PUBLIC SERVICE COMMISSION OF WEST VIRGINIA CHARLESTON. Entered: August 13, 2010

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1 CASE NO SWF-PC Entered: August 13, 2010 FINAL 9/2/2010 ENVIROSOLUTIONS HOLDINGS, INC., and CAPELS LANDFILL, LLC, Application for exemption from requirements of W. Va. Code or, alternatively, petition for consent and approval for certain financial transactions and request for expedited treatment. RECOMMENDED DECISION On May 10, 2010, Envirosolutions Holdings, Inc. (ESI), and Capels Landfill, LLC (Capels), collectively referred to as the Petitioners, filed an application/petition with the Public Service Commission pursuant to Section of the Commission's Rules of Practice and Procedure (Procedural Rules), for exemption from the requirements of W. Va. Code (c), or, in the alternative, for approval of and consent to certain financial transactions relating to the restructuring described in the filing. The Petitioners further requested an exemption from the specific requirements of Section 10.6 of the Procedural Rules and requested expedited treatment of the filing. ESI owns and operates, through subsidiaries, solid waste facilities and operations in Virginia, Maryland, Kentucky, New Jersey and West Virginia. Capels, a subsidiary of ESI, operates a landfill in McDowell County, sometimes referred to as the Copper Ridge Landfill, pursuant to the "Landfill Agreement" between Capels and the McDowell County Solid Waste Authority, the actual owner of the landfill. The operation of the landfill by Capels was approved by the Commission in Case No SWF-PC. The development and construction of the landfill was a significant undertaking involving investment in excess of $30,000,000. According to the application, in 2005, in order to obtain the necessary funds to develop and construct the Copper Ridge Landfill and other landfills, ESI and its subsidiaries entered into an Amended and Restated Credit Agreement, with a number of lenders, including, among others, Deutsche Bank Trust Company Americas, as administrative agent. As part of that transaction, ESI and Capels, together with other ESI subsidiaries, and the administrative agent, entered into an Amended and Restated Borrower/Subsidiary Collateral Agreement to secure the real estate, fixtures and personalty associate with the landfills and their operation. As part of the security for the transaction, the lenders requested that Capels enter into certain mortgages and deeds of trust and a "Credit Line Deed of Trust, Security Agreement, Assignment of Leases, Rents and Profits, Financing Statement and Fixture Filing" pledging the Landfill Agreement or portions thereof as security. In Case No

SWF-PC, the Commission granted its consent and approval to the financial transactions, including the pledge, without approving the specific terms and conditions of those documents.

2 SWF-PC, the Commission granted its consent and approval to the financial transactions, including the pledge, without approving the specific terms and conditions of those documents. The application went on to state that, in early 2010, ESI successfully reached an agreement with its lenders to restructure its balance sheet by significantly reducing debt, lowering interest payments and improving its capital structure. To implement the restructuring, on March 10, 2010, ESI, Capels and their affiliated debtors each filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York. ESI, Capels and their affiliated debtors remain in possession of their assets. The restructuring is supported by the senior lenders of ESI and Capels; the asset base of ESI and Capels will not be affected; and ESI's operations, including Capels' operation of the Copper Ridge Landfill, will continue with business as usual. According to the application, the restructuring will lower ESI's debt by approximately 60% and will free up a significant portion of its cash flow, enabling it to reinvest in its core business and continue to build upon existing operations. As part of the exit from Chapter 11 reorganization, ESI and its senior lenders have agreed that the existing senior debt will be exchanged for, among other things, new debt of ESI. Upon exit from the Chapter 11 reorganization, two credit facilities will be in place: a revolving term credit facility providing for the extension of loans and letters of credit; and a term loan credit facility, which will be issued in partial exchange for the existing senior debt of ESI and its subsidiaries. A requirement under the agreement with ESI's senior lenders and a condition of the two credit facilities is that ESI, Capels and its subsidiaries grant to the lenders security interests in substantially all of their assets. As a result, the lenders are requiring that Capels enter into a Deed of Trust and Security Agreement, again pledging the Landfill Agreement and certain real estate relating thereto as security for the transaction. The Petitioners assert that the terms and the conditions of the proposed transaction are reasonable, do not create an undue advantage for either party and do not adversely affect the public in the state. In fact, the transactions are a key component in their plan to emerge from Chapter 11 bankruptcy proceedings. The Petitioners further assert that there will be no adverse effect on the future operations and service of Capels as a result of the transactions. Nothing about the operation of Copper Ridge Landfill will change due to the financial transactions. The documentation granting a security interest will contain a provision whereby the parties specifically acknowledge the Public Service Commission's authority and jurisdiction over Capels and the fact that no entity may operate the Copper Ridge Landfill without approval of the Commission. The Petitioners are seeking only to pledge the Landfill Agreement and certain real estate as security for the financial transaction. They do not seek to take any action specifically described in W. Va. Code, (c), i.e., assign, transfer, lease, sell or dispose of franchises, licenses, permits, plants, equipment, business or other property or any part thereof. 2

According to the Petitioners, all documents granting the security interest in the Landfill Agreement and real estate will contain provisions acknowledging the Commission's authority and jurisdiction

3 According to the Petitioners, all documents granting the security interest in the Landfill Agreement and real estate will contain provisions acknowledging the Commission's authority and jurisdiction over Capels and the requirement that no entity may operate the laridfill without Commission approval. The Petitioners assert that there will be no adverse effect upon the operation or service of Capels or on any other utility operated in the state arising from the described financial transactions. They further assert that no party to the financial transactions is being given an undue advantage over another party thereto, that the terms and conditions of those transactions are reasonable, and that they do not adversely affect the public in this state. In the event that the Commission does not believe that exemption from W. Va. Code (c) is appropriate, the Petitioners alternatively request the Commission's approval of the grant of a security interest in the Landfill Agreement and related real estate owned by Capels in favor of its senior lenders. The Petitioners also request the Commission's prior consent to any future replacement or refinancing containing the grant of a security interest in the Landfill Agreement and related real estate owned by Capels, provided that any such document includes a provision acknowledging Commission authority over Capels and the landfill. The petition concludes by noting that the subject transactions are necessary for ESI and Capels to emerge from the pending Chapter 11 bankruptcy proceedings and to continue the management and operation of the landfill by Capels for the benefit of the economy of McDowell County and the state. On May 12, 2010, the Petitioners filed the original verification for the petition filed on May 10, On June 7, 2010, Staff Attorney Richard M. Allen of the Commission's Transportation Administration Division filed the Initial Joint Staff Memorandum herein. Commission Staff noted that it had been unaware that ESI and Capels had become the subjects of a bankruptcy proceeding and noted that it may require further information from the parties in that regard. Commission Staff indicated that it would review this matter and file an appropriate recommendation in as short a time as possible, with due regard for the applicants' financial condition and the Commission's oversight of a public utility service. Commission Staff noted that it seeks only that a viable and necessary public service continue uninterrupted operation in a sound financial manner. By Commission Referral Order entered on June 15, 2010, this matter was referred to the Division of Administrative Law Judges for a decision to be rendered on or before December 6, On June 30, 2010, Staff Attorney Allen filed the Final Joint Staff Memorandum herein, in which he related the history of the Copper Ridge Landfill and the Landfill Agreement held by Capels, Mr. Allen noted that the certificate of need for the landfill and the actual landfill site of 175 acres are held by the McDowell County Solid Waste Authority in its own name. The proposed financing agreement in this case does not encumber either of those assets owned by the McDowell County Solid Waste Authority. Legal and equitable title are not part of the proposed debt structure advanced by the Petitioners. Commission Staff indicated that 3

it appears that the Petitioners have been able to establish satisfactory arrangements to revise and modify their existing debt by substituting new debt and credit security with their respective

4 it appears that the Petitioners have been able to establish satisfactory arrangements to revise and modify their existing debt by substituting new debt and credit security with their respective creditors. Accordingly, Mr. Allen indicated that, inasmuch as the Utility m-erseen by the Commission, the MCSWA Landfill and its Commission-issued certificate of need are not part of the security being offered to reset the Petitioners' debt and credit arrangements, Staff had no objection to waiving the requirements under W. Va. code (c) or recommending approval of the petition without specifically approving all of the terms and conditions of the financing agreements. On July 9, 2010, the Petitioners filed a response to the Final Joint Staff Memorandum, indicating their agreement with that memorandum. On July 12, 2010, the Petitioners filed a motion requesting expedited treatment and entry of an order granting the petition. DISCUSSION Upon consideration of all of the above, the financial transactions appear to be reasonable and do not appear to burden the public in the State of West Virginia, nor do they appear to have granted an undue advantage to any party thereto or contain terms and conditions which the Commission would consider to be unreasonable. Accordingly, in consideration of the Staff recommendation and in consideration of the fact that the actual landfill owned by the McDowell County Solid Waste Authority and the certificate of need associated with that landfill are not part of the security for the financial transactions, the undersigned will grant the Commission's consent to and approval of the specified financial transactions, without specifically approving their terms and conditions. FINDINGS OF FACT 1. On May 10, 2010, Envirosolutions Holdings, Inc., and Capels Landfill, LLC, filed an application/petition with the Public Service Commission requesting either that the Commission exempt certain transactions from W. Va. Code (c) and the Commission's Rules of Practice and Procedure, or, in the alternative, that the Commission approve the financial transactions specified in the application/petition. (See, application/petition filed May 10, 2010). 2. In early 2010, ESI was successful in reaching an agreement with its lenders to restructure its balance sheet by significantly reducing debt, lowering interest payments and improving its capital structure. To implement that restructuring, on March 10, 2010, ESI, Capels and their affiliated debtors each filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. ESI, Capels and their affiliated debtors remain in possession of their own assets. The restructuring is supported by the senior lenders of ESI and Capels; the asset base of ESI and Capels will not be affected; and ESI's operations, including Capels' operation of the Copper Ridge Landfill, will continue with business as usual. The restructuring will lower ESI's debt by 4

$(See, application/petition filed May 10, clnl A\ LUlUl 3.$

5 approximately 60% and will free up a significant portion of its cash flow, enabling it to reinvest in its core business and continue to build upon the existing operations. (See, application/petition filed May 10, clnl A\ LUlUl 3. As part of the exit from Chapter 11 reorganization, ESI and its senior lenders have agreed that the existing senior debt will be exchanged for, among other things, new debt of ESI. Upon exit from Chapter 11 reorganization, two credit facilities will be in place, a revolving term credit facility and a term loan credit facility. A requirement under the agreement with ESI's senior lenders, in order for them to support the restructuring, and a condition of the two credit facilities, is that ESI, Capels and ESI's subsidiaries grant to the lenders security interests in substantially all of their assets. The lenders are requiring that Capels enter into a Deed of Trust and Security Agreement, pledging Capels' Landfill Agreement and certain real estate related thereto as security for the transaction. (See, application/petition filed May 10, 2010). 4. The Public Service Commission previously has approved financial transactions involving ESI and Capels which involved the pledge of the Landfill Agreement as security for the financing required to construct the landfill. (See, Case No SWF-PC, Recommended Decision entered March 13, 2006, Final Order March 20, 2006). 5. The actual landfill site of 175 acres and the certificate of need associated with the landfill are owned and held by the McDowell County Solid Waste Authority in its own name. The proposed financing agreements in this proceeding do not encumber either of those assets. Legal and equitable title of those assets are not part of the proposed debt structure advanced by the Petitioners in this case. (See, Final Joint Staff Memorandum filed June 30, 2010). 6. After reviewing the proposed transactions, Commission Staff has indicated that it has no objection to either waiving the requirements of W. Va. Code (c) or approving the petition without specifically approving the terms and conditions of the financing arrangements. (See, Final Joint Staff Memorandum filed June 30, 2010). CONCLUSIONS OF LAW 1. The terms and conditions of the proposed transactions which are the subject of this proceeding appear to be reasonable; the transactions do not appear to create an undue advantage for any party thereto; and the proposed transactions do not adversely affect the public in the state. To the contrary, without these transactions, it will not be possible for ESI and Capels to emerge from the pending Chapter 11 bankruptcy proceedings or to continue the management and operation of the Copper Ridge Landfill. 2. It is reasonable to grant the Commission's consent to and approval of the financial transactions which are the subject of the application/petition filed herein on May 10, 2010, by Envirosolutions Holdings, Inc., and Capels Landfill, LLC, without specifically approving the terms and conditions thereof, pursuant to W. Va. Code CHARL EST0 N 5

6 ORDER IT IS, THEREFORE, ORDERED that application/petition filed herein on May io, 2010, by ~nvirosolutions Holdings, Inc., and Capels Landfill, LLC, requesting the Commission s consent to and approval of certain financial transactions specified in the filing, be, and it hereby is, granted, without specifically approving the terms and conditions of the financial transactions discussed in the application/petition. IT IS FURTHER ORDERED that this proceeding be removed from the Commission s docket of open cases. I The Executive Secretary is hereby ordered to serve a copy of this order upon the Commission by hand delivery, and by electronic service upon all parties of record who have filed an e-service agreement with the Commission and by United States Certified Mail, return receipt requested, upon all parties of record who have not filed an e-service agreement with the Commission. Leave is hereby granted to the parties to file written exceptions supported by a brief with the Executive Secretary of the Commission within fifteen (15) days of the date this order is mailed. If exceptions are filed, the parties filing exceptions shall certify to the Executive Secretary that all parties of record have been served said exceptions. If no exceptions are so filed this order shall become the order of the Commission, without further action or order, five (5) days following the expiration of the aforesaid fifteen (15) day time period, unless it is ordered stayed or postponed by the Commission. Any party may request waiver of the right to file exceptions to an Administrative Law Judge s order by filing an appropriate petition in writing with the Secretary. No such waiver will be effective until approved by order of the Commission, nor shall any such waiver operate to make any Administrative Law Judge s Order or Decision the order of the Commission sooner than five (5) days after approval of such waiver by the Commission. f MKM : cdk a.wpd Melissa K. Chief Administrative Law Judge 6

NATIVE AMERICAN HOUSING SECURITY INSTRUMENT RIDER FOR LEASEHOLDS

NATIVE AMERICAN HOUSING SECURITY INSTRUMENT RIDER FOR LEASEHOLDS THE SECURITY INSTRUMENT, AS AMENDED BY THIS RIDER, ENCUMBERS (OR ATTACHES TO) YOUR LEASEHOLD INTEREST ON INDIAN TRUST LAND OR RESTRICTED