Deal reached on proceeds from pending USA Springs auction

With USA Springs going up on the auction block at the end of the month, the federally appointed bankruptcy trustee and the company's largest secured creditor have cut a deal over how to split up the proceeds. But the deal leaves hardly anything for unsecured creditors.

The final sale price will depend on whether the business is purchased for its real estate — which straddles Nottingham and Barrington — or whether it is sold as a business, with its partially finished bottling plant and a state permit to withdraw 300,000 gallons of groundwater a day.

The land is assessed at less than $3 million, but the company's owners all along insisted that with the permits the site was worth $27 million, and the entire business would be worth as much as $100 million.

Under the deal, which still needs to be approved by bankruptcy court, Roswell Commercial Mortgage — the largest creditor, which claims is its owed as much as $13.2 million – could wind up with as little as $250,000 (if the site goes for $1 million) and as much as $11.5 million (if it is sold for between $13.7 million and $15 million).If the sale price doesn't exceed $5.5 million, Roswell could instead, through a credit bid, take title to the property itself, but then Roswell would have to pay various costs contained in the agreement out of its pocket.

The rest of the money – after $557,000 is used to pay the property-tax bill — would go to the trustee, Timothy P. Smith, a Manchester attorney who was just appointed last month. His final amount would vary from as little as $213,000 (if it sells for $1 million) to as much as $2.9 million (if it sells for $15 million).However, it is unlikely that Smith would end up paying any of that optimistic $2.9 million to unsecured creditors, who had hoped to get $2.5 million under a $60 million financing plan approved by the bankruptcy court last year.

That plan fell apart amid charges of fraud, when the Malom Group, a Swiss company, couldn't come up with the money, despite a $1.2 million advance from a USA Springs investor.

The bankruptcy court has since issued a $60 million judgment against Malom, but it is doubtful it will be able to collect it. Malom told the court it didn't even have enough money to fly its CEO to the United States for questioning about its assets.)Under the proposed Roswell-Smith agreement, most of that optimistic $2.9 million would be set aside for various fixed fees spelled out in the agreement, such as $474,000 for Smith and $70,000 for Deloitte, the business consulting firm. Of the $1.1 million left over, the claims of the various lawyers and professionals who worked for four years after the bankruptcy was filed, would be first in line.

Former USA Springs attorney Alan Braunstein, whose withdrawal from the case triggered conversion of the bankruptcy case from Chapter 11 reorganization to Chapter 7 liquidation — claims he is owed at least $1.9 million alone. Those fees could be challenged in court, but that would only increase bankruptcy expenses.

Other USA Springs creditors might get some money if the selling price exceeds $15 million, or if the bankrupt estate is able to collect money from Malom or elsewhere.

A hearing on the Roswell deal was scheduled for Sept. 20, almost a week after the Sept. 14 deadline for bids on the auction, which is scheduled for Sept. 28.