Countryside Power Income Fund
TSX : COU.UN

Countryside Power Income Fund

December 01, 2006 09:15 ET

Countryside Power Income Fund Provides Update to U.S. Energy Biogas Corp. Chapter 11 Filing

LONDON, ONTARIO--(CCNMatthews - Dec. 1, 2006) - Countryside Power Income Fund (the "Fund")(TSX:COU.UN) announced that it was updating its unitholders in respect to the filing by U.S. Energy Biogas Corp. ("USEB") for reorganization under Chapter 11 of the U.S. Bankruptcy Code. This update is being provided now that the Fund has had an opportunity to review the filing by USEB, consult with professional advisors and consider, on a preliminary basis, the implication of the filing to the Fund.

By way of background, as part of its business, the Fund holds indirect investments in 22 renewable power and energy projects located in the United States owned by USEB and its subsidiaries. These projects currently have approximately 51MW of electric generation capacity and sold approximately 710,000 MMBtus of boiler fuel in 2005. USEB is a company unrelated to the Fund and has its own management and operations staff.

The Fund's investment in these projects consists of loans (the "USEB Loan") to USEB, as well as a convertible royalty interest in USEB. The USEB Loan is secured by a first lien on all of USEB's assets, including reserve accounts (currently holding approximately US$32 million of liquid assets) required to be established and funded under the loan agreement. The total amount of the USEB Loan is currently C$102 million. In the twelve-month period ended September 30, 2006, the interest and principal payments to the Fund pursuant to the USEB Loan accounted for approximately 33% of the Fund's distributable cash.

The USEB Loan pays principal and interest monthly, based on a mortgage-style amortization schedule, such that interest income from the loan will decrease on a year over year comparative basis. USEB has made all required payments to the Fund under the USEB Loan, including payment due November 30, 2006. However, as previously disclosed by the Fund, prior to the filing for reorganization USEB was in default under its loan agreement because it had failed to deliver to the Fund during fiscal 2006 certain required financial statements.

Prior to the filing by USEB, the Fund had been seeking delivery of the missing financial statements. Further, the Fund had been in discussions with USEB concerning the restructuring of the USEB Loan in light of the fact that USEB might face cash flow problems in the first quarter of 2007. USEB rebuffed the Fund's attempts to restructure the loan. Instead, USEB chose to file for reorganization and allege that:

- its business is operationally healthy with attractive growth opportunities, it is current in its payment of all principal and interest and no monetary defaults exist or are alleged by any creditors,

- as of September 30, 2006, USEB had total assets of approximately US$161 million and total liabilities of approximately US$155 million and it expects that it will be able to achieve a Plan of Reorganization that will honour 100% of all valid pre-petition claims, and

- its current capital structure is impaired by a "flawed and unjustifiably onerous" loan agreement with the Fund (i.e., the USEB Loan) that was the result of a "self-dealing transaction" and, absent a restructuring, would cause USEB to become insolvent.

The Fund strongly disagrees with USEB's allegations with respect to the Fund, the Fund's management and the USEB Loan and will vigorously contest these allegations in the context of the reorganization and seek to secure payment of all amounts due to the Fund pursuant to the agreements governing the USEB Loan. As part of this process, the Fund intends to seek continuation of debt service payments on the USEB Loan in order to minimize any disruption to the cash flow of the Fund.

The trustees of the Fund are currently assessing the impact of the reorganization filing to the distributions of the Fund. USEB's filing constitutes a default under the Fund's credit facility that, if not waived, could prevent the Fund from making distributions in whole or in part. Management of the Fund is in discussions with its senior lenders and will seek a waiver of the default under the credit facility. However, there can be no assurance as to the outcome of these discussions with the senior lenders.

Forward-Looking Statements

This press release may contain forward-looking statements relating to expected future events and financial and operating results of the Fund that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in the Fund's annual information form dated March 31, 2005 and the Fund and Countryside Canada's prospectus dated November 8, 2005. Due to the potential impact of these factors, the Fund disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

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