Some unexpected obstacles got in the way, but after a year-long regulatory review, Troutman Sanders partner Terry C. Bridges was able to help close a deal on behalf of a New Mexico utility company.

Bridges’ client, PNM Resources Inc., on Jan. 30 closed on the $640 million sale of its natural gas operations in New Mexico to Continental Energy Systems LLC. Continental is owned by funds controlled by New York private equity firm Lindsay Goldberg LLC. Following its purchase of PNM Resources’ natural gas assets, Continental renamed the business New Mexico Gas Co.

When the deal was first announced in January 2008, the companies expected the deal to close in December, pending approval by the New Mexico Public Regulatory Commission. While the actual closing was only slightly delayed, the closing process presented some unforeseen challenges, according to Bridges.

For one, there were interested parties that didn’t like elements of the deal. The U.S. National Nuclear Security Administration (NNSA) filed a motion with the New Mexico PRC to block the deal, saying they objected to PNM Resources’ plan to retain all of the financial gain from the sale of the assets. The NNSA wanted PNM Resources to share the financial gain with the utility’s ratepayers.

However, the New Mexico PRC ultimately ruled against the NNSA and allowed PNM Resources to book the entire gain, Bridges said. As part of that agreement, Continental agreed to freeze base rates for three years.

Later, a New Mexico municipality filed an objection to the sale. The city wanted a right-of-first-refusal to purchase a gas pipeline that runs through its city limits, if the gas line was ever again put up for sale. But once again, the New Mexico PRC ruled in favor of PNM Resources, Bridges said.

The global credit crunch also didn’t stop the deal from happening, even though the buyer is controlled by a private equity fund, Lindsay Goldberg. Among the banks that participated in financing Continental’s purchase is Royal Bank of Canada, Bridges said.

“The banks honored their financing commitment, even though that’s not what we’ve been seeing throughout most of 2008,” Bridges said.

In addition to the merger agreement between PNM Resources and Continental, the Troutman lawyers also had a bevy of other agreements they had to nail down before the deal could close, Bridges said. Those included a transitional services agreement that dictates the terms of the services PNM Resources will provide during the transition. These include services like systems migration, accounting and meter reading. Troutman also had to negotiate multiple financial consents on behalf of PNM Resources’ lenders.

PNM Resources is using proceeds from the sale of the natural gas business to pay down debt, according to a regulatory filing. After the sale of the gas business, PNM Resources remains involved several businesses, including providing electric power in New Mexico and selling electricity in Texas’ deregulated electric market. PNM Resources also co-owns a joint venture, along with the investment arm of Microsoft founder Bill Gates, that operates coal and gas-fired power plants.

About 50 Troutman attorneys were involved with the PNM Resources-Continental transaction, in the firm’s Atlanta, New York, Richmond, Va., and Washington offices, Bridges said. Partner R. Mason Bayler in Richmond was co-lead corporate counsel with Bridges. Partner Kevin C. Fitzgerald in Washington is Troutman’s relationship partner for PNM Resources and also advised on corporate matters. Partner M. Lisanne Crowley in Washington was lead adviser on energy regulatory matters. Of Counsel Michael T. “Teddy” Damgard in Richmond was also a lead adviser on corporate and securities issues. 

Miller Stratvert advised PNM Resources on real estate and other issues of New Mexico law. Snell & Wilmer advised PNM Resources on employee-benefits matters.

Cravath, Swaine & Moore partner Richard Hall advised the Lindsay Goldberg-Continental Energy buyer group. Kirkland & Ellis advised Continental on issues related to derivatives transactions associated with energy trading.