Columbia Gas Gets Court OK to Void Costly Contracts

A federal bankruptcy judge Thursday approved a request by Columbia Gas System Inc. to void high-priced natural gas supply contracts that forced the pipeline operator into bankruptcy protection.

Judge Helen Balick also approved $155 million in special bankruptcy financing for Columbia Gas and its pipeline subsidiary.

When it filed for Chapter 11 bankruptcy protection on July 31, Wilmington-based Columbia said its expects losses from the high-priced contracts to exceed $1 billion.

The ruling is a major victory for Columbia, which said that rejection of the 4,100 contracts was necessary for it to return to financial health.

The ruling came despite objections from several natural gas producers, which said rejection of the contracts was unfair.

Although spot natural gas prices have fallen as low as about $1.30 per 1,000 cubic feet this year, Columbia has paid as much as $6.70 per 1,000 feet under contracts written in the 1980s.

James Holland, head of Columbia’s pipeline unit, said that under the high-priced contracts, Columbia was in a “death spiral.”

Columbia provides natural gas to 8 million homes, businesses and utilities in 15 Eastern states. Under Chapter 11 of the U.S. Bankruptcy Code, Columbia is protected from creditors while it reorganizes and tries to work out a plan to repay its debts.

Before its bankruptcy filing, Columbia had offered producers 60 cents on the dollar to scrap the contracts. The producers may now pursue damages for the rejected contracts.

Under the financing approved by Judge Balick, Columbia will receive $75 million through Sept. 30, and its pipeline subsidiary, which is also operating under Chapter 11, will get $80 million. The financing comes from a bank group led by Manufacturers Hanover Trust.

The company said the financing for its pipeline unit was expected to be largely repaid in six months.

Columbia Gas also said it will ask the court next month for an additional $275 million in financing for two years.

When Columbia Gas first announced in June that it might seek bankruptcy protection, its stock slid 44% to about $19 a share.

The shares rose 12.5 cents to $16.75 on the New York Stock Exchange on Thursday. The bankruptcy rulings came after the close of trading.