A bankruptcy judge has approved the terms of an auction for the assets of Boston Generating LLC, moving Constellation Energy Group Inc. (CEG) one step closer to owning New England's third-largest power-generating portfolio.

Judge Shelley C. Chapman of the U.S. Bankruptcy Court in Manhattan on Saturday signed off on the auction process over objections from Boston Generating's unsecured creditors and others.

Boston Generating, a subsidiary of U.S. Power Generating Co., filed for Chapter 11 protection in August with a deal in place to sell itself to Constellation for $1.1 billion. The deal is subject to higher bids at an auction scheduled for Nov. 15.

Chapman ruled in favor of the Boston Generating auction after a week of testimony and arguments launched by Boston Generating creditors, including lenders CarVal Investors LLC and Fortress Investment Group LLC (FIG), who said the auction process should be halted so Boston Generating could see if it could reorganize on its own.

CarVal and Fortress hold more than $700 million of Boston Generating's debt. The two firms had said in court papers that Boston Generating was interested solely in completing the sale and had turned down offers from CarVal and Fortress to invest new equity in the company. They also said the quick attempt at a sale could be a maneuver to avoid capital-gains taxes from acquisitions of companies that aren't involved in the bankruptcy.

The committee representing Boston Generating's unsecured creditors also said the sale process was moving too quickly, and they argued that it was designed to benefit both U.S. Power Generating Co. and members of Boston Generating's management team. The company's managers would share in a $10 million incentive package under the current sale terms. That package hasn't yet been approved by the court.

The only change Chapman made to Boston Generating's proposed auction procedures was to cut the minimum initial overbid to $10 million from $20 million.

Chapman is slated to review the auction results at a Nov. 17 sale hearing.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Joseph Checkler; Dow Jones Daily Bankruptcy Review; 212-416-2152; joseph.checkler@dowjones.com

(Eric Morath contributed to this article.)
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