Bonds ), (ii) one bond securing taxes and duties, fees, and other import obligations owed to the United States Government (the Customs Bond ), (iii) bonds securing obligations owed to certain labor unions (the Union Bonds ), and (iv) bonds securing Westinghouse s performance under certain customer contracts (the Performance Bonds and, together with the Licensing Bonds, the Customs Bond, and the Union Bonds, the Bonds ). 8. Upon a thorough review of their books and records and discussions with management personnel, the Debtors have made a determination to cancel 36 of the Bonds in their Surety Bond Program (the Cancelled Bonds ), leaving a total of 17 active Bonds (the Active Bonds ). AIG s exposure to the Surety Bond Program after cancellation of the Cancelled Bonds will be approximately $12.6 million and will still be secured by approximately $14.6 million in LC Collateral. Westchester will not insure any of the remaining Active Bonds. a. Licensing Bonds 9. The Debtors seek to maintain Licensing Bonds in California, Arizona, Washington, Arkansas, and Iowa. The Licensing Bonds guarantee that the Debtors comply with applicable state laws and/or regulations, and are required for the Debtors to perform work in these states. In instances where the Debtors do not have active contracts in these states, maintaining Licensing Bonds benefits the Debtors businesses by enabling the Debtors to enter into revenue generating contracts expediently without being required to procure new licensing bonds. The Debtors pay a total of $6,000 in premiums annually for the 12 Licensing Bonds they seek to continue, which are the following: 3

4 Pg 4 of 8 1. AIG PCI Energy Services LLC State of California Contractor License Board $12, AIG PCI Energy Services LLC State of California $12, AIG Westinghouse Electric Company LLC State of Arizona, Register of Contractors $90, AIG WEC Carolina Energy Solutions State of Arizona, Register of Contractors $32, AIG Westinghouse Electric Company LLC State of Washington $12, AIG PCI Energy Services LLC State of Arizona $34, AIG Westinghouse Electric Company LLC State of Arkansas $10, AIG PCI Energy Services LLC Washington Department of Labor & Industries $12, AIG PCI Energy Services LLC Arkansas Department of Insurance $10, AIG PCI Energy Services LLC Arizona Department of Revenue $2, AIG Westinghouse Electric Company LLC State of California $15, AIG PCI Energy Services LLC State of Iowa Division of Labor $25,000 b. Customs Bond 10. The Debtors maintain a $1,700,000 Customs Bond, which is necessary for the Debtors to remain in compliance with U.S. customs regulations and allow goods to be imported from overseas to support ongoing business operations. The Debtors pay a $12,000 premium for the Customs Bond annually. The Debtors seek to continue the following Customs Bond: 1. AIG Westinghouse Electric Company LLC c. Union Bonds Department of Homeland Security, U.S. Customs and Border Protection $1,700, The Debtors maintain two Union Bonds for the benefit of Pipefitters Local Union 597 and the International Brotherhood of Boilermakers (together, the Unions ). The Union Bonds secure funding for various obligations of the Debtors under labor agreements with the Unions, including funding for pensions, vacations, and health and welfare. The Debtors pay a total of $2,000 in premiums for the Union Bonds annually. The Debtors will make a determination as to 4

5 Pg 5 of 8 whether the underlying labor agreements with the Unions will be assumed at a later point in these chapter 11 cases in connection with a plan of reorganization or restructuring transaction. Accordingly, the Debtors seek to continue the following Union Bonds: 1. AIG PCI Energy Services LLC 2. AIG PCI Energy Services LLC d. Performance Bonds Pipefitters Union Local Union 597 International Brotherhood of Boilermakers $200, $50, The Debtors maintain two Performance Bonds for the benefit of Tennessee Valley Authority ( TVA ) and Energy Northwest. The TVA Performance Bond, issued by AIG, secures two five-year contracts the Debtors have with TVA, a major customer of the Debtors, to perform work on nuclear reactors in Tennessee. These are valuable to the Debtors and the Debtors currently expect to assume them. The Debtors pay a $342,000 premium for the TVA Bond on an annual basis. The TVA Performance Bond can only be cancelled by TVA. The Energy Northwest Performance Bond secures obligations to provide facilities, labor, supervision, equipment, tools, examination services, materials and transportation in connection with the prefabrication of certain equipment at a generating station located in Columbia, Washington. The Debtors completed this work in January 2017, and there is little to no risk that the bond will be drawn. Nevertheless, the Energy Northwest Performance Bond is required to remain active for 365 days until January 2018 under the terms of the Debtors underlying contract with Energy Northwest. The Debtors pay a $3,000 premium for the Energy Northwest Bond annually. Accordingly, the Debtors seek to continue the following Performance Bonds: 1. AIG Westinghouse Electric Company LLC Tennessee Valley Authority $10,000, AIG Westinghouse Electric Company LLC Energy Northwest $402,809 5

6 Pg 6 of 8 e. Cancelled Bonds 13. The Debtors conducted a thorough review of their books and records and held discussions with management personnel to review their Surety Bond Program. The Debtors have determined to cancel the below 36 Bonds that they have determined, in their business judgment, are no longer necessary to support their business operations during these chapter 11 cases: 1. AIG Westinghouse Electric Company LLC Comision Federal de Electricidad * $12, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $8, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad * $99, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad * $64, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $23, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad * $78, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $30, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $724, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $623, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $238, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $1,721, AIG Westinghouse Electric Company LLC Comision Federal de Electricidad $911, ACE WECTEC Contractors Inc. State of Arkansas K $10, ACE State of Arkansas K $10, ACE WECTEC Contractors Inc. State of Arizona K $102, ACE Stone & Webster Construction Inc. State of California K $12, ACE Stone & Webster Construction Inc. State of Nevada K $50, ACE Stone & Webster Construction Inc. State of Washington K $4, ACE Stone & Webster Construction Inc. State of New Jersey K $1, ACE State of Nevada K $50, ACE WECTEC Contractors Inc. State of North Carolina K $2,000, ACE WECTEC Contractors Inc. State of Georgia K $25, ACE WECTEC Contractors Inc. State of Nevada K A $50, ACE WECTEC Contractors Inc. State of Nevada K A $50, ACE WECTEC Contractors Inc. State of California K $12, ACE WECTEC Contractors Inc. State of Arizona K $50, ACE WECTEC Contractors Inc. State of Arizona K $50, ACE Stone & Webster Construction Inc. State of Arizona K A $45, ACE WECTEC Contractors Inc. State of Arizona K $90, ACE Stone & Webster Construction Inc. State of Arizona K $90, ACE State of Nevada K $50, ACE State of Arizona K $90, ACE WECTEC Contractors Inc. State of Arizona K $90, ACE WECTEC Contractors Inc. State of Washington K $12,000 6

7 Pg 7 of ACE State of Washington K $12, ACE Stone & Webster Construction Inc. State of Arizona K $90,000 * Indicates that the bond has already been cancelled 14. The Cancelled Bonds for the benefit of Comision Federal de Electricidad, a state-owned utility in Mexico, (line items 1-12 above) are Performance Bonds for work that has been completed, and the Debtors are not contractually bound to keep such bonds active. The rest of the Cancelled Bonds are Licensing Bonds that the Debtors originally sought to continue given their relatively small value, low premiums, and the administrative convenience of having them remain in place. The Debtors originally contemplated that these Licensing Bonds, which were issued to facilitate work performed by WECTEC Contractors Inc., Stone & Webster Construction Inc., and, would be cancelled or expire in the ordinary course. The aggregate amount of premiums the Debtors would be required to pay for all of the Cancelled Bonds is $39,000 on an annual basis. f. New Surety Bonds 15. The Debtors have negotiated with Westchester to be their sole provider of new surety bonds going forward. Westchester and the Debtors have negotiated an indemnity agreement that will only cover surety bonds issued by Westchester. The Debtors are required to provide collateral to support any new surety bonds issued by Westchester. Based on efforts by the Debtors insurance broker, Marsh USA Inc., to obtain quotes for a surety bond program for Westinghouse, all markets will require a secured position supported by 100% cash or letter of credit collateral while the Debtors are in these chapter 11 proceedings. 7

8 Pg 8 of Based on the foregoing, I believe that the relief being requested in the Motion, as modified in the Revised Proposed Order, is well justified, in the best interests of Westinghouse, its creditors, and all parties in interest, and should be granted. foregoing is true and correct. 17. Pursuant to 28 U.S.C. 1746, I declare under penalty of perjury that the Dated: October 19, 2017 New York, New York /s/ Lisa J. Donahue Lisa J. Donahue Chief Transition and Development Officer Westinghouse Electric Company LLC 8