Delaware Chapter 11: NorthEast Gas Generation, LLC
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Significant first day motions can be accessed by clicking on the case title above.
CASE DETAILS
On June 18, 2020 (the “Petition Date”), NorthEast Gas Generation, LLC (“NEG”) and three affiliates (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Debtors are represented by Richards, Layton & Finger, P.A. The case has been assigned to the Honorable Mary F. Walrath. A hearing on the Debtors’ first day motions was held on June 19, 2020 (First Day Agenda).
INTRODUCTION
NEG owns and manages a portfolio of two natural gas-fired electric generating facilities: a 1,080 MW facility located in Athens, New York that achieved commercial operation on May 5, 2004 (the “Athens Facility”); and a 360 MW facility, located in Charlton, Massachusetts, that achieved commercial operation on April 12, 2001 (the “Millennium Facility,” and together with the Athens Facility, the “Facilities”). NEG generates revenues through the sale of energy, capacity, and ancillary services from the Facilities through various arrangements, including into relevant power markets pursuant to energy management agreements with a reputable energy manager. The Facilities dispatch electricity into two power markets, both of which are served by independent system operators (“ISOs”). Specifically, the Athens Facility dispatches power into the region managed by the New York ISO, and the Millennium Facility into the region managed by ISO New England. Both of the Facilities utilize advanced frame “501G” combustion turbine generating technology and equipment supplied by leading manufacturers. Third-party contractors provide essential services and personnel to meet the needs of NEG; the Debtors have no employees of their own. Certain affiliates of the Debtors also provide vital operational and management services to the Debtors under the energy management agreements, under which the energy manager, on behalf of the Debtors, solicits and enters into electric energy and capacity transactions and schedules, bids, and dispatches energy from the Facilities into the relevant markets and coordinates with transmission providers.
The Debtors emerged from a 2018 chapter 11 with a substantially deleveraged capital structure. Under normal operating conditions, steady cash flows would enable them to reliably service their funded debt obligations and weather ordinary variations in customer demands, but recent extraordinary fluctuations in the energy market have presented the Debtors with new balance sheet challenges. Natural gas prices have remained historically low, continuing downward pressure on electric energy prices in the Debtors’ markets, which are heavily dependent on gas-fired generation. At the same time, supply is increasing relative to demand in the Debtors’ markets, further challenging energy prices and driving down capacity prices. With energy prices already facing these headwinds, winter 2019-2020 electricity demand was pushed even lower by record-high seasonal temperatures. Finally, the coronavirus pandemic and economic recession have resulted in significant reductions in electricity demand from industrial and commercial users throughout the country. As a result of these market pressures, the Debtors have been operating under liquidity challenges for the last several months while facing growing uncertainty as to their ability to continue as a going concern.
DEBTORS’ FINANCIAL POSITION
As of the Petition Date, the Debtors have approximately $585.2 million of aggregate funded indebtedness in connection with their emergence from the 2018 chapter 11. This debt consists of approximately $554.7 million outstanding under a first lien facility with CLMG Corp. and affiliated lenders, plus related outstanding letters of credit with an aggregate face amount of approximately $23.2 million; and $30.5 million outstanding under a second lien facility with non-debtor affiliate Talen Energy Supply, LLC, plus related outstanding letters of credit with an aggregate face amount of approximately $23.2 million. In addition, the Debtors have approximately $13.3 million in unsecured debt, of which approximately $10.5 million relates to unpaid trade debt to third-party vendors, contractors, and suppliers (Affidavit pp. 7-11).
In March 2020, the Debtors engaged discussions with their first and second lien secured parties regarding potential strategic restructuring transactions, and entered into several consecutive forbearance agreements which expired on June 12, 2020. On June 17, 2020, the Debtors’ energy manager issued termination notices, notifying them of its intent to suspend performance on July 10, 2020.
DEBTOR-IN-POSSESSION FINANCING AND Restructuring Support
In April 2020, the Debtors forecasted a liquidity shortfall by early June 2020. Given this shortfall and the potential resulting damage, as well as the occurrence of certain additional defaults, the Debtors and the first lien lenders entered into an emergency bridge first lien loan in the amount of $966,156.69 to provide additional liquidity and allow the Debtors to commence these cases.
The first lien parties have also agreed to provide postpetition financing to allow the Debtors to effectuate an orderly restructuring process, pursuant to which the Debtors anticipate consummating a transaction that will transfer, sell, or otherwise convey substantially all of the Debtors’ assets to the first lien parties or their designee. The proposed financing consists of a first-lien senior secured superpriority multi-draw term loan facility in an aggregate principal amount not to exceed $40 million, of which an aggregate principal amount not to exceed $15 million will be available during the interim period, and a first-lien senior secured superpriority loan facility in an aggregate principal amount of $966,156.69, which shall be used to refinance on a dollar-for-dollar basis the aggregate outstanding amount of the emergency bridge first lien loan (Affidavit pp. 14-18).
The lenders have added several milestones that are conditions to their debtor-in-possession financing loan with the Debtors (DIP Motion pp. 18-19):
- No later than sixty calendar days after the Petition Date, the Debtors shall file a plan of reorganization, a related disclosure statement, a motion to approve the disclosure statement, and solicitation materials.
- No later than sixty calendar days after the Petition Date, each of the borrower and each other loan party shall file applications seeking orders from FERC, pursuant to Section 203 of the Federal Power Act, as amended, and the NY PSC, the FCC, and any other necessary regulatory authorizations.
- No later than thirty-five calendar days following the filing of an acceptable plan and disclosure statement, the Court shall have entered an order approving the disclosure statement.
- No later than three days after the entry of the order approving the disclosure statement, the Debtors shall have commenced solicitation on an acceptable plan.
- No later than forty-five calendar days after the entry of the order approving the disclosure statement, the Court shall have entered an order confirming an acceptable plan.
- Milestones in the DIP Motion also allow for an extension of time on the effective date of plan if there are any lingering regulatory approvals that have not yet been acquired.
Significant first day motions can be accessed by clicking on the case folder above and the link below.
TOP UNSECURED CREDITORS LIST AND FIRST DAY MOTIONS
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