Next chapter unveils in USA Springs saga

Whatever entity emerges from bankruptcy court to finish the controversial USA Springs water bottling plant in Nottingham will have to face some of the same obstacles that the original company encountered – local opposition and environmental regulation.

But the entity would not have to start from scratch. The permits that USA Springs secured after a contentious and tenacious battle will be transferred, according to the state Department of Environmental Services, though some may expire due to the company’s long detour into bankruptcy.

That detour, however, appears to be about to end.

A firm whose name whose name won’t be revealed until next month has agreed to invest $55 million to purchase nearly two-thirds of the assets of USA Springs, according to a letter of intent sanctioned Oct. 8 by the U.S. Bankruptcy Court in Manchester.

And that new company would continue to work with the controversial Pelham-based water company to finish the bottling plant, said Alan L. Braunstein, an attorney for USA Springs.

If the deal goes through as scheduled right before Christmas, all creditors in the case should be paid in full.

The identity of the firm, referred to as “NewCo” and represented by Boston attorney Daniel S. Bleck, was redacted from the letter of intent and will be kept secret from the public until next month, when a disclosure statement is due. (All of the attorneys involved in the case have already learned of the identity.)

During that time, USA Springs could entertain competing bids from other buyers, but if the bottling company backed out of the deal for a better deal the bankrupt estate would have to pay as much as a $1.5 million to NewCo.

NewCo is being described as a U.S.-based entrepreneurial company, backed by a “known financier” who’s also based in the United States and had expressed interest in investing in USA Springs years ago, before it received its permits, according to Braunstein.

NewCo would continue to use the services of the company’s principals, including USA Springs founder Francesco Rotondo, on a contractual basis, he added. It would also include various trusts that actually hold direct title of the land.

A USA Springs motion filed Oct. 15 offered to consolidate all of these entities as part of the assets sale.

NewCo would own 65 percent of the new company, while Rotondo and the other USA Springs investors would retain a 35 percent interest.

“Talk about nine lives,” said a smiling Rotondo, whose company was on the very brink of liquidation in April.

But Rotondo also said he “felt awful” at the thought of losing control of the company he had worked so hard to build. He said he still had some hopes that the NewCo offer would spark some competing bids that would enable him to do so.

Still up in the air

Rotondo and USA Springs have faced opposition from community groups, which claim that the plant would put residents’ drinking water at risk in order to sell water to people from out of state, and even out of the country.

Rotondo has said that much of this opposition was tinged with prejudice against his Italian origin, and that 95 percent of the community is on his side now, because it needed the economic development his project would bring.

But Denise Hart, spokesperson for the anti-USA Springs group Save Our Groundwater, said that a bottling plant is fully automated, would produce few jobs and loads of truck traffic. “After not paying his taxes, leaving a half-finished building and forcing thousands of dollars of legal bills, I’d like to see evidence of his support.”

Whatever the merits of the competing claims, USA Springs did eventually obtain its permits, but the long battle, as well as the deepening recession, forced the company to file for Chapter 11 bankruptcy protection in June 2008. At the time, the company said that it owed more than $13.9 million, with little more than $300 in its checking account. But Rotondo claimed his company and land was worth $127 million, and that he had several buyers ready to close a deal any day.

But months passed by, creditors became increasingly impatient, and in April creditors forced the company into Chapter 7 liquidation. USA Springs then hired Braunstein, who convinced creditors to hold on, and succeeded in reverting the filing back to Chapter 11 reorganization, culminating in this $55 million offer.

Still the deal is far from finalized.

Indeed, as U.S, Bankruptcy Court Judge J. Michael Deasy said, “This deal is not really a deal.”

He said there were too many conditions, including a very “aggressive” schedule, but the creditors – if they ever hope to get repaid – have little choice but to go along, said Deasy.

“You all have to follow the Golden Rule: Those that have the gold, make the rules,” he said.

But USA Springs’ attorney Bleck said the company does not intend to walk away unless it becomes a bidding war sparked by the initial offer. And the strict schedule was to discourage that from happening.

Hart of Save Our Groundwater, however, was skeptical that the deal will all pan out.

“We are going to have to wait and see. There have been many promises that this company would find a way out of this morass. As far as we are concerned, this is just speculation. None of the entities have been disclosed,” she said.

In any case, NewCo has its work cut out for it. It will not have much to do to transfer existing permits, according to Brandon Kernen, supervisor of hydrology and conservation section at the Department of Environmental Services, including the biggest one – the large groundwater withdrawal permit that is good until 2014.

DES just needs to know who the new owner is. The state also might amend testing requirements because of a number of new homes that have since been added to the area.

But the original water bottling permit – awarded based more on water quality as opposed to quantity – is due to expire in October 2010. That could pose a problem, since the state requires 12 months of monitoring data before renewing it. However, a wetlands permit to allow that monitoring has been tied up in litigation and is currently before the state Supreme Court, which isn’t set to decide the matter until December.

If the permit does expire, USA Springs will have to do further testing to obtain another one, “but they wouldn’t have to start from scratch,” Kernen said.

However, Neighborhood Guardians, another group opposed to the bottling plant, points out that the town building permit expired in July 2008. And that permit can be denied, if various state permits are still up in the air.

Rotondo said that the opposition groups are raising these questions in an attempt to “scare away anyone who wants to leverage this deal. All permits are transferable. Period. These are the idiots that are trying to destroy this country while we are trying to build it.”

Braunstein, however, tried to emphasize the positive: Community groups should contact him before criticizing the deal in the press. Someone is going to get the permits, he said, but NewCo is committed to hire locally and be sensitive to community concerns.

“This deal has much more synergy with the needs of the town,” he said.

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Bob Sanders can be reached at bsanders@nhbr.com