Boston Generating LLC's second-lien lenders are suing the utility company, saying it didn't give them sufficient notice when it wrote down a loan to zero in the days before Boston Generating filed for Chapter 11 bankruptcy protection.

The second-lien lenders, in a suit filed in U.S. Bankruptcy Court in Manhattan, said Boston Generating should owe them $13 million, but that Boston Generating wrote the loan down to zero the day before it filed for Chapter 11 bankruptcy protection.

Lawyers for Wilmington Trust FSB, the agent for the second-lien lenders, said Boston Generating was obliged to give advance notice that they were reducing the loans to zero.

The lenders also says that instead of notifying Wilmington Trust of the writedown, Boston Generating notified the former agent for the second-lien notes, Credit Suisse.

Since Credit Suisse didn't notify Wilmington Trust of the writedown, the bank is also named in the suit because it "violated its obligations under the letters of credit," the second-lien lenders say in court filings.

Credit Suisse, the second-lien lenders say, wasn't under an obligation to rely on the representations Boston Generating made that resulted in a writedown of the contract to zero.

The second-lien holders are suing Boston Generating for alleged fraud, and both Boston Generating and Credit Suisse for alleged breach of contract.

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 Energy Group Inc. (CEG) for $1.1 billion subject to higher bids at auction. Judge Shelley C. Chapman of U.S. Bankruptcy Court in Manhattan will oversee an auction and sale next month.

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

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